Posted on: Sunday, March 7, 2004

More hotels going to Mainland firms

By Kelly Yamanouchi
Advertiser Staff Writer

Hotel ownership and management in Hawai'i is increasingly dominated by Mainland companies, as Japanese and local owners sell properties.

Since the beginning of 1998, at least a dozen hotels owned by Japanese companies were sold to Mainland firms. The latest example came on Thursday when Starwood Hotels & Resorts bought the Sheraton Kauai from Obayashi Corp. for about $40 million. At the same time, at least two locally owned hotels have been sold to Mainland firms and two more are up for sale.

The new breed of hotel owners — mostly Mainland hotel chains and investment firms — tend to have deeper pockets and a laserlike focus on the bottom line. They also have worldwide marketing networks and are savvier about how to run a competitive hotel in a global marketplace.

"With the change from Japanese owners, many of which were financially troubled, the transition to Mainland ownership generally has resulted in more stable and financially sound owners and typically more seasoned hotel owners as well," said Joseph Toy, president of local hotel consultancy Hospitality Advisors LLC. "Many of the Japanese owners that were here didn't have extensive experience as hotel owners."

Japanese hotel owners were often part of larger companies that were not in the hotel business or were family businesses, unlike the investors from the Mainland. Kokusai Jidosha, a Japanese transportation company, owned the Hyatt Regency Maui until 2001. It's now owned by Host Marriott.

As Japanese hotel owners have sold to more well-endowed Mainland firms, hotels have undergone a string of renovations.

"Our economy is like a terrarium," said Emogene Estores, economic development specialist with the state Department of Business Economic Development and Tourism. "Investment is like putting new air, putting fertilizer in the terrarium. It's rejuvenating from outside the state, not from within."

A potential downside to Mainland ownership is that investment firms may be under more short-term pressure to be profitable than local companies that have a longer-term view, Toy said. A change in ownership can also be unsettling for employees.

But the recent changes in Hawai'i's hotel ownership mirrors a shift in the tourists that patronize those hotels. Japanese owners are being replaced by Mainland owners and Japanese tourists are being replaced by Mainland tourists.

Maui is becoming the booming tourism engine of Hawai'i with its appeal to Mainland visitors, and on the Japanese-stronghold of O'ahu, Waikiki is increasingly becoming tailored more for Mainland visitors with restaurants such as the Cheesecake Factory and Wolfgang Puck Express and fewer high-end shops catering to the Japanese.

The strength of Mainland investment is also pushing another trend of more local partnerships with Mainland firms.

"The local companies are at a disadvantage to some extent if they're not tied into some network," said Jason Ward, a spokesman for the Hotel Employees and Restaurant Employees International Union, Local 5.

Outrigger Hotels & Resorts, the largest local hotel chain, has gone up against large Mainland hotel firms in Hawai'i for decades, but decided to join with Marriott last year for added marketing punch. Outrigger put the Marriott name on its Wailea Resort and Waikoloa Beach hotel. Outrigger is now trying to sell those two properties, and Marriott is negotiating to keep its brand on them.

Outrigger CEO David Carey said an advantage larger Mainland or foreign firms have is their access to capital.

"In today's world with the international finance community, large players just simply have a capital advantage," Carey said. "They're able to compete at a capital level that's hard for local or regional companies like ours to compete."

Hilton, for example, makes some of the largest investments of any company in the Islands, said Peter Schall, senior vice president of Hilton Hotels Corp. Hilton spent $95 million to build the Kalia Tower in Waikiki, which opened in 2001, and upgrades its hotels every year.

"It's a huge investment by a single company," Schall said.

With an owner based on the Mainland who must compare the results of Hawai'i properties to other properties, "the expectations might be a little higher," hotel consultant Toy said. "Certainly the pressure is going to be there to produce."

With local ownership by hotelier families, "there's obviously a much longer-term view," Toy said.

However, Mainland hotel owners and operators still face a steep learning curve with the Hawai'i market.

"A successful general manager of a hotel has to understand the local community issues in order to be really successful — what are the issues that are important to employees, what are the important cultural practices," Carey said. "Some management companies do that and some don't."

