Record Mid-Year Transaction Sales Volume Achieved · 2018. 8. 30. · While sales volume hit new record levels, the number of investment sales transactions actually declined by 25%

William Froelich (B), JD, SIOR, CCIM, Vice President

Record Mid-Year Transaction Sales Volume Achieved

Hawaii Research & Forecast Report

INVESTMENT MARKETMid-Year 2018

Mike Hamasu Director of Research | Hawaii

Market IndicatorsRelative to Mid-Year 2017

Mid Year2018

SALES VOLUME

SALES COUNTS

CAP RATE

“Large resort acquisitions mostly by domestic buyers dominated the first six months of 2018.”

At mid-year 2018, commercial real estate investment sales volume established a new, six month record of $3.09 billion. This boost in sales volume was led by eight mega-transactions tallying at more than $100 million apiece. The largest transaction was the purchase of the $1.1 billion Grand Wailea Resort which was acquired by BRE Iconic Holdings (Blackstone Group LP) from GWR Wailea Property LLC (GIC – Government of Singapore) in April 2018. This deal resultedin a four-year, 42% gain for GIC, which had purchased theGrand Wailea Resort for $774 million in 2014.

Portfolio sales topped the list of acquisitions for the first half of the year. Brookfield Property Partners purchased a five-property multi-family portfolio from Carmel Partners for $1.9 billion. This 3,870 unit portfolio included five properties located in California (Atelier ($203.9 million), Alder ($159.4 million) and Eighth & Grand ($393.2 million) in Los Angeles; Altana ($239.1 million) in Glendale, California; Vintage ($168.6 million) in Pleasanton, California); and one property located in Ewa Beach on Oahu (Kapilina ($575.4 million), a 1,451 unit apartment complex). Host Hotel and Resort acquired a three-hotel $1 billion portfolio, which included the Andaz Maui resort ($288 million), the Grand Hyatt San Francisco ($512 million), and the Hyatt Regency Coconut Point Resort and Spa in Florida ($200 million). Terramar Retail Centers LLC sold its retail shopping center portfolio to A&B Properties Inc. for $254 million. This portfolio included Laulani Village Shopping Center in Ewa Beach, Puunene Shopping Center in Kahului, and Hokulei Village Shopping Center in Lihue.

Mid-Year Hawaii Investment Sales Volume vs. Transaction Count

Transaction CountsSales Volumes

$1.9

07

$3.0

90

0

20

40

60

80

100

120

140

160

180

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$Billions

156

117

©2018 Colliers International Research and Consulting. All rights reserved.

2 Hawaii Investment Research & Forecast Report | Mid-Year 2018 | Oahu, Hawaii | Colliers International

Hotel and Industrial Surge Ahead On a national level, CoStar indicated an 8% decline in national sales volume for June 2018 YTD, which fell from $238.8 billion to $220 billion. Real Capital Analytics estimated a 2% increase in sales, rising to $236 billion for the first six months of 2018. While retail, office, and multifamily transaction volume declined, both sources agreed that hotel and industrial property types experienced a surge in activity. During the same time, Hawaii benefitted during the first half of 2018 from this boost in demand for hotel investments with more than $1.8 billion in hotel properties trading hands. Resort and hotel properties comprised 60% of the total commercial real estate investment dollar volume, followed by multi-family at 21%, and retail at 12%.

While sales volume hit new record levels, the number of investment sales transactions actually declined by 25% from 156 for mid-year 2017 to 117 for mid-year 2018. For 2018, transaction counts were more evenly distributed among multi-family (30%) industrial (26%) and retail (23%) property categories.

