Market Evaluation and Development Recommendatinos For Kau Ha

Final Report
Market Evaluation and Development Recommendations for Resort Lodging, Residential and Commercial in Kau, Hawaii
Prepared for
KCOM, Inc
Submitted by Economics Research Associates March 12, 2007 ERA Project No. 16978
388 Market Street, Suite 1580 San Francisco, CA 94111 (415) 956-8152 FAX (415) 956-5274 www.econres.com Los Angeles San Francisco San Diego Chicago Washington DC New York London
TABLE OF CONTENTS
Section I INTRODUCTION AND SITE REVIEW................................................ Introduction........................................................................................ Property Location............................................................................... Property Description .......................................................................... Special Features and Preliminary Concepts....................................... EXECUTIVE SUMMARY ..................................................................... Overview of Hawaiian Tourism Trends ............................................ Overview of The Hotel Market in Hawaii ......................................... Projected Hotel Roomnights, Big Island, 2007 2017 ..................... Recommended Hotel Development Program at the Kau Resort ...... Resort Real Estate Overview ............................................................. Development Approach and Positioning ........................................... Target Market Segment...................................................................... Residential Programming and Pricing ............................................... Phasing Strategy................................................................................. Development Plan Features ............................................................... Illustrative Development Mix and Absorption .................................. Overview of Commercial Retail Market............................................ Retail Demand Analysis .................................................................... Estimated Retail Demand .................................................................. Retail and Restaurant Program Recommendations............................ Summary of Key Planning Inputs...................................................... MARKET OVERVIEW .......................................................................... Demographic Trends.......................................................................... Employment and Economic Trends................................................... Households and Home Ownership..................................................... Tourism Trends.................................................................................. Construction Trends........................................................................... LODGING MARKET ANALYSIS......................................................... Overview of the Hotel Market in Hawaii County.............................. Selected High-End Hotels.................................................................. Estimate of Annual Visitation to High-End Big Island Hotels, 2005 Projected Hotel Roomnights, Big Island, 2007 - 2017 ...................... Recommended Hotel Development Program at the Kau Resort ......
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RESORT REAL ESTATE MARKET ..................................................... Housing Market Trends ..................................................................... MLS Sales Statistics .......................................................................... Resort Real Estate Overview ............................................................. Analysis of Resort Residential Lot Sales........................................... Non-Resort Residential in Kona/Kohala ........................................... Large Lot Transaction Data ............................................................... Development Approach and Positioning ........................................... Target Market Segment...................................................................... Residential Programming and Pricing ............................................... Phasing Strategy................................................................................. Development Plan Features ............................................................... Illustrative Development Scenario and Absorption........................... COMMERCIAL RETAIL ANALYSIS .................................................. General Market Conditions................................................................ Visitor Expenditures .......................................................................... Overview of Selected Centers............................................................ Retail Demand Analysis .................................................................... Estimated Retail Demand .................................................................. Program Recommendations ...............................................................
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SECTION I: INTRODUCTION & SITE REVIEW
Introduction Economics Research Associates (ERA) has been retained by KCOM, LLC as a market consultant to assess market conditions and review the development program for a new resort community in the Kau district of the Big Island, Hawaii. The site, known as Kahuku Ranch, is located on the southern tip of the island. The site encompasses about 17,000 acres with 5.5 miles of oceanfront and 5 miles of highway frontage. The preliminary concept includes several resort hotels, resort residential lots, fractional residential, 2 golf courses and supporting commercial development. The overall objectives of the study are to assess the market affecting the proposed land uses, verify that the concepts are marketable, refine the development program, determine market positioning and phasing based on our findings and estimate pricing and absorption for the real estate products. Specifically, we have undertaken the following categories of investigation:
Evaluation of the site, its surroundings and nearby tourism and recreation resources to
develop a basis for evaluating the proposed land uses and their ability to attract visitors;
Analysis of the depth of the potential market based on trends in the market area; Research on the resort hotel market on the Big Island to determine pricing,
occupancies, amenities, guest profiles, lengths of stay, etc.;

Development of a set of findings regarding a supportable development program
including a phasing strategy;

Recommendations pertaining to the size, character and star positioning of the hotel(s); Recommendations pertaining to mix of residential product types and pricing by phase; Estimated absorption of residential units by product types.
This study incorporates a wide range of data both directly related to market demand and local and regional competition. It is intended to indicate the market potential for the property and provide recommendations for proceeding with planning and marketing. ERA has researched the market and come to a variety of conclusions. Data for this project has been provided by various government and commercial sources. This information, combined with discussions with industry experts and our experience, has provided the basis for the conclusions in this report. This study has been conducted by Mr. Bob Chickering, Vice President of ERA. Ms. Kate Wittels, Senior Analyst, conducted research and assisted with report preparation. Property Location The site is located on the southern tip of the island, in the Kau district, near the intersection of the Mamalahoa Highway and South Point Road. Figure I-1 shows a map of Hawaii, with the location of the site. The site is located below the Highway and extends to the ocean.
Kahuku Ranch Market Assessment I-1 Introduction and Site
Property Description Figure I-2 shows a diagram of a preliminary concept that has been developed for the project. The property is virtually entirely black aa lava. The site slopes down from the highway to the oceanfront. This provides good views to the ocean from virtually everywhere on the site. There are several small beaches on the site. These beaches are used for nesting by hawksbill turtles. There are also several natural anchialine pond areas surrounded by native trees directly behind the oceanfront. Otherwise, most of the site is wide open lava slope. Figure I-1 Site Location
Kahuku Ranch Market Assessment
I-2 Introduction and Site
Figure I-2 Preliminary Concept Diagram
Special Features and Preliminary Concepts As mentioned, the site has several small beaches. These beaches have been protected and maintained as turtle sanctuaries. Initial concepts for the project plan for protection of these natural resources. This area of the site would be designated at the Pohue Bay Wildlife Refuge and Marine Science Lab. This area would be dedicated to the preservation of the turtle habitat and will also serve as an attraction for visitors to experience. The concept also calls for a Hawaiian Heritage Village. This area would celebrate ancient Hawaiian traditions and would also serve as a visitor attraction. Concepts include education and preservation, historical sites, museum, agricultural demonstration areas and other cultural features and attractions. The site also features significant petroglyphs, fish ponds, ancient stone trails and rugged coastline and sea cliffs. The development concept also includes an equestrian center and rodeo grounds.
Kahuku Ranch Market Assessment I-3 Introduction and Site
The preliminary concept plan also includes a general aviation airport and a residential community for local residents and employees. The community is intended to support local residents and establish a local commercial center for this part of the island. The developer has been in discussions with the regional veterans clinic that is interested in relocating to the proposed Kau town. This facility would provide medical care for veterans as well as others in the community. The air strip is considered to be very important for this facility.
I-4 Introduction and Site
SECTION II: EXECUTIVE SUMMARY The following summary provides an overview of the key sections of this report. headings below generally correlate with the sections of the report. Overview of Hawaiian Tourism Trends Visitation to the state of Hawaii reached an all-time high in 2005, with an estimated 7.3 million visitors. Tourism throughout the world, declined sharply after September 11, 2001, and consequently the annual number of visitors to the state declined to about 6.3 million for the year. The three year decline in total visitation can be attributed to the decrease in the number of international tourists. According to a report by the Bank of Hawaii, international visitor arrivals were already down 2.1 percent in 2001 prior to September 2001, and fell 45 percent after the terrorist attack to finish the year 26 percent below 2000 levels. According to the same report, business meetings and convention travel were down 27.1 percent in the domestic market in 2001, but domestic leisure travel (3.0 million visitors in total) declined only 2.5 percent. Domestic visitor counts fell only 5.1 percent to 4.2 million during 2001, despite the decline in visitation after September 11. Visitation to all of the islands increased between 2001 and 2005. While the Big Island receives less total arrivals than Oahu or Maui, it experienced the greatest increase in total arrivals between 2001 and 2005 of the four counties. Furthermore, in 2005 the Big Island experienced a 16 percent annual increase in total arrivals, while Oahu and Kauai only experienced a 6 percent increase and Maui experienced a 4 percent increase. Visitation to the Big Island is typically comprised of 75 percent domestic arrivals and 25 percent international arrivals. In comparison to the other islands, the Big Island has the second highest percentage of international arrivals annually. Statewide Annual Visitor Arrivals by County, 2001 to 2005.
Year 2001 2002 2003 2004 2005 % change Oahu 4,257,536 4,276,077 4,090,483 4,464,551 4,731,843 11.1% Kauai 1,008,699 1,005,897 975,868 1,020,921 1,090,147 8.1% Maui 2,104,478 2,139,427 2,196,447 2,207,826 2,364,480 12.4% Big Island 1,181,552 1,243,313 1,207,164 1,281,156 1,521,537 28.8%
The
Source: Hawaiian Department of Business, Economic Development and Tourism.
Tourism is expected to remain strong with an estimated 6.8 million visitors in the first eleven months of 2006. Of the 2006 visitation, the Big Island received an estimated 20 percent of the visitors, approximately 1.4 million visitors, while Maui received 32 percent and Oahu received 64 percent. According to the DBEDTs 2030 projections, total visitation to Hawaii is projected to continue to increase. The projections forecast that total visitation will reach 8.6 million by 2015 and will break the 10 million mark by 2025.
II-1 Executive Summary
Overview of the Hotel Market in Hawaii In 2005, the DBEDT reported that there were 11,000 visitor accommodation units on the Big Island. Hotels represented the greatest percentage of visitor accommodations, with almost 7,000 units, while condominium hotels and timeshares are also very prevalent on the island. Kona contains the largest concentration of visitor accommodation units, with 45 percent of all visitor accommodations. The Naalehu/ Kau region have the lowest concentration of visitor accommodation units with 1 percent of all units on the island. The majority of the hotel units are located in Kohala/Waimea/Kawaihae and Kona. Distribution of Visitor Accommodations, 2005.
Volcano Area, 2% Naalehu/ Ka'u, 1%
Hilo/ Honokaa, 12%
Kona, 45% Kohala/ Waimea /Kawaihae, 41%
Source: DBEDT
Of the total visitor accommodations on the Big Island in 2005, 34 percent of the units were classified as standard units, charging between $101 and $250 per night, while over 47 percent of the units were classified as deluxe or luxury commanding over $250 per night. In 2005, the occupancy rate on the Big Island averaged 72 percent with the highest occupancy occurring in February 2005, with 82 percent occupancy. In 2005, the average occupancy rate for the Big Island was the lowest of the four islands. As of October 2006, the year to date occupancy rate was 70 percent, a decrease of 0.1 percent compared to the first ten months of 2005. The average daily room rate (ADR) for the Big Island, in 2005, was $173.67 per night and the average revenue per available room (RevPAR) was $125.39 per night. The average daily room rate on the Big Island was higher than the statewide average of $166.86 in 2005. The ADR for the first ten months of 2006 was $168 and the RevPAR was $118 per night. Both the ADR experienced a seven percent increase over the first ten months of 2005. The high-end hotels are concentrated along the Kohala and Kona coasts. There are over 4,000 rooms among the major eight hotels. Among these hotels occupancy ranged from 70 percent to 90 percent and ADR ranged from $250 to $700 per night. The following room counts for the key high-end hotels on the Big Island.
Kahuku Ranch Market Assessment II-2 Executive Summary
o Hapuna Prince Beach Hotel: 350 rooms o Mauna Kea Beach Hotel: 310 rooms o Mauna Lani Bay Hotel: 347 rooms o Fairmont Orchid: 540 rooms o Hilton Waikoloa Village: 1240 rooms o Waikoloa Beach Marriott: 545 rooms o Sheraton Keauhou Bay: 521 rooms o Four Seasons Hualalai: 243 rooms The DBEDT reports the number of visitors to Hawaii in 2005 was 1.5 million. Hotel visitors are estimated to account for 66 percent of total visitation to the Big Island. Asthere over 4,000 high-end hotel rooms on the Big Island, ERA estimates that there were 360,000 visitors staying at high-end resorts in 2005, or approximately 36 percent of total visitation to the island stays at high-end resorts. Projected Hotel Roomnights, Big Island, 2007 2017 The following are key assumptions and projections pertaining to our projections of supportable rooms by 2017: As of 2005, there were approximately 4,100 4- and 5-star hotel rooms on the island. As mentioned, annual visitation to Hawaii in 2005 is estimated at nearly 1.5 million people. DBEDT estimates that visitation to Hawaii will grow at 1.6 percent annually between 2005 and 2010, two percent between 2010 and 2015. For the purpose of estimating future growth in visitation, ERA has incorporated an assumption of average annual growth in visitation ranging from 1.6 to three percent. ERA believes the Big Island will experience a greater than projected annual growth rate after 2009, when the first hotels in the Kau development come on line. Key visitor and hotel projections are as follows: o ERA projects that annual visitation to the Big Island to increase from 1.5 million to about 2 million by 2017. o The number of annual hotel visitors is projected to increase from approximately 1 million in 2007 to about 1.4 million by 2017. o Based on industry-standard and Hawaiian-specific assumptions for average hotel occupancy, average party size, and average length of stay, the total number of supportable four and five-star hotel rooms on the Big Island is projected to range from approximately 4,400 in 2076 to about 5,800 in 2017.