Mainland hotel chains with well-established operations in Hawai'i, such as Starwood and Hilton, have the advantage of a history and familiarity with the Islands.

Prominent Waikiki hotels including the Sheraton Waikiki, Royal Hawaiian, Sheraton Princess Kaiulani and Sheraton Moana Surfrider are managed by Mainland firm Starwood and still owned by Japanese firm Kyo-ya, but "I think it's never been viewed as a nonlocal ownership," said Keith Vieira, senior vice president for Starwood Hotels & Resorts, who is from Hilo, Hawai'i. "We've always been run by local people regardless of who owned it."

Most companies see a demonstration of commitment to everything from local hiring to helping Hawai'i charities as critical to maintaining public support for their endeavors and putting forth a good business image for employees and clients.

Local hoteliers play up their homegrown image as an advantage.

"There are not a lot of local owners in the industry," Carey said. "We live here, we're in this community, this is our home community, so we pay a lot of attention and we have a lot of aloha for local community issues."

For employees, a change in ownership could lead to job disruptions. The hotel now known as the Aston Waikiki Beach Hotel dropped its labor affiliation after it was acquired by a New York buyout firm.

Now, Local 5 of the Hotel Employees & Restaurant Employees Union is attempting to put stricter successorship language into its contracts to prevent that from happening.

Still, many agree there are few real distinctions between local and nonlocal hotel companies, particularly if Mainland or foreign firms make an extra effort to overcome preconceptions.

Vieira said companies from outside Hawai'i often do more when it comes to community relations.

Japanese firms have often gone "over and above because they didn't want the impression of not being supportive" of the local community, Vieira said.

A reputation of being a good community citizen helps with hiring and the company's success.

Reach Kelly Yamanouchi at 535-2470 or at kyamanouchi@honoluluadvertiser.com.

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Mainland companies making inroads in Waikiki The hotel industry has seen a shift to Mainland owners, managers and alliances. Some examples of transfers or agreements between local and Mainland firms in recent years: • Outrigger Enterprises Inc., the largest local hotel chain, made a major Mainland alliance by putting the Marriott brand onto its Wailea Resort and Waikoloa Beach hotel in 2003. Outrigger announced in January it plans to sell both hotels, which could further erode the share of local ownership in Hawai'i. • Hotel Moloka'i, a 44-room property near Kaunakakai, was sold in February by local hotel executive Kimo M. Keawe's Keawe Group for $3.4 million to vacation rental company Travel Advantage Network and is being partially converted into vacation condominiums. • Local chain Aston Hotels & Resorts was sold for nearly $30 million to then-Memphis-based ResortQuest International Inc. in 1998. Nashville-based Gaylord Entertainment Co. acquired ResortQuest in 2003. • Prince Kuhio Hotel — Outrigger sold to San Francisco-based Stanford Hotels Corp. in 1999 for an estimated $40 million. Some hotel sales from Japanese owners to Mainland firms in recent years: • Sheraton Kaua'i Resort, sold by Obayashi Corp. to Starwood Hotels & Resorts for $40 million this month. • Renaissance Wailea Beach Resort, sold by Japan-based Shinwa Golf Group for $85 million to Starwood Hotels & Resorts in late 2003. • Hyatt Regency Maui, sold in 2001 by an affiliate of Japan-based transportation company Kokusai Jidosha for $200 million to Blackstone Real Estate Advisors, a unit of buyout firm Blackstone Group LP. Sold in 2003 for $321 million to Host Marriott. • Hawaiian Regent Hotel in Waikiki — Marriott International bought it from Otaka Inc. in 2000 and renamed it the Waikiki Beach Marriott Resort. It then sold the hotel in 2001 for about $130 million in cash to a group led by Orlando, Fla.-based CNL Hospitality Corp. • Ritz-Carlton Kapalua, sold in 2000 for about $143 million by Japanese trading house Nissho Iwai Corp to Marriott International Inc. Marriott sold to Capital Hotel Investments LLC, a joint venture of Marriott and investment firm Blackacre Capital Management LLC, for about the same price less than four months later. Photo illustration by Martha P. Hernandez &Mac240; The Honolulu Advertiser