Outrigger alters redevelopment

By Andrew Gomes
Advertiser Staff Writer

Outrigger Enterprises yesterday announced major changes to its $350 million Waikiki hotel redevelopment plan, and said it will also sell two hotels on Maui and the Big Island to help recapitalize the local company.

Outrigger has decided in a financial move to modify plans for renovating nearly 1,300 existing Waikiki hotel units, and instead sell them for time-share and hotel condo use. Advertiser library photo

A third revision to the 8-acre project involves the planned construction of an 890-room hotel, which would be reconfigured with a mix of mostly residential condos, condos for hotel use, some hotel units and possibly time-share.

The changes were made to align the massive Waikiki Beach Walk project with visitor trends, including strong demand for time-share and resort condos since the plan was first announced in July 2001.

The revised plan also eliminates some financing challenges and could advance the start of construction for some phases of redevelopment already delayed by two years.

"We believe we now have the right investment climate and project configuration to attract the necessary capital to move forward with all phases of our project," said David Carey, Outrigger chief executive officer.

In a move not directly related to the Beach Walk plan, Outrigger has hired real estate investment banking firm Eastdil Realty of Los Angeles to sell the Wailea Marriott and Waikoloa Beach Marriott, both of which are owned and managed by Outrigger under the Marriott brand.

The 521-room Wailea Marriott on Maui and 545-room Waikoloa hotel on the Big Island could sell for around $150 million, roughly the combined value of the two hotels assessed by county appraisers for property tax purposes.

Sale proceeds, Carey said, aren't necessarily intended to help finance the Beach Walk project, and could be used to cover more than $40 million in ongoing hotel renovations, another $20 million to $40 million in upcoming renovations, reducing company debt or other uses.

Eastdil, a subsidiary of Wells Fargo Bank, also was hired to find equity and debt financing for the Beach Walk project.

Mel Kaneshige, Outrigger senior vice president, said some development agreements for the time-share, hotel condo, entertainment/retail and hotel elements of the project are far enough along to break ground next year.

Outrigger has agreed to sell the hotel portion of the Ohana Reef Towers Hotel to Fairfield Resorts, a giant Orlando, Fla.-based time-share company that formed an alliance with Outrigger two years ago and operates two Big Island time-share resorts managed by Outrigger.

Fairfield plans to convert the 480 Reef Towers rooms into 193 mostly one- and two-bedroom time-share units. Outrigger will retain the two bottom floors of the hotel that will be part of the retail and entertainment portion of the Beach Walk.

Fairfield's purchase price and renovation cost estimates were not disclosed. Construction and unit sales are scheduled to begin next year.

Kaneshige said Outrigger is close to reaching an agreement with an investment and development partner to develop the project's 100,000-square-foot entertainment/retail component.

Advanced negotiations are ongoing with another development partner that would convert 800 hotel rooms of the Ohana Waikiki Tower and Ohana Waikiki Village hotels into roughly 200 to 300 condo units for sale to individual buyers who could retain Outrigger to manage their units as vacation rentals.

Discussions to build the mixed-use high-rise, which was originally expected to break ground in 2006, are still preliminary, according to Kaneshige.

Outrigger's decision to modify original plans for renovating nearly 1,300 existing hotel units, and instead sell them for time-share and hotel condo use, will allow the company to earn a more immediate return on its investment in the Beach Walk project.

Carey said time-share use also was appealing because the time-share business tends to fill units with a higher occupancy than hotels, and because he said time-share visitors generally spend more on shopping, dining and entertainment since their accommodations are paid for.

Hotel condos have been popular with investors in Waikiki lately and provide a quicker return than time-share sales since units will be sold before renovation work begins.

Outrigger manages 11 Hawai'i condo hotels that Carey said have provided steady growth for the company. "We've actually been very successful in that market," he said.

Outrigger owns 13 hotels, which would be reduced by five if the sales announced yesterday are completed.

Sales of the two Neighbor Island hotels are expected to be completed by the end of the year, according to Outrigger. The company said the Wailea and Waikoloa properties have performed extremely well since introduction of the Marriott brand and booking system under a franchise arrangement a year ago.

Outrigger bought the Waikoloa hotel in 1998 for $49 million, according to property records, and spent $23 million renovating the property. The company purchased the Wailea hotel in 1999 for $41 million, according to property records, and spent $25 million on renovations.

Carey said he expects that the hotels' roughly 800 employees will be retained by a buyer.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.

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