Outrigger sale of Ohana Surf follows trend
By Kelly Yamanouchi
Advertiser Staff Writer
Jeff Widener • The Honolulu Advertiser
Outrigger Enterprises Inc. is selling its Ohana Surf Hotel in Waikiki to Hawaiian Island Development Co. Inc. as the hotel chain prepares to move forward with its $300 million Waikiki Beach Walk renovation project.
The Ohana Surf Hotel on Kuhio Avenue is being sold for $7.5 million to developer Peter Savio, who will convert the older, off-the-beach property into rental apartments.
Developer Peter Savio of Hawaiian Island Development is buying the 251-room Ohana Surf for $7.5 million and plans to begin renting out apartments as early as this month. Savio and Outrigger expect the sale to close in October.
The 38 employees at the Ohana Surf, which quietly closed on Oct. 1, have been transferred to other Outrigger hotels, according to Bill Brown, Outrigger vice president of human resources.
The 17-story Ohana Surf, at 2280 Kuhio Ave., is the latest off-beach hotel in Waikiki to be converted to residential use as aging, lower-priced properties fall out of favor with tourists.
Updating hotels and revamping Waikiki has been an expensive task that many in the tourism industry have put off for years.
But with interest rates dropping and tourism perking up, renovation of select properties in the state's most popular visitor destination is under way. Outrigger's Waikiki Beach Walk plans remain the most ambitious.
Construction of Outrigger's $300 million retail, restaurant, entertainment and lodging complex and shoreline walkway is expected to begin in 2005, with completion of the first phase targeted for mid-2006.
Outrigger said old hotels like the Ohana Surf simply didn't fit into those plans, but the sale of the property will help to finance the beachwalk development.
When the nearly 30-year-old Ohana Surf and other properties along Kuhio Avenue were built, there were no problems filling them.
"People just wanted a bed and a shower," said David Carey, Outrigger's chief executive.
Over the years as occupancy declined, Outrigger made changes to attract customers to the hotel. It became a Best Western branded property in 1998. Outrigger still owned and operated the hotel, but could tap into the international reservation system of Best Western.
In 1999, Outrigger created another brand to differentiate its lower-priced hotels from its premium properties, renaming 15 Outrigger hotels with the Ohana label. That was when the Outrigger Surf became the Ohana Surf.
Three of the hotels — Coral Seas, Edgewater and Edgewater Lanais — were closed, but the Surf remained open.
Outrigger promoted its kitchenettes, access to city bus routes and a "fun" atmosphere. But the Ohana Surf and other hotels still had trouble competing against newer, bigger properties that were closer to the ocean.
The Ohana Surf sale follows the conversion of the former Ohana Waikiki Hobron Hotel at 343 Hobron Lane into a condominium building. Owner Oaktree Capital Management LLC recently began selling units there.
"People's expectations of size and quality of rooms have changed," Carey said.
He said that because there are "so many other resorts that have beachfront properties in the same price (range)," it's harder to fill older off-beach hotels.
The closing of the Ohana Surf and its conversion to long-term rental apartments will affect a newly installed tenant. L&L Hawaiian Barbecue opened there in July and will remain open, said owner Eddie Flores Jr.
Flores, however, is worried that his sales will drop with the switch from hotel to apartments. "I've got $300,000 invested in there. I can't just pull out," he said.
Savio plans to change the name of the Ohana Surf to The Ohia. His property management firm Hawaiian Island Homes Ltd. will rent studio apartments for $675 to $700 and one-bedroom apartments starting at $750.
The property has about 69 parking stalls. Savio also said he plans to spend $150,000 on upgrades and improvements, including the planting of an 'ohi'a tree.
Savio said that after Outrigger told employees about the sale of the building, he received applications from several prospective tenants.
With the sale of the hotel, Best Western has one property left in Honolulu, The Plaza Hotel on Nimitz Highway.
Of Outrigger's 18 properties in Waikiki, it has ownership in 13 and operates the rest. It also operates or is developing 49 hotels and resorts in the Pacific region, amounting to more than 12,000 rooms.
Carey said the company is selling the Ohana Surf as it focuses more on the Waikiki Beach Walk project along Lewers Street.
Although original plans called for a hotel development, Carey said he has been considering time-share units and condominiums as well.
Outrigger is preparing for discussions with investor groups to seek equity and debt investments. Savio will likely be "given an opportunity to look at pieces," Carey said.
Savio, who manages more than 1,000 housing units in Honolulu, said he's interested in other properties Outrigger is selling.
Carey said Outrigger does not immediately plan to see other off-beach properties, but he added: "You never know."
Separately, Outrigger also said yesterday that its Outrigger Beach Club & Spa at Palm Cove near Cairns, Australia, has opened an additional 132 rooms and suites. The property now has 180 units and will have 220 by the end of the year when the last stage of resort development is completed.
Reach Kelly Yamanouchi at 535-2470, or at kyamanouchi@honoluluadvertiser.com.