o This compares to existing supply of about 4,100 four and five-star hotel rooms and represents an increase in supportable rooms of about 1,500 over the tenyear projection period, which equates to an increase of nearly 37 percent. o The cumulative annual number of supportable new 4- and 5-star hotel rooms on the Big Island is shown by year with key dates summarized as follows: 2009: 460 new supportable 4- and 5-star hotel rooms 2012: 873 new supportable 4- and 5-star hotel rooms 2016: 1,525 new supportable 4- and 5-star hotel rooms
o ERA has set forth a hotel development phasing scenario that we believe would be appropriate and supportable at the Kau site. The phasing scenario matches the introduction of new rooms to the projected demand for rooms over time. o Based on the development scenario, the implied market share for the proposed Kau hotel properties within the 4- and 5-star segment of the Hawaiian market are calculated. The implied market share of the three properties is shown to range from 5 percent to 14 percent over the analysis period, which is considered reasonable. Recommended Hotel Development Program at the Kau Resort The location of the site on the southern tip of the island is outside the predominant resort zone that stretches from Kona to Kawaihae. Therefore, the project will have to develop a critical mass of accommodations, attractions and marketing features to establish the location as an alternative to the Kona / Kohala coast. We believe this can be achieved with an attractive master plan and development of the existing resources and surrounding attractions. There are precedents for successful development of new resort locations in previously undeveloped areas of Hawaii including Princeville, Kauai, Turtle Bay, Oahu and Ko Olina, Oahu. Access time from the commercial airports in Kona and Hilo is a concern, as the site is about and hour and a half from the Hilo airport and almost 2 hours from the Kona airport, given the typical traffic congestion and stop lights in Kona. The airport on-site could provide access to a limited number of travelers, particularly kamaaina coming from other islands in private planes and/or high-end travelers in private jets. Eventually, commercial service might get developed from Oahu on small inter-island carriers such as Island Air. However, the mass market that would constitute the large majority of resort guests can be expected to arrive by commercial jet from the mainland and will arrive at the Kona or Hilo airports. The developer of the project has established a vision for the resort as a high-end luxury destination befitting its world-class scenic coastal and beachfront setting. In order to differentiate from other existing and proposed resorts on the island, the strategy is to emphasize the cultural and ecological resources currently present on the site. The vision is to position the resort as a lifestyle resort that combines the natural beauty of the site, 4 and 5star hotel accommodations, internationally renowned spa services, and luxury living in a
cultural and eco-friendly design environment. ERA concurs with this positioning given the aesthetics of the site and the strength of Big Island tourism. ERAs recommendations pertaining to the proposed hotel development program at the subject Kau Resort are based, in part, on the following: Over the next ten years, visitation to Hawaii is expected to continue to increase significantly. Assuming well-known branded operators and the development of first class facilities and amenities, it is expected that the subject properties will capture a significant share of the regional market for 4- and 5-star hotel properties. While we believe the hotel market will be strong over the next 10 to 20 years, we have reduced the hotel development program from what was included in the preliminary concept plan. The hotels will be important to bring guests and buyers to the project and to support the commercial outlets and amenities. However, they are less attractive to investors than the residential land uses.
Overall Strategy The large majority of resort hotels on the island are in the 4-star quality rating. This is consistent with resort hotels in the entire state. We believe the overall positioning strategy for the project should be to appeal and be attainable to a broad segment of the market. This will allow a range of real estate products to be sold and will make the resort appeal to a broad market. This will accelerate absorption and improve occupancies and help to overcome the fact that the project site is outside the traditional resort zone of the Big Island and is farther away from the commercial airports. Accordingly, we would look to Waikoloa and Mauna Lani as comparable integrated resorts rather than Hualalai or Kukio. This allows for a wider range of hotel and real estate offerings even up to the very high-end oceanfront real estate, and exposes the project to a broader market. For this reason, we believe the majority of the rooms should be in 4-star resort hotels with a relatively low number of upscale 5-star boutique rooms. This roughly reflects the profile of the upper income visitors to the island. That is, majority 4-star with a smaller contingent of 5+ star visitors. As mentioned earlier, we do not believe it is necessary to plan for more than 3 to 4 hotels. In fact the large integrated resorts on the island only have 1 to 2 hotels. Waikoloa actually has 3 hotel sites with the Hilton occupying 2. In addition, Waikoloa offers the Bay Club timeshare and the new Hilton timeshare. Hotel sites should be planned so that they can be flexibly used for hotel or timeshare / fractional projects. Initial Four Star Hotel The initial hotel is positioned at the 4-star level to be consistent with most of the other highend hotels on the island. The hotel is not overly large as the location will need some time and marketing to attract large groups and significant numbers of FIT guests. Initially the hotel may be able to attract shorter stay visitors that are also staying on the Kona / Kohala coast during part of their stay on the island. These guests might form an itinerary to visit various parts of the island. As the destination gets established, longer lengths of stay can be expected. The property will also be able to attract small to medium sized groups looking for a new experience in Hawaii or an alternative to Kona / Kohala or proximity to the natural
attractions of Kau and Volcano. The following are key recommendations and projections pertaining to the first planned hotel at the Kau Resort: Date of Opening: 2010 Number of Rooms: 250 total rooms including a mix of about 225 regular rooms (600 square feet) and 25 suites (800 to 1,000 square feet). Market Positioning: 4-Star Small amount of indoor/outdoor event space for small corporate events and private receptions. This would include a 2,000 to 3,000 square foot indoor events space that is connected to outdoor terraces. Food and Beverage Facilities: o Main dining room: 100 seats indoor, and 75 seats outdoor o Casual restaurant: 50 to 75 seats o Main lobby bar / lounge: 50 seats o Poolside bar and grill: 30 seats Other Facilities / Amenities: o Large free-form pool with swim-up bar o Spa, 8,000 square feet, 10 to 12 treatment rooms o Fitness center: 1,500 square feet Rack Room Rates: o Regular Rate: $250 to $350 for regular rooms and $450 for suites o ADR: $275 Market Mix: o 70 percent FIT (free independent travelers) o 30 percent group (primarily wholesale package and incentive groups) Primary Target Markets: o North America: 90 percent o Japan: 10 percent Characteristics of Stay: o Average length of stay: 6 nights o Average party size: 2.5 Annual Occupancy (Stabilized Level of Operation):
o Annual Average: 75 percent High-End, All-Suite or Cottage Boutique Hotel An all-suite or cottage hotel is recommended in 2012. This will provide an option for the high-end clientele that has shown increasing demand for variety in recent years. This hotel might follow this format to provide an experience that is differentiated from others on the island and elsewhere in Hawaii. At this price level it will be important to maintain privacy, provide spacious rooms and provide top notch service. The following are key recommendations and projections pertaining to the high-end, all-suite or cottage boutique hotel at the Kau Resort: Date of Opening: 2012 Number of Units: 75 suites (900 to 1,100 square feet) Market Positioning: 5-Star + Food and Beverage Facilities: o Main three-meal restaurant: 50 seats o Fine dining: 35 seats o Main lobby bar / lounge: 30 to 40 seats o Poolside bar and grill: 20 seats Other Facilities / Amenities: o Free-form pool with swim-up bar o Fitness center: 1,000 square feet Rack Room Rates: o $800 to $1,000 Market Mix: o 98 percent FIT (free independent travelers) o 2 percent group (primarily corporate groups) Primary Target Markets: o North America: 98 percent o Other: 2 percent Characteristics of Stay: o Average length of stay: 6 nights o Average party size: 2.2
Average Daily Rate (Stabilized Level of Operation, Year 2007 dollars): o Annual Average: $850 Annual Occupancy (Stabilized Level of Operation): o Annual Average: 75 percent
Conference and Group Hotel After the resort becomes established and develops a high-end image, it will be possible to aggressively market to groups for both conferences and incentive trips. The conference hotel will accommodate these groups and will provide another resort option for FIT travelers looking for an alternative to Kona / Kohala and / or seeking the Kau and Volcano location. The following are key recommendations and projections pertaining to the planned high-end, conference hotel at the Kau Resort: Date of Opening: 2014 Number of Rooms: 400 total rooms including a mix of about 350 regular rooms (500 square feet) and 50 suites (700 to 900 square feet). Market Positioning: 4-Star Ample amount of indoor/outdoor event space for corporate events and private receptions. This would include approximately 25,000 to 30,000 square foot indoor event space and 30,000 to 40,000 square feet of outdoor event space. Food and Beverage Facilities: o Main dining room: 200 seats indoor, and 100 seats outdoor o Casual restaurant: 100 to 150 seats o Main lobby bar / lounge: 75 seats o Poolside bar and grill: 50 seats Other Facilities / Amenities: o Large free-form pool with swim-up bar o Spa, 15,000 to 20,000 square feet, 15 to 18 treatment rooms o Fitness center: 2,000 square feet Rack Room Rates: o $250 to $350 for regular rooms and $350 to $550 for suites Market Mix: o 50 percent FIT (free independent travelers)
o 50 percent group (primarily conference, wholesale package and incentive groups) Primary Target Markets: o North America: 95 percent o Other: 5 percent Characteristics of Stay: o Average length of stay: 5 nights o Average party size: 2.6 Average Daily Rate (Stabilized Level of Operation, Year 2005 dollars): o Annual Average: $300 Annual Occupancy (Stabilized Level of Operation): o Annual Average: 75 percent Resort Real Estate Overview The Big Island has some of the most expensive and exclusive resort real estate in Hawaii. After a slow period of activity from the early 1990s through 1997, resort real estate sales on the Big Island began a period of activity in 1997 and 1998 with the introduction of the Hualalai resort. Sales increased into the new millennium following the surge in the New Economy and increased buying by baby-boomers, with an estimated $326 million dollars in resort real estate sales. Total sales in 2001 were approximately $210 million, a decline caused primarily by September 11. Activity was also slow in early 2002 in reaction to September 11. Strong sales resumed in the second half of 2002 and remained strong in 2003 despite negative influences caused from SARS and the Iraq War. A significant increase then occurred in 2004 and 2005 with strong sales and increasing prices. The resort residential market slowed for much of 2006. Similar to other markets, realtors reported limited sales throughout the summer. Many of the developments introduced in 2005 were sold out by 2006. While the general market slowed nationally, supply was limited in 2006, further decreasing sales. Price increases have been aggressive, following the surge in demand in 2005. Over pricing coupled with an increased price sensitivity at the high-end has most likely been the cause of slow sales in some cases, notably Kaunaoa and Ke Kailani. Within Waikoloa, the mid-level Waikoloa Beach Villas and Halii Kai projects were both introduced to the market. As the winter approaches, realtors have reported that traffic has started to pick up and that they anticipate a strong early 2007. Development Approach and Positioning The preceding research provides a basis for the formulation of a market driven development strategy for the proposed resort. Specific recommendations are set forth below including unit types, pricing and absorption estimates for the residential components. As with all large master planned projects, market shifts will dictate adjustments to be made in future years. The programming laid out in this section provides a road map for planning and phasing the
residential components of the project. These recommendations are pro-forma and do not relate to a specific land plan. Adjustments will need to be made when a more definitive land plan is developed. The market research along with successful development approaches at other master planned resort projects indicates a possible viable approach for developing the resort. Given the resort real estate conditions on the island, the topography of the land, and the preferences of the market, ERA would recommend a mix of built product and lots sales. The built product should be a mix of condominiums, attached products and detached single family products. ERA would recommend abiding by the following rules of thumb for resort residential development at the project. Hold the highest value parcels, such as those with water frontage or premium views, to let values build over time. An exception to this is when high initial infrastructure costs require cash flow generation. Hold the lowest value parcels, such as those with no water view to let the value of the resort and the cachet of being inside the gate build over time; Offer a range of product types and price points to appeal to different market segments at any given time; Capitalize on the high value cachet of being located on the Big Island. Develop a resort core with hotel, residential, golf and associated amenities from the start of the project Make sure that residential in the first phase has good ocean views; Provide some limited commercial support for the project, keeping in mind that it may need to be subsidized in terms of minimal rent initially. Develop natural amenity features such as access to the beach and maximization of views.
The recommended development program includes a mix of residential products with an overall high-end positioning. We would recommend positioning at a level that ranges from slightly below that of the Hualalai down to Waikoloa. We expect, however, that oceanfront lots will fetch very high prices, as has occurred elsewhere on the island. It must be kept in mind that, generally, the higher the positioning the slower the sales pace. A mid to upper level positioning, similar to Waikoloa or the recent developments at Mauna Lani can bring larger numbers of buyers to the project to populate it and support the amenities and commercial facilities. This will enhance absorption of the real estate and populate the resort. While projects such as Hualalai, Kukio and Hokulia have maintained a more narrow range high-end and exclusive positioning, the resort projects of Waikoloa, Mauna Lani and Mauna Kea offer a wider range of real estate, resort hotels, public amenities and retail. We would expect that with the mix of hotels proposed for this project and the commercial facilities and amenities that will need support, this project should be positioned more akin to these latter resort projects.
This does not preclude high-end residential. Projects such as 49 Black Sand Beach and Pauoa Beach in Mauna Lani; Kolea in Waikoloa; and Kaunaoa and the Bluffs in Mauna Kea are examples of high-end residential in broader range resort projects. Target Market Segment The target market for the proposed resort will be the continuingly burgeoning baby boomers. The majority of these buyers will be residents of the western US, primarily California. The baby boomers (currently those over 43 years old to about 65), have driven the booming market on the Big Island, and across North and Central America over the past 8 years. The number of people entering the peak second home purchasing age groups of about 50 to 55 years old will continue to grow through about 2015. Several trends have started to emerge that distinguish the purchasing habits, use patterns and buying motivations of the baby boomers. This generation is showing patterns that are different from that of their parents. The previous generation purchased second homes to escape, rest, and hideaway. On the other hand, baby boomers can be characterized in the following ways. Interest in community rather than exclusivity seeking out body heat; Desire for self improvement through education, health and fitness, outdoor pursuits and spa treatments; Desire to be with friends and family for recreation, entertaining at home and dining out; Desire for authenticity in a destination and in resorts; Wanting to connect with and understand the history and culture of the place they are visiting; Interest in green and sustainable resorts and environmental stewardship;
The proposed concept for the Kau resort is particularly well suited to appeal to this target market given its authentic Hawaiian setting and theme, the environmental programs and the cultural and historical programs that are being proposed. Residential Programming and Pricing Following the above positioning, a range of product types could be developed at the Kau resort. Products and phasing will depend on a number of influences including but not limited to: Master plan layout and orientation of development parcels near golf, oceanfront or other features and amenities that bring price premiums and dictate product positioning; Need to generate cash flow immediately to cover infrastructure costs; Development deals with hotel developers that typically require residential components to augment cash flows; The preferences of developers and development partners; and,
Changing market preferences.
