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REA
October 18, 2017  

Blackstone, Oaktree Strike Hawaii Hotel Deals

Investors continue to place big bets on the Hawaii hotel market, where two properties worth a total of at least $560 million are poised to trade.

Blackstone has struck a deal to pay $330 million for Turtle Bay Resort, an oceanfront property on the island of Oahu. It encompasses 452 rooms and cottages, and development rights for a substantial expansion. JLL is brokering the sale.

Meanwhile, a joint venture between Oaktree Capital of Los Angeles and Trinity Investment of Honolulu has emerged as the winning bidder for the leasehold interest in the 623-room Hilton Garden Inn Waikiki Beach, in Honolulu. Market pros put the value of that recently redeveloped property in the range of $230 million to $240 million. Eastdil Secured is brokering the sale on behalf of a joint venture between Rockpoint Group of Boston and local operator BlackSand Capital.

High-yield investors have been active lately in the Hawaii hotel market, where they see potential for substantial revenue growth. Tourism has been growing in recent years, and pros expect that to continue, partly due to travelers seeking alternatives to hurricane-damaged destinations in the Caribbean and Mexico.

During the first eight months of the year, properties on Oahu Island saw per-room revenue increase by 2.9% over the same period last year, according to STR. Elsewhere in the state, growth was more rapid: 11.6% in the Hawaii/Kauai Islands submarket and 10.1% on Maui Island.

The rising fundamentals have kicked off a wave of value-added deals that started last October, when a joint venture that includes Ares Management of Los Angeles and Square Mile Capital of New York paid $173 million for the 463-room Ritz-Carlton Kapalua, on Maui. In April, the new Oaktree/Trinity partnership bought the 759-room Westin Maui Resort & Spa for $317 million. And Rockpoint, which is selling the Hilton Garden Inn, also has been a recent buyer: It paid $91 million for the 311-room Ambassador Hotel Waikiki in May.

In all, some $1.4 billion of large hotel trades have closed so far this year, putting the market on track to surpass its annual record of $1.5 billion, set in 2013.

For Blackstone, Turtle Bay Resort would be its first Hawaii hotel acquisition since 2013, while it has sold off three since.

The 1,314-acre property is on the less-developed North Shore of Oahu. In addition to the hotel and cottages, there are two golf courses and parcels approved for development of another 725 hotel and residential units. The property is being sold fee-simple — unusual in Hawaii, where many hotels are owned on a leasehold basis. And it is unencumbered by brand or management contracts. It has undergone $50 million of renovations since 2013. The sellers took control of the property in 2010 when the previous owner, Oaktree, defaulted on debt.

The Hilton Garden Inn Waikiki opened in June 2016 after the Rockpoint joint venture completed a $110 million conversion of the former Ohana Waikiki West hotel. The duo had acquired the leasehold interest in that 659-room hotel for $33 million in 2013 from Queen Emma Land and entered into a long-term ground lease.

The hotel is unencumbered by a management agreement, but subject to a long-term franchise deal with Hilton Worldwide of McLean, Va. It’s the largest hotel in the upscale, select-service Hilton Garden Inn line. Oaktree and Trinity will likely work to continue ramping up the property’s performance.