Kapilina ($575.4 million)

Percent of Sales Count

Resort/Golf6%

Industrial26%

Land6%

Oce9%

Retail23%

Multifamily21%



Percent of Sales Volume

Resort/Golf60%

Industrial

Land

5%

1%

Multifamily21%

O�ce1% Retail

12%

3Hawaii Investment Research & Forecast Report | Mid-Year 2018 | Oahu, Hawaii | Colliers International

The jump in institutional U.S. domestic investment activity more than offset the decline in international transaction volume for 2Q 2018. Compared to the transaction volume by international investors at the end of June 2017, the $86.4 million sales volume for 2Q2018 reflects an 87% decline in volume and a 50% decline in transaction counts. While international investors still remain active, the recent pull-back from U.S. real estate acquisitions by Chinese investors is quite evident. The largest international transactions that occurred in 2018 were the $29 million acquisition of 1538 Kapiolani by Korean entity 1538 Kapiolani LLC, and the $27 million purchase of the former Love’s Bakery by Japanese firm, Clathas LLC.

Grand Wailea Resort ($1.1 billion)



MID-YEAR 2018 SALES SUMMARY SALES VOLUME SALES COUNTProperty Type Sales Volume Sales

Count Local Investor Domestic International Local Investor Domestic Offshore

InvestorResort/Golf $1,835,711,291 7 $4,100,000 $1,831,611,291 $0 3 6 4Industrial $149,437,328 30 $78,682,828 $43,754,500 $27,000,000 19 5 10Land $39,262,844 7 $4,925,000 $34,337,844 $0 29 4 9Multi-Family $651,764,388 35 $83,119,388 $551,425,000 $17,220,000 31 5 4Office $38,417,000 11 $18,037,000 $7,200,000 $13,180,000 7 2 7Retail $375,286,242 27 $315,856,266 $30,429,976 $29,000,000 25 6 8Totals $3,089,879,093 117 $504,720,482 $2,498,758,611 $86,400,000 114 28 42

Sales Volume by Buyer Location

Local16%

US Domestic81%

International3%

4 Oahu Research & Forecast Report | 3Q2015 | Oahu, Hawaii | Colliers International

Mega Deals Dominate Sales VolumeOf the $3.09 billion in investment dollar volume for mid-year 2018, nearly 85% of the total came from transactions priced above $50 million. However, more than 72% of the sales transactions were for properties priced under $5 million in price. The greatest number of transactions occured in the $1-$3 million range, indicating that local investors still remain very active in this market.

Commercial Real Estate Positive OutlookA positive outlook remains for the U.S. with healthy consumer confidence ratings and low unemployment levels. Individuals who were unemployed and sitting on the sidelines have re-entered the job market buoyed by the increased potential to get hired. Additionally, the recent enacted tax cuts and increased federal spending have fueled economic growth. Strong corporate earnings combined with a low interest rate and a low inflationary market have converged to strengthen an economy that is now entering its tenth consecutive year of GDP growth. Similarly, Hawaii’s economy remains strong with low unemployment, healthy tourism arrivals, visitor expenditures and retail sales which contributed to an optimistic outlook.

While there are concerns that the current cycle is getting “long in the tooth”, market fundamentals remain healthy. Recent interest rate increases that were enacted by the Federal Reserve Board have not yet impacted capitalization (cap) rates. After years of cap rate compression, it appears that investors have incorporated their higher borrowing costs into their acquisition analyses and cap rates have flattened. Should the pace of economic growth continue, it is likely to push the Federal Reserve to boost interest rates two additional times before year-end 2018. Barring an unexpected spike in interest rates, economists are not projecting any drastic change to current market conditions.

International Sales Volume

© 2018 Colliers International Research and Consulting. All rights reserved.