Therefore, the following program is illustrative and is intended to follow the positioning described above. It should be noted that the pricing recommendations are based on current market conditions. We believe the subject project with its sweeping coastal views can command relatively high prices. Pricing also assumes that the prestige and amenities of resort hotels will add value to the real estate. Significant price escalation has been occurring recently and could likely occur in the future. ERA has based its pricing upon the assumption that the vast majority of the real estate products will offer excellent ocean views. As in nearly all destination resort markets, ocean views command a considerable premium. As a result, the developer should do everything possible to preserve views in order to maximize achievable value for the real estate products and the project as a whole. The product mix is based on ERAs industry knowledge, current market conditions, current practices in resort real estate development and inputs from local professionals in the industry. The mix of products is intended to provide a range of products and price points in order to broaden the market reach of the resort. The product types are intended to maximize flexibility by allowing for adjustments based on market response. Lots There has been mixed signals about lot sales in recent months. High-end projects such as Kukio and Hokulia continue to sell lots. There also continues to be a market for large agricultural lots. However, realtors note that buyers are hesitant about the building process in Hawaii characterized by expensive material costs, expensive and overbooked contractors and managing projects from distant primary homes. Other developers, notably Hualalai, have stated that they prefer to capture the profit from building rather than to just sell lots. Nevertheless, there is a segment of the second home market that seeks to pursue the dream of designing and building custom homes within a resort setting. Therefore, it is recommended that a range of lot products be offered in the resort. These would be as follows: Golf Lots The golf lots should range from half an acre to an acre. These lots should be developed in enclaves no larger than 50 units. Golf frontage or at least golf foreground views would add value to these lots. It is assumed that these lots would also have ocean views. View Lots View lots would not be as close to golf and would be larger ranging from 1 to 3 acres. These would be similar to the lots in Hokulia. These lots would be released in 8 to 10 unit development parcels similar to Anea, Lipoa and Laueki Estates in Hualalai. Oceanfront Lots - The oceanfront and near-ocean lots can be some of the highest value products sold within resort communities. These lots should average one acre in size. Frontage on the ocean is obviously quite limited, and other land uses will compete for this premium value. Ag Lots Large agricultural lots could be offered in the mauka portions of the site. These could range from 5 to 20 acres and would provide buyers the low density ranchette product within a resort community. This is something that is not yet available on the island, although the Hokukano Ranch project near Kealakakua is currently planning to offer this product in a private golf community setting.
Pricing for these products based on todays market conditions could be as follows: Unit Type Golf Lots View Lots Oceanfront Lots Ag Lots Size Range to 1 Acre 1 to 3 Acres 1 Acre 5 - 20 Acres Price Range $1 - $2 million $1 - $2 million $3 $10 million $2 - $4 million
Multi-Family Condominium Units Condominiums are a popular product type at resorts in Hawaii. Multi-family products have been developed in Mauna Lani, Waikoloa and Mauna Kea by third party builders who purchase development parcels from the master developer. Actual product types and pricing are determined by the builders with the approval of the master developers. We recommend offering various development parcels that can accommodate a range of multi-family housing types as follows: Mid Level Condos Using Kulalani at Mauna Lani and the Waikoloa Beach Villas an as an analog, these units would range from 1,300 square feet to about 1,800 square feet. There should be a mix of 2 (dual-master) and 3-bedroom models with 3bedroom being most prevalent. Unlike Mauna Lani, these units would have ocean views. Higher End Condos These units would be similar to Nohonakai at Mauna Lani but with ocean views. They would be larger 3-bedroom 3+ bath units with sizes ranging from 2,000 to 2,800 square feet. These units would also feature more luxurious specifications, appliances and finishes and have higher ceiling heights and appointed outdoor lanais / patios. Pricing for these units is based on todays market conditions. The higher pricing of the high-end condos is a function of more luxurious appointments, higher construction costs such as for higher ceilings, larger kitchens and bathrooms and larger more appointed outdoor spaces. Prices could be as follows: Unit Type Mid Level 2-bed Mid Level 3-bed High-End 3+ bed High-End 3+ bed Avg. Size 1,400 1,800 2,000 2,800 Avg. Price $800,000 $1,000,000 $1,500,000 $2,050,000 Price / s.f. $575 $550 $750 $730
Townhouses and Villas Townhouses The townhouse product would provide a step up in size and price from the high-end condominiums. These units would range from 2,500 to 3,500 square feet. They would offer luxurious finishes and specifications. Duplex Villas This would be another form of the townhouse product built in pairs. These units would have the same size and price ranges as the townhouses. Detached Condominium Villas This is a product that has been increasingly popular in Hawaii. It is a detached single-family product that is maintained under a condominium regime with an HOA available to handle outdoor maintenance. These units would have private outdoor spaces and plunge pools. The HOA maintains landscaping, streets and even building exteriors. We would recommend a range of sizes and prices for this product. Smaller lower priced units might range from 2,000 to 2,400 square feet. Larger units could range from 3,000 to 4,000. These types of products are often sold as cottages at resorts such as Kukio and Hualalai in Hawaii. Lower priced examples can be found at Kaanapali on Maui. Pricing for these units based on todays market conditions could be as follows: Unit Type Townhouses Duplex Villas Detached Villas (sm) Detached Villas (lg) Avg. Size 3,000 3,000 2,300 3,500 Avg. Price $3,000,000 $3,000,000 $3,000,000 $4,000,000 Price / s.f. $1,000 $1,000 $1,300 $1,140
Fractional Condominiums Once the destination gets established, it may be possible to sell shared ownership products within the resort. Fractional ownership, distinguished from timeshare by offering more than one to two weeks of use, is just now being introduced in the Hawaiian market by Ritz Carlton at Kapalua, Maui. Ritz is offering its typical 1/12th share product at Kapalua. We would expect a 1/10th to 1/12th share would be appropriate for Hawaii, giving owners 4 to 6 weeks of use. Unit types that could be sold as shared ownership could include the higher end condos and townhomes. Generally, fractional projects should be located on top notch sites close to amenities or key natural features. They are typically high-end products in high-end locations that allow buyers to buy into this level of location, size and luxury at a reduced price due to the shared ownership. Fractional projects tend to have a limited number of units up to say 20 or 30 units at a time. Too many units divided into shares (20 units x 10 shares = 200 shares) creates an inventory of product that can be challenging to sellout.
Fractional ownership requires a strong sales and marketing effort and is generally most successful when it developed and sold by the major hotel brands. Major flags such as Ritz or Four Seasons can sell the appeal and recognition of their brands and have the major advantage of having large customer data bases and adjacent lodging. Fractional pricing is typically a function of the pricing of whole-ownership units. The whole ownership price is divided by the number of shares and then factored up at 1.5 to 2 times to account for increased sales and G&A costs and increased profit. Accordingly, if whole ownership 3-bedroom condominiums were priced at $1.5 million, a one tenth share would be priced at $1.5 million / 10 times 1.75 or $262,500. Timeshare Timeshare has become increasingly popular in Hawaii with strong sales by the major hotel brands such as Marriott (Maui, Oahu, Kauai); Westin (Maui, Kauai); Hilton (Waikoloa and Waikiki). For a number of years, timeshare gained the reputation of being low-end to middle market and cheap. However, these upscale brands have developed high-end projects in luxury resorts such as Kaanapali, Maui; Princeville, Kauai and Koolina, Oahu. They have performed quite well in these locations and have not reduced the cachet of these resorts. Again, timeshare is not typically an early phase development. The above mentioned projects were added to the resorts after they were mature. Since timeshare is a higher density development, it is best suited for hotel sites or near hotel areas of the site. It should be kept separate from lower density areas of the project. Timeshare can occupy both upscale sites such as Marriotts Hawaiian properties or lower value sites such as the new Hilton project at Waikoloa. Phasing Strategy The phasing strategy is based both on the layout of the property as well as the development strategy for the project. The overall strategy will be to establish a core of accommodations, facilities and amenities to drive initial sales in Phase 1. There will also be an immediate need for cash flow to help cover the high initial costs of infrastructure and amenity development. Therefore, it will be important to initiate and sustain strong real estate sales from the start. Phase 2 will then build from and continue the momentum of the first phase. It will be necessary to make significant expenditures on initial infrastructure, amenities and resort core facilities in the first phase. However, the phasing strategy seeks to minimize infrastructure expenditures until they are required to open new revenue generating real estate zones. Phase 1 It would be optimal to include the smaller 4-star resort hotel in Phase 1 in order to develop the resort core facilities and amenity features. Real estate products included in Phase 1 would consist of both lots and built products. Lots would require less investment in terms of construction and would help generate cash flow. Condominiums and town homes located near the resort core would help establish the resort core and would be attractive to hotel developers as part of their development deal. A beach club facility for the use of real estate owners would enhance real estate values. At least the first 9 holes of the golf course should be constructed in phase one. This will create the resort environment and add value to the real estate. It would be optimal to build the entire course.
Phase 2 We recommend adding the 5-star boutique hotel and the higher priced townhouses and lots to the mix in Phase 2. Phase 2 should introduce the Beach Club if it was not developed in Phase 1. The golf course should be completed by phase 2. Subsequent Phases We would recommend continuing to develop the above mix of residential products over time depending on demand. The conference hotel would also be introduced once the resort hotel has been established. A second golf course, timeshare and fractional should be held for the later phases. Development Plan Features General Planning Considerations Features that we believe to be important for maximizing values and marketing appeal are as follows: With regard to economics, the oceanfront areas of the site are by far the most valuable. These areas of the site will provide a significant amount of the return on investment. This part of the site should be reserved as much as possible for highpriced residential and hotel sites. Non-revenue generating land uses such as the heritage reserve should be minimized on the oceanfront. At least one oceanfront golf fairway or green can significantly add to the prestige of the golf course and the overall resort. Ocean views should be protected and maximized; There should be gated access to the resort and to some if not all residential enclaves; We recommend that a resort core / village center with shops and services be developed as soon as possible; Hotels / timeshare sites should be located near the oceanfront; The resort character must be reflected in quality of improvements, sensitivity to land, local culture, environment, ecology and service; There should be consistent architecture featuring authentic Hawaiian theme with authentic natural materials and careful use of landscaping to unite buildings and create a lush, lower density feel but the theme should be applied with a light hand. Heavy theming is not advisable, especially for real estate products. There should be concern for owner privacy, exclusivity and security reflected throughout the resort; and There should be cart paths to facilitate transportation across the site via golf carts or electric vehicles, as well as walking and biking. Trail systems are often cited as the most desirable and most often used amenities within resort communities.
Amenities Trail systems are consistently cited in surveys as the most desired amenity of resorts and residential communities. There should be an extensive trail system that connects key features on the site including the oceanfront, the petroglyphs, the turtle sanctuaries and the Hawaiian heritage park. A beach club that is accessible only to residents would be beneficial. This should be located down next to the beachfront. The beach club should have a small lap pool and a small fitness center. Indoor facilities should include changing rooms, and a small kitchen and indoor living / dining area for members to entertain and/or for social gatherings. Individual enclaves can offer small pool / recreation centers within their developments. A spa located either as a stand-alone feature or within one or all of the resort hotels will be a popular feature(s) as an amenity for the residential buyers as well as hotel guests. The preliminary development program includes a Hawaiian Heritage Center. This facility would provide an interesting attraction to draw hotel guests and particularly other day visitors to the project. It also will provide the connection to history and culture that baby boomers are increasingly seeking. However, this facility should be carefully sited so as not to occupy too much high-value real estate. Public parking and traffic flows have to be kept separate from private residential areas. Beaches on the site are largely protected as turtle sanctuaries. Beach access is clearly critical to values at the project. If beach access is limited or cannot be provided, it would be beneficial to create lagoons that bring water into resort sites or otherwise provide ocean access. The preliminary development program includes an equestrian center and rodeo ground. This facility might provide an amenity more for the existing local community rather than for new residents or resort guests. The land form that exists on site is not particularly well-suited for equestrian activities. This is in contrast to the northern and central portions of the Big Island where there are vast areas of pasture lands, forests, public lands and riding trails. Therefore, it is likely that horse enthusiasts would choose equestrian oriented properties in these regions rather than the subject site. For this reason, we suggest limiting the size and scope of the equestrian facilities. The preliminary program includes an airstrip that could accommodate private jets and other smaller planes. We would expect this feature to enhance real estate sales for the higher priced real estate products.
Unit Configuration Built units should have wide profiles facing the ocean in multi-story construction. If possible, it is desirable to create neighborhood enclaves to preserve privacy and a sense of community within subareas of the project.
Protection and shielding from the wind will be important. South and west facing orientations should be maintained. Most of the site slopes to the south, so this will be easy to achieve.
Unit Design Features Unit design features will vary by target market segment. Some of the features, especially for the high-end market, that are appealing include: Large covered or sheltered outdoor spaces when possible that emphasize outdoor living and entertainment; Access to patio (dining) from kitchen and family/living room using pocket doors; Grand, maximum impact entry, ideally with see through (to the ocean) views; Twin master suites/ separated bedrooms are highly desired; High ceilings, preferably 9-10 feet, including ceiling fans would be necessary for upscale housing; High quality kitchen appliances and gourmet kitchen elements; Five fixture master bathroom with outdoors area and quality bathroom fixtures; Emphasis within the unit layout for entertaining and family gatherings; Technology friendly design; and Availability of upscale furniture packages.
Illustrative Development Scenario and Absorption Based on the above recommendations regarding positioning and product types, Table II-1 shows a possible development scenario and mix of unit types that we believe would be supportable based on prevailing rates of development and absorption on the island. Comparable resorts such as Mauna Lani and Waikoloa have achieved absorption that exceeds these levels. However, the timing of new releases of product can vary significantly due to the variety of builders active in these projects and their individual scheduling considerations. Table II-2 shows a reasonable absorption schedule of the above development scenario. The variety of products and price points allows for increased absorption as various demand segments are tapped. It is significant to note that the comparable resorts on the Kona / Kohala coast are approaching build-out. Kohanaiki will open with new units and golf, but it is more a private golf community than a resort. We believe this will enhance the ability of the Kau resort to sell resort real estate over the next decade. Overview of Commercial Retail Market The main shopping areas on Hawaii are Kailua-Kona and Hilo. There is also retail in the various towns and in several of the resort communities. Kailua-Kona contains both neighborhood community centers and tourist oriented retail. Most of the entertainment and restaurant retail is located along Alii Drive in Kona Village, while the big box stores and service oriented retail is located in the community centers located off of Queen Kaahumanu
Table II-1 ILLUSTRATIVE DEVELOPMENT PHASING AND ABSORPTION FOR KA'U RESORT 2007 to 2017
Development Phasing 4-Star Hotel 5-Star Boutique 4-Star Conference Hotel Mid Market Condos High End Condos Townhouses Duplex Villas Golf Lots View Lots Oceanfront Lots Ag Lots Fractional Timeshare
Totals 250 100 400 320 240 150 120 170 200 200 60 30 20 150
2007
2008
2009
2010 250
2011
2012
2013
2014
2015
2016
2017
100 400 60 30 30 30 50 50 20 50 50 20 10 60 30 40 40 50 50 10 10 20 150 75 30 40 50 50 50 75 30 40 50 30 40 50
30
30 40
30 40
20
Table II-2 ILLUSTRATIVE ABSORPTION FOR KA'U RESORT 2007 to 2017
Development Phasing
Totals
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mid Market Condos High End Condos Townhouses Duplex Villas Golf Lots View Lots Oceanfront Lots Ag Lots Fractional Timeshare
320 240 150 120 170 200 200 60 30 20 150 25 25 20
30
60 30 30 40
60 30
30 40 40
50 30
50 30 40 40
50 30
50 30 40
30 25 25 20 25 25 20 10
40 25 25 10 25 25 10
50 25 25 25 25
50 25 25
10
10 75
75
Highway. Retail in Hilo is mostly oriented to the local residents. Waikoloa and Mauna Lani have each developed retail centers to service the tourists and second-home residents. Retail Demand Analysis Available Markets ERA has identified four available markets for the retail component of the Kau resort development. These include:
Hotel Guests: people who will be staying at the hotels within the Kau resort. Resort Residents: property owners of the resort real estate and their guests. Primary Residents: people who are residents of the Kau district. Travelers: people who are traveling through Kau.
The four available markets each represent a specific consumer type that will utilize the retail component differently. ERA evaluated the spending habits of each type of consumer and determined capture rates for each. The analysis evaluated three types of retail categories: prepared food & beverage, groceries and merchandise retail. Projected Estimated Size of Available Markets The following are the estimated size of each available market for key years of the projects development:
Hotel Guests: 144,000 visitor days in 2010, 434,000 visitor days by 2017. Residents: 3,500 visitor days in 2010, 103,000 visitor days by 2017. Primary Residents: 4,600 population in 2010, 5,000 by 2017 Travelers: 240,000 people annually.
Capture Rates of Available Markets Regardless of the quality of the shops and establishments, the commercial retail at the Kau development will not capture 100 percent of the spending power of the available markets. As a result of the competition on the Island, ERA determined potential capture rates for each available market. The hotel guests and resort residents are more of a captive audience and thus it is assumed that they will utilize certain elements of the retail more so than the primary residents and the travelers. However, there is a lack of existing retail near the site, primary residents may utilize the prepared food and beverage and grocery retail at a substantial rate. The tourists driving passed the Kau site on route to Volcano or Kona may utilize the retail but at a significant lower rate. The following are ERAs estimates for capture rates for each available market and retail category.
Estimated Capture Rates for Available Markets

Capture Rate for Hotel Guests Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Resort Residents Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Primary Residents Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Travelers Prepared Food and Beverage Space Grocery Space Retail Merchandise Space 60% 65% 85% 70% 90% 80% 50% 60% 30% 3% 5% 2%
Estimated Retail Demand Based on the assumptions utilized, it appears likely that the four available markets could initially support an estimated 24,000 square feet of new commercial space, but that demand will grow quickly if the resort is successfully developed and marketed as envisioned. By 2014, the identified available markets are expected to represent sufficient demand to support about 68,000 square feet of new shops and restaurants and by 2017 support over 75,000 square feet of retail and restaurants. Based on the ERAs analysis, it is estimated that 34 percent of the demand will support prepared food & beverage space, approximately 10 percent will support grocery store space and a about 56 percent will support retail merchandise space. The distribution is not expected to change significantly over the next ten years. While demand for most of this space is not expected to materialize until 2014, it will be necessary to develop most key facilities (main restaurants, primary shops, etc.) by the time the resort opens in order to make the resort a sufficiently attractive place to stay for initial sales prospects and other visitors. Retail and Restaurant Program Recommendations ERAs key conclusions and recommendations by retail category are summarized below. Food & Beverage To establish the Kau resort as a destination it will be absolutely critical to offer an appealing mix of highly attractive restaurants and bars within the resort, ranging from a
casual beach club grill to a high quality, oceanfront fine dining venue. Several food and beverage tenants that would be appropriate include: Fine Dinning Bar and Grill Casual Dinning Japanese / Sushi Coffee House Ice Cream Shop Chain such as Roys Grocery Store Space Given the subject sites remoteness, it will also be important to have a grocery store, to service the resort residents and the primary residents. The grocery store could include a pharmacy and provide other general household supplies. The grocery store does not need to be built until there is a sufficient resort resident population. ERA recommends constructing the store in Phase II and allocating 8,000 to 10,000 square feet to the store. Retail Shops Given the subject sites remoteness, it will also be important to offer an appealing mix retail shops at Kau, ranging from a convenience-oriented beachware shop to some small, high-end retailers: Casual Apparel Shops Art / Cultural Shops Jewelry Shop Beach Wear Souvenirs Sundries High End Apparel Shops Home Dcor / Lifestyle
Summary of Key Planning Inputs A number of key issues have arisen from the research and analysis. These conclusions are both comments on the preliminary land-use plan as well as suggestions for the new concept master plan. ERA recommends a market positioning similar to that of Mauna Lani which allows for 4 to 5 star hotels as well as a range of real estate offerings ranging from moderately priced condominiums to very high-end lots and housing. ERA recommends that not more than 4 hotels and preferably 3 be developed at the resort. More hotels are not necessary to bring notoriety and cachet to the
project or to support the amenities. Condominiums, timeshare and fractional condominiums can serve as alternative means of increasing on-site population but with lower risk and faster return on investment. The proposed airport is beneficial as a prerequisite for the proposed VA clinic. It will also be a benefit for marketing to the very high-end real estate market. However, ERA does not believe it will have a significant impact on hotel visitation, as most visitors will need or want the commercial airports at Kona or Hilo. As mentioned in the real estate discussion, land dedicated to the Hawaiian Heritage Center should minimize impact on high value property. This is particularly true of oceanfront property. If beach access is limited or cannot be provided, it would be beneficial to create lagoons that bring water into resort sites or otherwise provide ocean access. We recommend limiting the size and scope of the equestrian facilities, as the aa lava landform of the site is not particularly suitable for this activity and equestrian enthusiasts will have other options on the island that are far better for equestrian. The proposed Kau town at the mauka portion of the site near the highway does not directly relate to the resort portion of the property, except to create a community base to support resort employees. This town can be done in an attractive manner; however, it must remain affordable in order to function as a community for employees. Like any employee housing, it should be separate from the resort and should not detract visually from the arrival experience of resort guests and property owners. Like Waikoloa Village, it should be entirely separate and serve separate functions from the resort. The mauka portions of the site between the proposed Kau town and the resort could be subdivided and sold as large agricultural lots. While the aa landform would not be as desirable as the pasture lands of Kohala and Kona, these lots would offer large lots in a golf and amenity oriented resort setting.
SECTION III: MARKET OVERVIEW This section provides a summary of key socio-economic and tourism conditions. These data provide a basis for projecting future demand for lodging, retail and commercial development potential. Topics covered include:
Demographic trends, including population and household growth; Economic activities and growth, including employment; Trends in tourism, including visitor profiles and characteristics; Real estate market information, including residential and retail markets.
Demographic Trends Population Growth Hawaii is the largest of the Hawaiian Islands in terms of land, but ranks second in population, after Oahu. According to the Hawaii State Department of Business, Economic Development and Tourism (DBEDT), from 2004 to 2005, the Big Island experienced a 2.9 percent growth in population, the greatest growth rate among the four islands. Historically, the resident population of the Big Island has grown steadily since 1990, with annual increases of greater than two percent between 1990 to 1995 and 2000 to 2005. The population of the Big Island was approximately 167,293 residents in 2005, and is expected to grow to about 190,300 residents by 2015, and 216,150 residents by 2025. These projections were published in the DBEDT 2030 series. Because Hawaii receives a significant number of tourists each year, population is evaluated in both resident population and de facto population. 1 On the Big Island the de facto population was only 11 percent greater than the resident population in 2005. The de facto population on Maui and Kauai was 28 and 26 percent greater than the resident population, respectively. The de facto population tends to follow a similar pattern, with slightly greater variability due to fluctuations in the number of visitors from year to year. The de facto population was estimated to be 180,800 in 2005, and is projected to grow to 212,250 in 2015 and 241,800 in 2025. Figure III-1 shows historic population statistics for Hawaii County. According to the DBEDT, the growth of the Big Island population in recent years is partly due to the fact that more people move to the island from other islands and from the U.S. mainland. An average of 2,260 more people moved (from U.S. mainland or Hawaii neighbor islands) to the Big Island per year than those moving out of the island during the 2000-2005 period.
De facto population figures include all persons physically present in area, regardless of military status or usual place of residence. Includes visitors present but excludes residents temporarily absent, both calculated as an average daily census. Page III- 1 Market Overview
Figure III-1: Historic Population Trends, Hawaii County, 1990 to 2005.

200,000 190,000 180,000 170,000 160,000 150,000 140,000 130,000 120,000 110,000 100,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Resident Population
De Facto Population
Source: Hawaii State Department of Business, Economic Development and Tourism
Population By District Table III-1 presents a breakdown of growth within the island. As shown, growth has been concentrated in the Puna, South Kohala and North Kona areas. Combined, the North Kona and South Kohala districts received more than one third of all new population on the Big Island between 1990 and 2000. The Kau district contained four percent of the islands total population, however, it experienced over a 31 percent change in population between 1990 and 2000. The distribution of growth between the 1990 and 2000 censuses is presented in Figure III-2. Table III-1: Resident Population by District, 1980 to 2000.
District Puna South Hilo North Hilo Hamakua North Kohala South Kohala North Kona South Kona Ka'u 1980 11,751 42,278 1,679 5,128 3,249 4,607 13,748 5,914 3,699 1990 20,781 44,639 1,541 5,545 4,291 9,140 22,284 7,658 4,438 2000 31,335 47,386 1,720 6,108 6,038 13,131 28,543 8,589 5,827 Percent Change 80 to 90 90 to 00 76.8% 50.8% 5.6% 6.2% -8.2% 11.6% 8.1% 10.2% 32.1% 40.7% 98.4% 43.7% 62.1% 28.1% 29.5% 12.2% 20.0% 31.3%
Page III- 2 Market Overview
Figure III-2: Distribution of Population Growth between 1990 and 2000.
Puna, 51% South Kona, 12% North Kona, 28% Ka'u, 31% South Hilo, 6%
North Hilo, 12%
South Kohala, 44%
Hamakua, 10% North Kohala, 41%
Employment and Economic Trends The economy of the Big Island is dominated by the tourism and service industries. From 1990 to 2006, total wage and salary jobs on the Big Island increased by 26,000 jobs, an increase of 46 percent or an annual increase of 2.4 percent. (Table III-2) The economy tends to be cyclical, rising and falling with the economic health of the nation, especially the western states. The island experienced a period of sustained growth beginning in the mid-1990s, but was impacted due to the combined effects of the recession, terrorist events and the wars in Iraq. However, the economy of Hawaii recovered faster than originally expected, after September 11th. The biggest losses were concentrated in the tourism sector, especially the Japanese market. Weakness in the tourism sector was offset by strong construction activity due to low interest rates and uninterrupted strength in the upscale second home market. Table III-2: Hawaii County Labor Market, 1990 to 2006.
Labor Force 58,900 65,100 73,500 77,100 76,250 78,900 79,450 82,200 85,950 Employed % Unempl. 57,350 2.7% 59,500 8.6% 70,350 4.2% 72,800 5.5% 73,150 4.1% 75,550 4.2% 76,700 3.5% 79,650 3.0% 83,700 2.6%
1990 1995 2000 2001 2002 2003 2004 2005 2006

1
Data is for November of that year.