$13.46

$780.20

$458.80

$1,421.49$1,373.15

$721.91

$86.40$0.00

$400.00

$800.00

$1,200.00

$1,600.00$Billions

2012 2013 2014 2015 2016 2017 2Q2018

Hawaii Estimated Cap Rates by Property Type


O�ce RetailIndustrialApartment

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

4.42%

6.72%

6.41%

5.68%

Percent of Sales Counts by Transaction Size


58.12%

14.53% 11.11% 5.98% 3.42% 6.84%0.00%

20.00%

40.00%

60.00%

$1-$3million

$3-$5million

$5-$10million

$10 - $25million

$25 - $50million

$50+ million

Percent of Sales Volume by Transaction Size


3.72% 2.20% 2.61% 3.45% 3.51%

84.51%

0.00%

20.00%

40.00%

60.00%

80.00%

$1-$3million

$3-$5million

$5-$10million

$10 - $25million

$25 - $50million

$50+million

5 Oahu Research & Forecast Report | 3Q2015 | Oahu, Hawaii | Colliers International

Looking for Economic CluesThe length of the current economic cycle has many economists vigilantly looking for any clues of a pending market change. While no one really anticipated the magnitude of the Great Recession, a couple of indicators provided warning signs. The Yield Curve, which measures the difference between short-term U.S. Treasury bond rates (2-year) and a long term bond rate (10-year) has been an accurate tool for indicating a pending recession. Historically, when the short term rate becomes higher than the long term rate (rate inversion) it is an indication of a pending recession.

The Yield Curve has significantly narrowed during the past year. While the inversion has not happened yet, economists are recognizing the shrinking gap as worrisome. Currently, the percentage rate difference between the short term and long term U.S. treasury bonds has declined below 0.5%, well beneath the average of 1.5 percentage points. When this happens, it has generally been an indication that investors are anticipating increased risk for holding long term debt. Dramatic conversion of long term investments to short term liquid positions by institutional investors could be an indication that capital markets are anticipating riskier conditions.

Interest rates hikes, global trade conflicts, cancelled nuclear disarmament agreements, oil price shocks, and even unedited presidential tweets have all fueled stock market volatility. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) tracks market volatility (i.e. investor fear) by analyzing S&P 500 index future options. Increased volatility typically coincides with stock market fluctuations. The spike in the VIX for February 5, 2018, which occurred when the Federal Reserve Board announced a more aggressive plan to increase interest rates, resulted in a dramatic 765 point decline in the Dow Jones Industrial Average index and boosted concerns about future stock market performance.

Having bounced between a high of 2,872 to a low of 2,581, current S&P 500 Index readings registered lower levels than those established at the beginning of the year. Elevated stock market volatility is disconcerting for capital markets which spurn uncertainty. These stock market conditions have helped real estate remain at the forefront for those seeking to diversify.

The mid-year 2018 record sales volume for Hawaii commercial real estate market confirms that investors still find Hawaii an attractive investment market. Brokers agree there is still ample institutional capital seeking real estate investment opportunities. Increasing competition for properties makes it a daunting challenge to find an appropriate investment property, while the number for sale is actually declining. By year-end 2018, Colliers projects that sales volume will exceed $4 billion, as several additional prime resort hotels change hands. Transaction counts are projected to increase by 44% to 285, as private investors pick up momentum before the end of the year to capitalize on tax reform benefits.

Source: FRED

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2018-01 2018-02 2018-03 2018-04 2018-05 2018-06 2018-07

CBOE Volatility Index (Not Seasonally Adjusted)

Yield Curve (2-year vs. 10-year treasury bond returns)

Source: FRED

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2006

-01

2006

-06

2006

-11

2007

-04

2007

-09

2008

-02

2008

-07

2008

-12

2009

-05

2009

-10

2010

-03

2010

-08

2011

-01

2011

-06

2011

-11

2012

-04

2012

-09

2013

-02

2013

-07

2013

-12

2014

-05

2014

-10

2015

-03

2015

-08

2016

-01

2016

-06

2016

-11

2017

-04

2017

-09

2018

-02

Source: FRED

2872.87

2581.88

2804.49

2,400

2,450

2,500

2,550

2,600

2,650

2,700

2,750

2,800

2,850

2,900

2018-01 2018-02 2018-03 2018-04 2018-05 2018-06 2018-07

S&P 500, Index, Daily, Not Seasonally Adjusted

6

Copyright © 2018 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International | Hawaii

220 S. King Street, Suite 1800 | Honolulu, Hawaii 96813+1 808 524 2666

www.colliers.com/hawaii

EXECUTIVE MANAGEMENTSarah Lee Morihara (B)President/Managing Director+1 808 523 [email protected]

CONSULTING & RESEARCHMike Y. HamasuDirector of Consulting & Research+1 808 523 [email protected]