Source: Hawaii State Department of Business, Economic Development and Tourism Kahuku Ranch Market Assessment Page III- 3 Market Overview
As of November 2006, the State of Hawaii had one of the lowest unemployment rates in the nation, with a rate of 2.9 percent, as compared to the national rate of 4.5 percent. The Big Island had the highest unemployment rate of the four counties of Hawaii; however the rate is still significantly lower than the national unemployment rate for November 2006. Furthermore, for the third quarter of 2006, the seasonally adjusted labor force, according to the Hawaii State Department of Labor and Industrial Relations was 655,000. Compared to the third quarter of 2005, the number of employed persons in Hawaii grew by 16,550, or 2.6 percent, the highest rate of growth since 1990. Among the counties, Hawaii County had the highest growth in wage and salary jobs, while Kauai had the lowest. In the third quarter of 2006, Hawaii County added 2,000 wage and salary jobs, a 3.1 percent increase from the third quarter of 2005. The tourism-related sectors, Retail Trade and Food Services & Drinking Places added 400 and 300 jobs, respectively. Natural Resources, Mining and Construction and Government each added 300 jobs in Hawaii County, while Agriculture lost 150 jobs. All factors indicate that the economic strength of the state and the county is expected to continue. Households and Home Ownership Households According to the US Census, there were 52,985 resident households in Hawaii County in 2000. The number of households increased 28 percent between 1990 and 2000. As indicated in Table III-3, during the same time period, the average number of persons per household declined slightly, from 2.86 to 2.75 persons. Table III-3: Hawaii County Households, 1990 and 2000.
1990 41,461 2.86 2000 52,985 2.75 Additional Households 11,524 n/a Percent Change 28% -4%
Total Households Average Household Size

Source: US Census
Housing Stock Table III-4 compares the Hawaii County housing stock in 1990 with the housing stock in 2000. As shown, the total number of housing units increased by 30 percent between 1990 and 2000. It is interesting to note that the number of households did not increase as much as the number of units due to declining household size. The distribution of units among tenure and unit size remained about the same over the decade. One notable exception is the increase in the number of housing units for seasonal, recreational or occasional use, which nearly tripled during the period, to 5,101.2 Most of these units were second homes (along with some units classified by the Census as vacant for rent). Other key characteristics of the 2000 housing stock are as follows:
2
Note: for the Census, households only include persons whose primary place of residence is in the area; hence seasonal units are counted as vacant or for-rent units. Page III- 4 Market Overview
About 55 percent of units are owner occupied, and 30 percent are renter occupied again, this does not include second home units (discussed above), which represent at least 8 percent of the housing stock. The majority of housing units, about 77 percent, are single-family detached homes. Only about 11 percent of units are in buildings with 10 or more units. Table III-4: Hawaii County Housing Characteristics, 1990 and 2000
1990 48,253 41,461 25,336 16,125 6,792 36,622 1,399 2,150 1,642 5,561 879 2000 62,674 52,985 34,175 18,810 9,689 48,231 2,066 3,185 2,213 6,592 387 Change 90 - 00 14,421 30% 11,524 28% 8,839 35% 2,685 17% 2,897 43% 11,609 667 1,035 571 1,031 -492 32% 48% 48% 35% 19% -56%
Total housing units Occupied units Owner occupied Renter occupied Vacant units Units in structure 1 unit detached 1 unit attached 2 to 4 units 5 to 9 units 10 or more units Other
Source: US Census
100% 86% 53% 33% 14% 76% 3% 4% 3% 12% 2%
100% 85% 55% 30% 15% 77% 3% 5% 4% 11% 1%
Tourism Trends Visitation Resort tourism began on the Big Island in the 1960s with the development of the Mauna Kea Beach Resort and the Keauhou area of Kona. Visitation was initially very limited, but grew rapidly during the 1970s and 1980s. Tourism and related industries have now dominated the economy of the Big Island for more than 15 years. With development of other resorts such as Mauna Lani, Waikoloa, Hualalai, and now resort residential projects of Kukio and Hokulia, the Big Island has emerged as a true resort destination and is now the leading Hawaiian location of upscale resort real estate. Visitors come to the Big Island for the weather, the lack of crowds, the golf, and for the atmosphere. Today, the Big Island is growing in popularity, and visitation has been growing steadily since the decline in the early to mid 1990s. As shown in Figure III-3, visitation to the state of Hawaii reached an all-time high in 2005, with an estimated 7.3 million visitors. Tourism throughout the world, declined sharply after September 11, 2001, and consequently the annual number of visitors to the state declined to about 6.3 million for the year. The three year decline in total visitation can be attributed to the decrease in the number of international tourists. According to a report by the Bank of Hawaii, international visitor arrivals were already down 2.1 percent in 2001 prior to September 2001, and fell 45 percent after the terrorist attack to finish the year 26 percent below 2000 levels. According to the same report, business meetings and
Kahuku Ranch Market Assessment Page III- 5 Market Overview
convention travel were down 27.1 percent in the domestic market in 2001, but domestic leisure travel (3.0 million visitors in total) declined only 2.5 percent. Domestic visitor counts fell only 5.1 percent to 4.2 million during 2001, despite the decline in visitation after September 11.
Figure III-3: Visitor Arrivals Domestic v. International, Statewide 1995 2005.
8,500,000 7,500,000 6,500,000 5,500,000 4,500,000 3,500,000 2,500,000 1,500,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Total Domestic International
Source: Hawaiian Department of Business, Economic Development & Tourism
Three markets: the Western United States, Eastern United States, and Japan are the key components of visitor arrivals to the State of Hawaii. As illustrated in Figure III-4, since 2001, visitation from both the Eastern and Western United States increased significantly, with an annual growth rate of 4.5 percent and 5.9 percent respectively. In 2005, visitation from both the Eastern and Western United States achieved record levels, with 1.9 million visitors from the Eastern United States and 2.9 million visitors from the Western United States. The Japanese market did not rebound as swiftly to the events of September 11th and actually declined significantly between 2001 and 2003. However, in 2004, the Japanese market recovered and grew by over 10 percent. By 2005, total Japanese visitation to Hawaii finally broke the 1.5 million mark and is forecasted to continue to grow. Visitation to all of the islands increased between 2001 and 2005, as indicated in Table III-5. While the Big Island receives less total arrivals than Oahu or Maui, it experienced the greatest increase in total arrivals between 2001 and 2005 of the four counties. Furthermore, in 2005 the Big Island experienced a 16 percent annual increase in total arrivals, while Oahu and Kauai only experienced a 6 percent increase and Maui experienced a 4 percent increase. Visitation to the Big Island is typically comprised of 75 percent domestic arrivals and 25 percent international arrivals. In comparison to the other islands, the Big Island has the second highest percentage of international arrivals annually.
Figure III-4: Total Visitation by Market Segment, Statewide 2000 to 2005.

3,000,000 2,700,000 2,400,000 2,100,000 1,800,000 1,500,000 1,200,000 2000 2001 2002 2003 2004 2005 US - West US - East Japan
Table III-5: Statewide Annual Visitor Arrivals by County, 2001 to 2005.

Year 2001 2002 2003 2004 2005 % change Oahu 4,257,536 4,276,077 4,090,483 4,464,551 4,731,843 11.1% Kauai 1,008,699 1,005,897 975,868 1,020,921 1,090,147 8.1% Maui 2,104,478 2,139,427 2,196,447 2,207,826 2,364,480 12.4% Big Island 1,181,552 1,243,313 1,207,164 1,281,156 1,521,537 28.8%
Tourism is expected to remain strong with an estimated 6.8 million visitors in the first eleven months of 2006. Of the 2006 visitation, the Big Island received an estimated 20 percent of the visitors, approximately 1.4 million visitors, while Maui received 32 percent and Oahu received 64 percent. According to the DBEDTs 2030 projections, total visitation to Hawaii is projected to continue to increase. The projections, indicated in Table III-6, forecast that total visitation will reach 8.6 million by 2015 and will break the 10 million mark by 2025. Table III-6: Visitor Arrival Projections by County, 2000 to 2030
2000 Visitor Arrivals (000s) Hawaii County Honolulu County Kauai County Maui County State Total 1,268 4,719 1,075 2,305 6,983 2005 1,310 4,760 1,130 2,390 6,970 2010 1,420 5,120 1,230 2,590 7,810 2015 1,570 5,610 1,360 2,860 8,620 2020 1,700 6,020 1,470 3,090 9,290 2025 1,830 6,420 1,580 3,330 10,010 2030 1,980 6,860 1,700 3,570 10,780
Source: Hawaiian Department of Business, Economic Development and Tourism. Kahuku Ranch Market Assessment Page III- 7 Market Overview
Seasonality In general, peak visitation months are March, July and December and the slowest months are April, May, September and November. However, as seen in Figure III-5, the Big Island is a popular tourist destination throughout the year with only a 40,000 difference in arrivals between the low and high seasons. Figure III-5: Seasonality of Big Island Visitor Arrivals, 2005.
150,000 140,000 130,000 120,000 110,000 100,000 90,000 80,000 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Visitor Profiles A summary of selected characteristics of visitors to the Big Island in 2005 is presented in Table III-7. During that year, 77 percent of visitors were domestic and 23 percent were international. Of the international visitors 28 percent of visitors were true independent travelers, and about 67 percent purchased their trip as a package. International visitors are significantly more likely than domestic visitors to travel as part of a tour group and to purchase their trip as a package. Both domestic and international visitors preferred to stay in a hotel, with over 66 percent of visitors in 2005 staying at a hotel and 25 percent staying in either a condo or a timeshare. The vast majority of visitors to the Big Island visited the island for pure pleasure, with 83 percent of total arrivals, in 2005, classified as pleasure trips. Compared to Maui and Kauai, the Big Island is the most popular for meetings, conferences or incentive trips; nine percent of total arrivals in 2005 were classified as meetings, conferences or incentive trips. Most Big Island visitors have been to Hawaii before (64 percent), and the average number of previous trips is about 4.7. Domestic visitors are slightly more likely to have visited previously, and have been to Hawaii 5.06 times, on average.
Table III-7: Big Island Visitor Profile, 2005.

Total Total Visitor Days Total Visitors Travel Method Group Tour Package Group Tour & Pkg True Independent Accommodations Hotel ...Hotel Only Condo ...Condo Only Timeshare ...Timeshare Only Apartment Bed & Breakfast Cruise Ship Friends or Relatives Purpose of Trip Pleasure (Net) Honeymoon/Get Married (Net) MC&I (Net) ...Convention/Conf. ...Corp. Meetings ...Incentive Other Business Visit Friends/Relatives Government/Military Attend School Sport Events Visitor Status First-Time Repeat Average # of Trips 10,066,362 1,521,537 229,044 636,295 188,551 844,749 1,000,094 744,012 238,257 146,398 135,250 87,259 62,519 39,229 176,623 147,864 1,268,437 101,200 135,092 78,753 25,562 36,416 59,231 128,409 11,070 4,851 27,554 546,013 975,523 4.70 % Domestic 8,543,141 1,173,629 112,979 404,757 91,190 747,083 704,619 481,734 206,392 126,046 126,955 82,650 57,257 34,247 162,220 131,092 976,563 54,995 108,523 65,060 20,364 27,883 52,239 116,166 5,747 3,411 19,968 396,082 777,547 5.06 % International 1,523,221 347,907 116,065 231,539 97,362 97,666 295,475 262,277 31,865 20,352 8,295 4,608 5,262 4,981 14,403 16,772 291,874 46,205 26,570 13,693 5,198 8,533 6,992 12,242 5,324 1,440 7,587 149,931 197,976 3.49 %
100% 15% 42% 12% 56% 66% 49% 16% 10% 9% 6% 4% 3% 12% 10% 83% 7% 9% 5% 2% 2% 4% 8% 1% 0% 2% 36% 64%
100% 10% 34% 8% 64% 60% 41% 18% 11% 11% 7% 5% 3% 14% 11% 83% 5% 9% 6% 2% 2% 4% 10% 0% 0% 2% 34% 66%
100% 33% 67% 28% 28% 85% 75% 9% 6% 2% 1% 2% 1% 4% 5% 84% 13% 13% 4% 1% 2% 2% 4% 2% 0% 2% 43% 57%
Construction Trends Overall Trends Residential construction on the Big Island has followed a cyclical trend, with the number of permits typically ranging between about 1,000 and 3,000 units in each year. As shown in Figure III-7, construction activity increased rapidly during the late 1980s, peaking at a high of 3,152 units in 1989. Construction activity slowed significantly during the 1990s, reaching a low of 765 units during 1997. Building activity has increased since the late 1990s and is quite active during the 2000s, especially in 2004 and 2005. Since 2002, the real estate market on the Big Island has continued to grow. In fact in 2005, there were 5,663 permits issued with a total value of $1.1 billion, representing a 14 percent increase in building permits and an 18 percent increase in total value, as compared to 2004. Further indication that the real estate market is extremely strong on
Kahuku Ranch Market Assessment Page III- 9 Market Overview
the Big Island is that the number of building permits issued between 2000 and 2005 grew 10 percent annually. As of November 2006, private building permits issued in 2006 valued $877 million, with residential permits valued at $682 million and commercial permits valued at $121 million. As illustrated in Figure III-8, of all building permits issued through November 2006, the majority of permits issued were for Puna and North Kona. The smallest number of permits were issued for North Hilo and Hamakuna. An estimated nine percent of all of the building permits were issued for Kau. In terms of number of units, as of November 2006, permits were issued for a total of 2,792 units, with 41 percent in Puna. Interestingly, while only 13 percent of the permits were issued for South Kohala, the values of those permits represent 21 percent of the total value of all building permits through November 2006. Figure III-7: Building Permits, Big Island, 1990 to 2005.
6,000 5,000 4,000 3,000 2,000 1,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: DBEDT and Hawaii County Building Division
Figure III-8: Distribution of All Building Permits, 20063

South Kona 3% North Kona 21% Ka'u 9% Puna 35%
South Kohala South Hilo 13% 13% North Kohala North Hilo 3% Hamakua 1% 2%
Not including December 2006 Source: Hawaii County Building Division and ERA
SECTION IV: LODGING MARKET ANALYSIS In this section, ERA first presents an overview of the hotel market on the Big Island. The following are addressed below:
Overview of lodging trends in Hawaii County; Review of operational characteristics of selected hotels; Key characteristics of selected hotels; Projection of hotel roomnights to Hawaii, 2006 2016; Calculation of implied market share for hotels at the Kau resort development.
This section then concludes with recommendations pertaining to the proposed Kau resort development program. Factors addressed include:
Number and type of hotel rooms; Development phasing; Market positioning; Mix of rooms and suites; Facilities and amenities; Room rates; Seasonality; Market mix; and Occupancy.
Overview of the Hotel Market in Hawaii County The resort economy on the Kohala and Kona coast of the Big Island started when renowned hotelier Laurance S. Rockefeller built the Mauna Kea Beach Hotel in 1965. Since then numerous hotels and resort accommodations have developed along the Kohala and Kona Coasts and throughout Hawaii. The Hawaii State Department of Business, Economic Development and Tourism (DBEDT) estimates that there were 270 properties providing visitor accommodations on the Big Island, in 2005. Big Island accommodations constituted 22 percent of all Hawaiian visitor accommodations in the state. Lodging Inventory In 2005 the DBEDT reported that there were over 11,000 visitor accommodation units on the Big Island. Hotels represent the greatest percentage of visitor accommodations, with almost 7,000 units. Condominium hotels and timeshares are also very prevalent on the island, with DBEDT reporting that there were over 1,000 condominium hotel units and over 1,500 timeshare units. Bed & breakfasts and individual vacation units represent a small percentage of the visitor accommodation stock on the Island. Figure IV-1 illustrates the distribution of visitor accommodation units within the Big Island.
Kahuku Ranch Market Assessment Page IV- 1 Lodging Market Analysis
Figure IV-1: Distribution of Visitor Accommodations by Type, 2005.

Bed & Breakfast 3%
Timeshare 14% Individual Vacation Unit 7%
Other 2%
Condo Hotel 10% Hostel 4%
Hotel 60%
Source: Hawaii State Department of Business, Economic Development & Tourism
Kona contains the largest concentration of visitor accommodation units, with 45 percent of all visitor accommodations. The Naalehu/ Kau region have the lowest concentration of visitor accommodation units with 1 percent of all units on the island. The majority of the hotel units are located in Kohala/Waimea/Kawaihae and Kona. Table IV-1 contains the distribution of visitor accommodation units by type and area. Table IV-1: Visitor Accommodations by Type and Area, 2005.
Kohala/ Waimea Hilo/ Honokaa /Kawaihae 42% 0% 7% 3% 4% 95% 14% 49% 5% 46% 0% 32% 31% 1% 12% 41%
Bed & Breakfast Condominium Hotel Hostel Hotel Individual Vacation Unit Timeshare Other Total
Kona 31% 89% 0% 36% 43% 66% 38% 45%
Naalehu/ Ka'u 4% 2% 0% 0% 0% 2% 7% 1%
Volcano Area 22% 0% 1% 1% 6% 0% 24% 2%
Of the total visitor accommodations on the Big Island in 2005, 34 percent of the units were classified as standard units, charging between $101 and $250 per night, while over 47 percent of the units were classified as deluxe or luxury commanding over $250 per night.
Page IV- 2 Lodging Market Analysis
Occupancy Rates In 2005, the occupancy rate on the Big Island averaged 72 percent with the highest occupancy occurring in February 2005, with 82 percent occupancy. In 2005, the average occupancy rate for the Big Island was the lowest of the four islands. Oahu had the highest average occupancy rate with 86 percent, while the statewide average was 81 percent. The occupancy rates for all islands is illustrated in Figure IV-2. As of October 2006, the year to date occupancy rate was 70 percent, a decrease of 0.1 percent compared to the first ten months of 2005. Figure IV-2: Occupancy Rates, All Islands 2005.
90% 85% Statewide 80% 75% 70% 65% Maui Kaui Big Island Oahu
Average Daily Rates The average daily room rate (ADR) for the Big Island, in 2005, was $173.67 per night and the average revenue per available room (RevPAR) was $125.39 per night. While the average daily room rate on the Big Island was higher than the statewide average of $166.86 in 2005, the average revenue per available room rate was ten dollars lower than the statewide average of $135.50 per night. As displayed in Figure IV-3 the Big Island was behind Maui and Kauai in both average room rates and average revenue per available room, in 2005. The ADR for the first ten months of 2006 was $168 and the RevPAR was $118 per night. Both the ADR and RevPAR experienced a seven percent increase over the first ten months of 2005.1
2006 Year to date occupancy and ADR data was provided by Smith Travel Research. Page IV- 3 Lodging Market Analysis
Figure IV-3: ADR and Average Revenue per Available Room, All Islands 2005.
$250.00 $200.00 Statewide $150.00 $100.00 $50.00 $0.00 Average Daily Room Rate Average Revenue Per Available Room Maui Kauai Big Island Oahu
Average Length of Stay & Party Size The overall length of stay on the Big Island is 6.62 days, with visitors spending on average 3.47 days in Hilo and 6.65 days in Kona. The length of stay is significantly different between arrivals to the Kona airport and arrivals to the Hilo airport. Arrivals to Kona spend significantly more time on the island, staying an average of 6.92 days, with an average of 2.28 days in Hilo and 6.28 days in Kona. Arrivals to Hilo stay an average of 5.56 days, with an average of 3.47 in Hilo and 3.49 in Kona. The average party size on the entire island is 2.12 persons. There is little difference in party size between arrivals at either air port. Selected High-End Hotels The Big Island has several high-end resort hotels. These hotels are mostly located along the Kohala and Kona coasts. Constructed in 1965, the Mauna Kea Beach Hotel is the oldest of the selected. Below is a brief overview of each hotel and their associated amenities. Table IV-2 contains key characteristics of each hotel.
Table IV-2 KEY CHARACTERISTICS OF SELECTED RESORT HOTELS IN THE REGION
Hotel Name
Accommodations Rooms Suites Total
Year Opened
Meeting Space 71,000 SF Indoor & Outdoor
Other Facilities / Amenities
Reg. Rack Room Rates, 2006 Low High Est. ADR
Approximate Approx. Annual Market Mix FIT Group Occup.
Hapuna Prince Beach Hotel
314
36
350
1994
Beach Front, 5 Resturants, 13 Tenis Court, Fitness Center, Equestrian Exquisite Beach Access 25,000 SF Spa, 5 restaurants, fitness club, 3 mile shoreline Beach access, 10,000 SF pool Spa, tennis pavilion
$250
$690
$250
60
40
82
Mauna Kea Beach Hotel Mauna Lani Bay Hotel
300 328
10 19
310 347
1965 1983
18,200 SF
$250
$650
$325
90
10
70
$350 $329
$450 $450
$400 $350
65% 40
35% 60
80 70~
Fairmont Orchid
486
54
540
1990
31,000 SF Indoor
Hilton Waikoloa Village
1183
57
1240
1988
100,000 SF Conference Center
25,000 SF Spa, 20,000 SF Retail 9 restaurants, 4 acre lagoon 20,000 SF spa, wellness program Pool, beach access, spa
$279
$429
$300
50
50
70~
Waikoloa Beach Marriott
523
22
545
1981
28,000 SF 10,000 SF Conference Center
$219
$369
$300
75
Sheraton Keauhou Bay
511
10
521
2004
Pool, 3 restaurants, spa, Spa, Kid's Center 3 restaurants, sports club & spa 4 pools, seawater pool
$179
$325
$275
30
70
70~
Four Seasons
198
45
243
1996
1,600 SF
$695
$1,095
$700
90~
Mauna Kea Beach Hotel The Mauna Kea Beach Hotel opened in 1965 as the first high-end resort on the Big Island. Located within the Mauna Kea Resort, the hotel has 310 rooms, including 10 suites. The Mauna Kea endured structural damage from the 6.5 earthquake that hit the Big Island in October 2006. As a result the hotel was forced to cease operations. Renovation of the hotel has been contemplated for many years and it is speculated that the hotel management will utilize the closing to upgrade facilities.
Prior to the earthquake the Mauna Kea had a 70 percent occupancy rate and an ADR of $325 per night. The majority of hotel guests were independent travelers and the hotel had a strong and extremely loyal repeat visitation. As of December 2006, the hotel is scheduled to reopen in the summer of 2008. Hapuna Beach Prince Hotel Also located within the Mauna Kea Resort, the Hapuna Beach Prince Hotel opened in 1994. Both the Hapuna Beach Prince and Mauna Kea Beach Hotel are managed by Prince Resort Hotels. The hotel contains 350 guest rooms, including 36 suites. The hotel also has the Hapuna Suite, an estate-like 8,000 square foot residence with private drive, four bedrooms, gourmet kitchen and staffed suite attendants. The hotel features extensive beach front access, five restaurants, a 13-court tennis park, fitness center and equestrian accommodations. The hotel has an 8,430 square foot meeting space that can accommodate up to 650 attendees and over 71,000 of functional indoor and outdoor meeting space. Guests at both the Hapuna and Mauna Kea can use the Mauna Kea Golf Course designed by Robert Trent Jones, Sr. and completed in 1964 and the Hapuna Golf Course designed by Arnold Palmer and Ed Seay and completed in 1992 The Hapuna Prince experienced an 82 percent occupancy in 2006. The occupancy rate was increased by the closing of the neighboring Mauna Kea Beach Hotel. The Hapuna Princes ADR in 2006 was $250 per night. The hotels rack rate ranges from $250 to $690. Approximately 60 percent of the hotels guests are FIT travelers. An estimated 10
percent of the guests are from Japan while the rest are from the mainland, mostly California. Mauna Lani Bay Hotel & Bungalows The Mauna Lani Bay Hotel opened in 1983 and marked the initial development of the Mauna Lani Resort. The hotel contains 328 rooms, five bungalows and 14 luxury suites. The bungalows are approximately 4,000 square feet. Meeting space at the hotel totals 18,200 square feet, 7,000 of which is concentrated in the private garden wing. The hotel includes a 4,810 square foot ballroom that accommodates between 280 and 450 people. The Mauna Lani Spa consists of 25,000 square feet of indoor space and approximately 15,000 square feet of outdoor treatment space. The hotel also features five restaurants, a fitness and sports center and three miles of shoreline. Guests at the Mauna Lani can use the two 18-hole golf courses located within the resort, the Francis H. II Brown North and South Courses, designed by Nelson and Haworth
The Mauna Lani Bay Hotel is part of the Pan Pacific family of hotels. With the Pan Pacific brand, the hotel has a very loyal client base. As a result occupancy in 2006 was approximately 80 percent. The hotel projects that 2007 will be a great year as they are absorbing some of the demand from the closing of Manua Kea Hotel and the opening of the Ritz Carlton on Maui. In 2006 the hotels ADR was the second highest on the island, with respect to the high-end comparable hotels. The rack rate ranges between $350 and $450 per night for the hotel and $6,500 for the bungalows. Hotel visitors are an estimated 65 percent FIT and 35 percent group. Of the group visitors approximately 50 percent are conferences. Guests stay an average of 4.5 nights and are mostly from California. Fairmont Orchid The Fairmont Orchid is within the Mauna Lani resort. Designed by Wimberly, Allison, Tong and Goo, the hotel opened in 1990. The hotel contains a total of 540 rooms (486 guest rooms and 54 suites). The hotels executive gold floor contains 45 luxury rooms/suites. Within its 32 acre site, the hotel has six restaurants, four lounges and
31,000 square feet of indoor meeting space, three ballrooms totaling 20,750 square feet, and a 160-seat indoor amphitheater. The hotel also features beach access with a swimming lagoon, a highly ranked outdoor spa, a 10,000-square foot pool, a 10-court tennis pavilion with full service pro shop and the two resort golf courses.
In 2006, the Fairmont achieved an average daily room rate in the high $300s. The hotel is positioning its self for a higher market and as a result increased its ADR by over $150 from the previous year. The hotels rack rate is $329 to $450, with presidential suites priced at $4,000 a night, in high season. The hotel occupancy is similar to that of the higher end resorts on the island. The hotels current visitor mix is 60 percent group and 40 percent independent travel (FIT). The hotel projects that 2007 will be a strong year. As of December 2006 they had more business booked for 2007 than occurred in all of 2006. Hilton Waikoloa Village The Hilton Waikoloa Village is the most family-oriented and largest hotel on the Kohala Coast. The hotel contains 1,240 guest rooms and 57 suites. Accommodations are spread across three low-rise towers: the Ocean, Lagon and Palace Towers. The entire property is located on 62 acres, with trams and boats ferrying guests between the three towers. The hotel opened in 1988 as a Hyatt Regency Waikoloa. Hilton acquired the hotel in 1993.
Facilities at the hotel include:

60,000 square feet of indoor meeting space; 175,000 square feet of outdoor meeting space; 21 meeting and banquet rooms; 25,000 square foot sports club & spa; 20,000 square feet of retail shops; Nine restaurants; Eight tennis courts; Two 18-hole golf courses; Two action swimming pools; Four acre ocean feed saltwater snorkeling lagoon.