Nanette Vinton (S)Research Consultant / Project Manager+1 808 523 [email protected]

INVESTMENT SERVICES GROUPAndrew D. Friedlander (B) SIORPrincipal Broker+1 808 523 [email protected]

Scott L. Mitchell (B) SIORExecutive Vice President+1 808 523 [email protected]

Jon-Eric Greene (B)*Senior Vice President+1 808 330 [email protected]

Mark D. Bratton (R) CCIM**Senior Vice President+1 808 523 [email protected]

Nathan A. Fong (B)Senior Vice President+1 808 523 [email protected]

Guy V. Kidder (B) CCIM SIORSenior Vice President+1 808 523 [email protected]

William “Bill” Froelich (B) JD CCIM SIORSenior Vice President+1 808 523 [email protected]

Kim F. Scoggins (B) CCIM***Vice President+1 808 523 [email protected]

Ronald C. Ward (S)Vice President+1 808 523 [email protected]

Brandon Bera (S) CCIM, SIORVice PresidentTel: +1 808 523 [email protected]

Karen Birkett (S)Vice President+1 808 523 [email protected]

Debbie Parmley (B)Vice President+1 808 987 [email protected]

Charles J. Buckingham (S)Vice President+1 808 870 1178 [email protected]

Alika Cosner (S)Vice President+1 808 523 [email protected]

Mike Perkins (S)Associate+1 808 223 [email protected]

* Greene Property Group, LLC ** Bratton Realty Advisors, Ltd.*** Rokit, Inc.Exclusively contracted to Colliers International HI, LLC

NOTABLE 2018 INVESTMENT TRANSACTIONSPROPERTY TYPE PROPERTY NAME ACQUIRED INTEREST SALES PRICE BUYER ENTITY SELLER ENTITY SALES

DATE

Hotel Grand Wailea Resort 776 rooms $1,100,000,000 BRE Iconic Holdings (Blackstone Group LP) GWR Wailea Property LLC Apr-18

Hotel Andaz Maui Resort 301 rooms $288,000,000 Host Hotels and Resorts Hyatt Hotels Corp Mar-18

Hotel Modern Honolulu 353 rooms $215,100,000 Diamond Resorts International M Waikiki LLC Apr-18

Hotel Hilton Garden Inn (LH) 623 rooms $212,000,000 Dune Real Estate Partners and Highgate Hotels

Blacksand Capital and Rockpoint Group Jan-18

Hotel Aston Waikiki Beach(LH) 693 rooms $200,000,000 Rockpoint Group Xenia Hotels and Resorts Inc. Mar-18

Industrial 98-736 Maunalua Loop 35200 sf 2.5 acres $13,700,000 APPL LLC JFC International Feb-18

Industrial 94-272 Pupuole Street 28,148 sf 1 acre $10,300,000 Y Hata & Co King Food Services Inc. May-18

Land Wailuku Medical Office Fee Interest Land 6.2 acres $21,500,000 Kaiser Foundation A&B Properties Inc. Apr-18

Land 616 Iwilei Road 4.0 acres $16,250,000 Massdec LLC Weston Solutions Inc. Jan-18

Multifamily 5100 Iriquois Point 1455 units $540,000,000 Brookfield Properties Carmel Partners May-18

Multifamily 7000 Hawaii Kai Drive 269 units $133,500,000 Avalon Hawaii Kai LLC Hale Ka Lae LLC Feb-18

Office Stagenwald,Judd Buildings

32,427 sf 28,078 sf $13,180,000 Ada KH Tse and

James Ting Yeh Yang A&B Properties Inc. Apr-18

RetailLaulani Village,

Puunene Shopping Center, Hokulei Village

175,000 sf 113,000 sf 103,000 sf

$254,000,000 A&B Properties Inc. Terramar Retail Centers LLC Feb-18


Documents

Record Mid-Year Transaction Sales Volume Achieved · 2018. 8. 30. · While sales volume hit new record levels, the number of investment sales transactions actually declined by 25%