The guest mix at the Hilton is evenly split between independent travelers and groups. An estimated 15 percent of guests are from Japan, 80 percent from the United States and five percent from Europe. The hotels high season is spring break, summer and Christmas vacation. Hilton reinvests approximately $20 to $30 million a year in renovations. Waikoloa Beach Marriott Resort The Waikoloa Beach Marriott Resort is located next to the Hilton Waikoloa Village. The hotel contains 545 guest rooms and suites and is currently undergoing a $40 million renovation. Included in the renovation is a new serenity pool, a renovated fitness center and a two level spa. The lobby and ballroom are also undergoing a facelift. In addition all of the guest rooms and suites are being upgraded. The renovation project is expected to be completed by the summer of 2007. The construction was slowed slightly from the October 2006 earthquake.
During the renovation the hotel has approximately 330 rooms available for occupancy. They are offering a reduced rate of $219. The hotel achieved a 75 percent occupancy rate in 2006. The occupancy rate is impressive considering that the hotel is undergoing an extensive renovation, and many of the hotels facilities are unavailable to the guests. Sheraton Hotel Keauhou Bay Resort & Spa The Sheraton Hotel Keauhou Bay is the southern most hotel of the selected high-end hotels. With 551 guest rooms and 10 suites, the Sheraton is the only hotel south of Kona to offer room service and valet. The hotel was last renovated in 2004 after being closed for four years. Facilities at the hotel include a full spa and fitness center, two restaurants, tennis, volleyball and basketball courts and pool area with a three-story slide. The Sheraton also features the Keauhou Ballroom, a 10,000 square foot space detached from the rest of the hotel. With its 22 feet ceilings, the ballroom can function like a 14,000 square foot facility and accommodate a maximum of 1,080 people. The visitor mix is 30 percent groups and 70 percent independent travelers. The majority of the groups stay at the hotel between January and March. Recently the hotel has received a lot of college spring break business between March and April. The hotels rack rate ranges from $179 to $325. The hotel reports that its occupancy is similar to the Hilton and Marriot, which is about 75 percent. Four Seasons, Hualalai The Four Seasons Hotel is located within the Hualalai resort. The hotel contains 196 rooms and 6 suites and villas. The guest rooms range in size from 635 to 1,685 square feet, while the suites and villas range in size from 2,600 to 4,000 square feet. The hotel includes three restaurants, the Hualalai Sports Club and Spa and several impressive swimming pools including a salt water pool with fish. The hotel contains 1,600 square feet of indoor meeting space, with the largest meeting space accommodating 500 people. Guests at the hotel can use the 18-hole Jack Nicklaus designed golf course.
The Four Seasons Hualalai is considered to be one of the most successful hotels in the entire Four Seasons chain. The rack rate for guest rooms range from $695 to $1,095 per
night, while the suites and villas range in price from $1,300 to $8,580 per night. It is reported that the hotel achieved a 90 percent occupancy rate and an ADR of $700 per night in 2006. Estimate of Annual Visitation to High-End Big Island Hotels, 2005. Table IV-3 presents an estimate of annual visitation to high-end hotels on the Big Island. The methodology considers the number of high end hotel rooms on the Big Island and the key characteristics of visitation discussed above and in Section III. ERA has chosen to focus on the entire island as the Kau site is situated at equal distance from the Hilo and Kona airports. While over 80 percent of visitors to the Big Island land at the Kona airport, ERA believes the Kau development will draw visitors from both airports. As shown, the DBEDT reports the number of visitors to Hawaii in 2005 was 1.5 million. ERA estimates that there are approximately 4,000 high-end hotel rooms on the Big Island, which is approximately two-thirds of all hotel rooms on the Big Island. Hotel visitors are estimated to account for 66 percent of total visitation to the Big Island. ERA estimates that there were 360,000 visitors staying at high-end resorts in 2005, or approximately 36 percent of total visitation to the island stays at highend resorts.
Table IV-3 ESTIMATED NUMBER OF VISITORS TO HIGH-END HOTELS, 2005
Estimated Number of Visitors 2005 Total Visitation to Hawaii, 2005 Number of High-End Hotel Rooms Estimated Average Annual Occupancy Number of Days Per Year Total Annual High End Hotel Room nights Estimated Average Length of Stay (Days) Estimated Number of High End Hotel Visitor Parties Average Hotel Guest Party Size Estimated Number of High End Hotel Guests Est. Propensity for Visitors to Stay in Hotels High-End Hotel percent of All Hotel Visitors High-End Hotel percent of All Visitors
Source: DBEDT and ERA
1,521,537 4,094 76% 365 1,135,676 6.62 171,552 2.12 363,691 66% 36% 24%
Projected Hotel Roomnights, Big Island, 2007 2017 Table IV-4 presents a projection of hotel roomnights and supportable four and five-star hotel rooms on the Big Island over the 2007 to 2017 time period. The following are key assumptions and projections: As of 2005, there were approximately 4,100 4- and 5-star hotel rooms on the island. As mentioned, annual visitation to Hawaii in 2005 is estimated at nearly 1.5 million people. DBEDT estimates that visitation to Hawaii will grow at 1.6 percent annually between 2005 and 2010, two percent between 2010 and 2015. For the purpose of estimating future growth in visitation, ERA has incorporated an assumption of average annual growth in visitation ranging from 1.6 to three percent. ERA believes the Big Island will experience a greater than projected annual growth rate after 2009, when the first hotels in the Kau development come on line. Key visitor and hotel projections are as follows:
o ERA projects that annual visitation to the Big Island to increase from 1.5 million to about 2 million by 2017. o The number of annual hotel visitors is projected to increase from approximately 1 million in 2007 to about 1.4 million by 2017. o Based on industry-standard and Hawaiian-specific assumptions for average hotel occupancy, average party size, and average length of stay, the total number of supportable four and five-star hotel rooms on the Big Island is projected to range from approximately 4,400 in 2076 to about 5,800 in 2017. o This compares to existing supply of about 4,100 four and five-star hotel rooms and represents an increase in supportable rooms of about 1,500 over the ten-year projection period, which equates to an increase of nearly 37 percent. o The cumulative annual number of supportable new 4- and 5-star hotel rooms on the Big Island is shown by year with key dates summarized as follows: 2009: 460 new supportable 4- and 5-star hotel rooms 2012: 873 new supportable 4- and 5-star hotel rooms 2016: 1,525 new supportable 4- and 5-star hotel rooms
o ERA has set forth a hotel development phasing scenario that we believe would be appropriate and supportable at the Kau site. The phasing scenario matches the introduction of new rooms to the projected demand for rooms over time. o Based on the development scenario, the implied market share for the proposed Kau hotel properties within the 4- and 5-star segment of the Hawaiian market are calculated. The implied market share of the three properties is shown to range from 5 percent to 14 percent over the analysis period, which is considered reasonable.
Table IV-4 - Projected Hotel Rooms, Hawaii, 2006 2017 2005 Visitors to Hawaii, 2005 Assumed Growth in Visitation Estimated Visitors to Big Island Est. % of Visitors Staying in Hotels Estimated Hotel Visitors Four and Five Star Hotel Guests 1,521,537 1.6% 1,546,338 66% 1,020,583 1.7% 1,572,626 66% 1,037,933 1.8% 1,600,933 66% 1,056,616 2.6% 1,643,037 66% 1,084,405 2.7% 1,687,892 66% 1,114,009 2.8% 1,735,660 66% 1,145,535 2.9% 1,786,515 66% 1,179,100 3.0% 1,840,646 66% 1,214,826 3.0% 1,896,418 66% 1,251,636 3.0% 1,953,879 66% 1,289,560 3.0% 2,013,082 66% 1,328,634 3.0% 2,074,078 66% 1,368,891 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
4 and 5-Star Hotels, Share of Market Estimated Average Party Size Estimated Number of Hotel Parties Average Length of Stay (Days) Potential Hotel Roomnights Assumed Average Hotel Occupancy for 4 & 5 star Number of Days of Operation Supportable 4- & 5-Star Hotel Rooms Current # of 4- & 5-Star Hotel Rms. Annual Add'l Supportable 4 & 5-Star Hotel Rooms Cumulative New Supportable 4 & 5-Star Rooms 4,094
36% 2.12 174,349 6.62 1,154,187 74% 365 4,273
36% 2.12 177,312 6.63 1,174,982 74% 365 4,350
36% 2.12 180,504 6.63 1,197,328 74% 365 4,433
36% 2.13 185,251 6.64 1,230,046 74% 365 4,554
36% 2.13 190,309 6.65 1,264,890 74% 365 4,683
36% 2.13 195,694 6.65 1,301,987 74% 365 4,820
36% 2.13 201,428 6.66 1,341,476 74% 365 4,967
36% 2.13 207,532 6.67 1,383,505 74% 365 5,122
37% 2.14 213,820 6.67 1,426,850 74% 365 5,283
37% 2.14 220,298 6.68 1,471,554 74% 365 5,448
37% 2.14 226,974 6.69 1,517,658 74% 365 5,619
37% 2.14 233,851 6.69 1,565,207 74% 365 5,795
179 179
77 256
83 339
121 460
129 589
137 726
146 873
156 1,028
160 1,189
166 1,354
171 1,525
176 1,701
Proposed Development Scenario for Ka'u Resort: High-End Hotel Rooms (4 & 5-Star) Boutique Upscale Hotel (Rooms) Total Cumulative Rooms at Ka'u Resort Implied Mkt. Share, Ka'u Resort (4 and 5-Star Hotels) Source: ERA 1/2007 0 0.0%
250 100 250 5.3% 250 5.2% 350 7.0% 350 6.8%
400
750 14.2%
750 13.8%
750 13.3%
750 12.9%
Recommended Hotel Development Program at the Kau Resort The location of the site on the southern tip of the island is outside the predominant resort zone that stretches from Kona to Kawaihae. Therefore, the project will have to develop a critical mass of accommodations, attractions and marketing features to establish the location as an alternative to the Kona / Kohala coast. We believe this can be achieved with an attractive master plan and development of the existing resources and surrounding attractions. There are precedents for successful development of new resort locations in previously undeveloped areas of Hawaii including Princeville, Kauai, Turtle Bay, Oahu and Ko Olina, Oahu. Access time from the commercial airports in Kona and Hilo is a concern, as the site is about and hour and a half from the Hilo airport and almost 2 hours from the Kona airport, given the typical traffic congestion and stop lights in Kona. The airport on-site could provide access to a limited number of travelers, particularly kamaaina coming from other islands in private planes and/or high-end travelers in private jets. Eventually, commercial service might get developed from Oahu on small inter-island carriers such as Island Air. However, the mass market that would constitute the large majority of resort guests can be expected to arrive by commercial jet from the mainland and will arrive at the Kona or Hilo airports. The developer of the project has established a vision for the resort as a high-end luxury destination befitting its world-class scenic coastal and beachfront setting. In order to differentiate from other existing and proposed resorts on the island, the strategy is to emphasize the cultural and ecological resources currently present on the site. The vision is to position the resort as a lifestyle resort that combines the natural beauty of the site, 4 and 5-star hotel accommodations, internationally renowned spa services, and luxury living in a cultural and eco-friendly design environment. ERA concurs with this positioning given the aesthetics of the site, the strength of Big Island tourism and the strong interest of the baby boomer generation, the key target market, in these concepts. ERAs recommendations pertaining to the proposed hotel development program at the subject Kau Resort are based, in part, on the following: Over the next ten years, visitation to Hawaii is expected to continue to increase significantly. Assuming well-known branded operators and the development of first class facilities and amenities, it is expected that the subject properties will capture a significant share of the regional market for 4- and 5-star hotel properties. While we believe the hotel market will be strong over the next 10 to 20 years, we have reduced the hotel development program from what was included in the preliminary concept plan. The hotels will be important to bring guests and buyers to the project and to support the commercial outlets and amenities. However, they are less attractive to investors than the residential land uses.
ERAs recommended development program for three proposed hotels is summarized on Table IV-5.
Table IV-5 SUMMARY OF THE RECOMMENDED HOTEL PROGRAM FOR KA'U, HAWAII
Accommodations Hotel Type Opening Rooms Suites Total
Meeting Space (SF)
Posted Rack Room Rates Rooms Suites
Market Mix FIT Group
Stabilized Level ADR Annual ($2006) Occupancy
4-Star Resort Hotel 5-Star Boutique Hotel 4-Star Conference Hotel
2010
225
25
250
3,000
$250 - $350
$450
70%
30%
$275
75%
2012
100
100
Limited
$800 - $1,000
98%
2%
$850
75%
2014
350
50
400
30,000
$250 - $350
$350 - $550
50%
50%
$300
75%
Source: Economics Research Associates
Overall Strategy The large majority of resort hotels on the island are in the 4-star quality rating. This is consistent with resort hotels in the entire state. We believe the overall positioning strategy for the project should be to appeal and be attainable to a broad segment of the market. This will allow a range of real estate products to be sold and will make the resort appeal to a broad market. This will accelerate absorption and improve occupancies and help to overcome the fact that the project site is outside the traditional resort zone of the Big Island and is farther away from the commercial airports. Accordingly, we would look to Waikoloa and Mauna Lani as comparable integrated resorts rather than Hualalai or Kukio. This allows for a wider range of hotel and real estate offerings even up to the very high-end oceanfront real estate, and exposes the project to a broader market. For this reason, we believe the majority of the rooms should be in 4-star resort hotels with a relatively low number of upscale 5-star boutique rooms. This roughly reflects the profile of the upper income visitors to the island. That is, majority 4-star with a smaller contingent of 5+ star visitors. As mentioned earlier, we do not believe it is necessary to plan for more than 3 to 4 hotels. In fact the large integrated resorts on the island only have 1 to 2 hotels. Waikoloa actually has 3 hotel sites with the Hilton occupying 2. In addition, Waikoloa offers the Bay Club timeshare and the new Hilton timeshare. Hotel sites should be planned so that they can be flexibly used for hotel or timeshare / fractional projects. Initial Four Star Hotel The initial hotel is positioned at the 4-star level to be consistent with most of the other high-end hotels on the island. The hotel is not overly large as the location will need some time and marketing to attract large groups and significant numbers of FIT guests. Initially the hotel may be able to attract shorter stay visitors that are also staying on the Kona / Kohala coast during part of their stay on the island. These guests might form an itinerary to visit various parts of the island. As the destination gets established, longer lengths of stay can be expected. The property will also be able to attract small to medium sized groups looking for a new experience in Hawaii or an alternative to Kona / Kohala or proximity to the natural attractions of Kau and Volcano. The following are key recommendations and projections pertaining to the first planned hotel at the Kau Resort: Date of Opening: 2010 Number of Rooms: 250 total rooms including a mix of about 225 regular rooms (600 square feet) and 25 suites (800 to 1,000 square feet). Market Positioning: 4-Star Small amount of indoor/outdoor event space for small corporate events and private receptions. This would include a 2,000 to 3,000 square foot indoor events space that is connected to outdoor terraces. Food and Beverage Facilities: o Main dining room: 100 seats indoor, and 75 seats outdoor
o Casual restaurant: 50 to 75 seats o Main lobby bar / lounge: 50 seats o Poolside bar and grill: 30 seats Other Facilities / Amenities: o Large free-form pool with swim-up bar o Spa, 8,000 square feet, 10 to 12 treatment rooms o Fitness center: 1,500 square feet Rack Room Rates: o Regular Rate: $250 to $350 for regular rooms and $450 for suites o ADR: $275 Market Mix: o 70 percent FIT (free independent travelers) o 30 percent group (primarily wholesale package and incentive groups) Primary Target Markets: o North America: 90 percent o Japan: 10 percent Characteristics of Stay: o Average length of stay: 6 nights o Average party size: 2.5 Annual Occupancy (Stabilized Level of Operation): o Annual Average: 75 percent High-End, All-Suite or Cottage Boutique Hotel An all-suite or cottage hotel is recommended in 2012. This will provide an option for the high-end clientele that has shown increasing demand for variety in recent years. This hotel might follow this format to provide an experience that is differentiated from others on the island and elsewhere in Hawaii. At this price level it will be important to maintain privacy, provide spacious rooms and provide top notch service. The following are key recommendations and projections pertaining to the high-end, all-suite or cottage boutique hotel at the Kau Resort: Date of Opening: 2012 Number of Units: 75 suites (900 to 1,100 square feet)
Market Positioning: 5-Star + Food and Beverage Facilities: o Main three-meal restaurant: 50 seats o Fine dining: 35 seats o Main lobby bar / lounge: 30 to 40 seats o Poolside bar and grill: 20 seats
Other Facilities / Amenities: o Free-form pool with swim-up bar o Fitness center: 1,000 square feet
Rack Room Rates: o $800 to $1,000 Market Mix: o 98 percent FIT (free independent travelers) o 2 percent group (primarily corporate groups)
Primary Target Markets: o North America: 98 percent o Other: 2 percent
Characteristics of Stay: o Average length of stay: 6 nights o Average party size: 2.2
Average Daily Rate (Stabilized Level of Operation, Year 2007 dollars): o Annual Average: $850 Annual Occupancy (Stabilized Level of Operation): o Annual Average: 75 percent
Conference and Group Hotel After the resort becomes established and develops a high-end image, it will be possible to aggressively market to groups for both conferences and incentive trips. The conference hotel will accommodate these groups and will provide another resort option for FIT travelers looking for an alternative to Kona / Kohala and / or seeking the Kau and Volcano location. The following are key recommendations and projections pertaining to the planned high-end, conference hotel at the Kau Resort:
Date of Opening: 2014 Number of Rooms: 400 total rooms including a mix of about 350 regular rooms (500 square feet) and 50 suites (700 to 900 square feet). Market Positioning: 4-Star Ample amount of indoor/outdoor event space for corporate events and private receptions. This would include approximately 25,000 to 30,000 square foot indoor event space and 30,000 to 40,000 square feet of outdoor event space. Food and Beverage Facilities: o Main dining room: 200 seats indoor, and 100 seats outdoor o Casual restaurant: 100 to 150 seats o Main lobby bar / lounge: 75 seats o Poolside bar and grill: 50 seats
Other Facilities / Amenities: o Large free-form pool with swim-up bar o Spa, 15,000 to 20,000 square feet, 15 to 18 treatment rooms o Fitness center: 2,000 square feet
Rack Room Rates: o $250 to $350 for regular rooms and $350 to $550 for suites Market Mix: o 50 percent FIT (free independent travelers) o 50 percent group (primarily conference, wholesale package and incentive groups)
Primary Target Markets: o North America: 95 percent o Other: 5 percent
Characteristics of Stay: o Average length of stay: 5 nights o Average party size: 2.6
Average Daily Rate (Stabilized Level of Operation, Year 2005 dollars): o Annual Average: $300
Annual Occupancy (Stabilized Level of Operation): o Annual Average: 75 percent
Residential Construction The residential real estate market has been extremely strong, fueled by the growth of the second home market. Between 1995 and 2005 building permits for residential property grew by 12 percent annually. Permits for single-family dwellings constituted the majority of the residential building permits. In 2005, 95 percent of the residential building permits were issued for new single-family dwellings. Between 2000 and 2005, single family dwellings constituted an average of 81 percent of the total number of residential building permits issued on the Big Island. Figure III-9 contains the number of building permits issued for new single-family dwellings from 1995 to 2005. Figure III-9: New Single-Family Dwellings, Big Island, 1995 to 2005.
3000 2500 2000 1500 1000 500 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: DBEDT and Hawaii County Department of Research and Development.
SECTION V: RESORT REAL ESTATE MARKET
Sales of resort residential on the west coast of the Big Island experienced a major boom around 1990 followed by a decline through the mid 1990s and a recovery and surge extending to the current time. This section provides background on the overall housing market and recent development history of the Big Island focusing on North Kona and South Kohala districts. Sales data are then presented for a variety of built products and land parcels. This provides market context for guiding the real estate strategies and potential price positioning for the Kau resort development. Housing Market Trends Residential construction on the Big Island has followed a cyclical trend, with the number of permits typically ranging between about 3,000 and 5,000 units in each year, as shown in Figure V-1. Construction activity increased rapidly during the late 1980s, fueled largely by the booming Japanese and California economies. Construction activity slowed significantly during the 1990s, reaching a low of 2,724 units during 1997. Building activity has increased since the late 1990s and is quite active during the 2000s, especially in 2004 and 2005. Figure V-1: Residential Building Permits in Hawaii County, 1993 to 2005
6,000 5,000 4,000 3,000 2,000 1,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: DBEDT and Hawaii County Building Division
MLS Sales Statistics According to the Hawaii Information Service, which compiles MLS data, average home prices have been growing steadily. Table V-1 shows growth in average prices from 2002 through 2005 in the main resort districts of Kona and South Kohala. These data are plotted in graphs (see Figure V-2).
V-1 Resort Real Estate Market
Table V-1: Average Sales Prices in Hawaii County and Selected Districts
2002 Hawaii County Residential Condominiums South Kona Residential Condominiums North Kona Residential Condominiums South Kohala Residential Condominiums $251,645 $241,058 2003 $282,812 $223,398 2004 $354,958 $358,634 2005 $478,212 $454,103
$303,697 $142,200
$341,265 $150,000
$423,261 $253,964
$530,917 $270,000
$370,446 $209,847
$432,682 $220,745
$579,057 $310,354
$739,358 $423,353
$473,309 $225,000
$382,464 $197,450
$520,688 $547,004
$690,351 $736,414
Source: Hawaii Information Service
Figure V-2: Average Sales Prices in Hawaii County $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 2002 2003 2004 2005 Residential Condominiums
Resort Real Estate Overview The Big Island has some of the most expensive and exclusive resort real estate in Hawaii. After a slow period of activity from the early 1990s through 1997, resort real estate sales on the Big Island began a period of activity in 1997 and 1998 with the introduction of the Hualalai resort. Sales increased into the new millennium following the surge in the New Economy and increased buying by baby-boomers, with an estimated $326 million dollars in resort real estate sales. Total sales in 2001 were approximately $210 million, a decline caused primarily by September 11. Activity was also slow in early 2002 in reaction to September 11. Strong sales resumed in the second half of 2002 and remained strong in 2003 despite negative influences caused from SARS and the Iraq War. A significant increase then occurred in 2004 and 2005 with strong sales and increasing prices. By the spring of 2002, projects with desirable inventory sold well in all price categories. High-end oceanfront lots at Kukio and Pauoa Beach in Mauna Lani sold well, while sales were very strong at the more affordable projects of Fairway Villas and Waikoloa Colony Villas. Strong sales also occurred at mid to high-end projects such as the Villages at Mauna Lani and Kolea in Waikoloa. Sales at Hualalai were good, but somewhat limited by supply. Meanwhile, sales at Hokulia slowed in 2002, caused by a lack of desirable inventory and other special circumstances. There was a shortage of resale listings in all of the resorts in 2002, which hampered resale activity. There was a slight slowdown and a shift in 2003. This could be attributed to two influences. The first was the slowdown in the economy and uncertainty about the war in Iraq. The second was a shift in supply with projects such as Hualalai, Hokulia, Pauoa Beach, the Villages at Mauna Lani and even Kukio selling most of their prime real estate. Offerings at these projects were either mostly mauka or were not priced to reflect the less desirable locations or orientations of the remaining inventories. Meanwhile, sales of more affordable products at the Fairway Villas and Colony Villas at Waikoloa and Kohala Ranch and newly introduced resale condominiums at Mauna Lani and Waikoloa increased in momentum in 2003. Realtors at Mauna Kea and Hualalai also stated that buyers were looking for the lower priced built products at these resorts. Realtors and sales and marketing staff were also stating that buyers were hesitant to take on construction projects when they knew that contractors were increasingly hard to get on the island. This lack of contractors was undoubtedly hampering sales of estate lots at all of the projects. The resort residential market on the Big Island was very strong in 2004 with 2004 being even stronger than previous years. Sales volumes could have been even higher had projects such as Hokulia not been stalled in litigation and if Hualalai had offered additional product. Hualalai, in particular has been very conservative in recent years about releasing new product until previous inventory had been absorbed. Coming off a record breaking 2004, the Big Island resort residential market continued to show impressive gains in 2005. Sales volumes increased and several new projects were introduced to the market. Both lot sales and built product sales exceeded projections. Kaunaoa was introduced in 2004 and was in sales in 2005 with high-end lots and townhouses in Mauna Kea. Waiulaula, also in Mauna Kea began taking contracts. Similarly, Ke Kailani was opened in Mauna Lani with high-end lots and townhouses. Hualalai continued development of the upper portions of the property around the new
Kahuku Ranch Market Assessment V-3 Resort Real Estate Market
Weiskopf private golf course. 2005 was a banner year for high-end resort real estate on the island and in many other resort locations in North America. The resort residential market slowed for much of 2006. Similar to other markets, realtors reported limited sales throughout the summer. Many of the developments introduced in 2005 were sold out by 2006. While the general market slowed nationally, supply was limited in 2006, further decreasing sales. Price increases have been aggressive, following the surge in demand in 2005. Over pricing coupled with an increased price sensitivity at the high-end has most likely been the cause of slow sales in some cases, notably Kaunaoa and Ke Kailani. Within Waikoloa, the mid-level Waikoloa Beach Villas and Halii Kai projects were both introduced to the market. As the winter approaches, realtors have reported that traffic has started to pick up and that they anticipate a strong early 2007. Tables V-2 and V-3 summarize pricing data for the resort residential projects along the coast. The data presented herein reflect sales contracts as reported to ERA by developers and realtors. Following are descriptions of sales activities at the key resorts along the coast (moving from south to north). Projects that recently have been selling within each of these resorts are also discussed. Hokulia Sales of new products at Hokulia came to a halt in 2004 due to an injunction ruling made in the Superior Court. A suit was brought against the project by the local Hawaiian community. The plaintiffs were against the project in general, and they found a clause in the project CCRs that restricted agricultural activity on the lots, in spite of the fact that the project and the lots were zoned A-1 (agricultural 1 acre minimum). The Superior Court judge ruled against the developer, and the project was stopped. The injunction was lifted in 2006 and sales and marketing efforts have resumed. Prior to the ruling the project was experiencing a slowdown. A total of only 16 lots closed in 2002. Another 6 closed in the first 6 months of 2003. This slowdown was blamed on a less desirable inventory by the end of Phase 1, and weak marketing. Since opening, the project has closed 193 lots of the total of 252 lots in Phase 1. Generally, Hokulia sold its most desirable lots in Phase 1. Prior to the ruling progress was occurring on the required bypass road from Kailua through the project. The road was required for the project to proceed. The road will be completed from Alii to Halekehi. Construction stopped due to the court ruling. On March 14th 2006, the injunction was lifted and Hokulia was allowed to restart development. For the remaining 59 lots in Phase I, the prices range from $1.6 to $4.2 million, with an average of $2 million. Prior to the injunction the average sale price was $1.1 million. Of the 193 sold, Hokulia has experienced 30 resales. From March till early November 2006, Hokulia cleaned up the property and reconfigured some lots, absorbing seven lots. Sales restarted in early November 2006 with initial offerings going to current members of the golf course. Public offerings were initiated in early December 2006. By the end of 2006, Hokulia had 17 new reservations.
Table V-2 OVERVIEW OF BUILT UNIT PRICING Selected Projects on the Kohala Coast Original Project Name Hualalai Golf Villas (20) Hillside Villas (21) Fairway Villas (16) Palm Villas (10) Estate Villas (11) Ka'ulu Villas (20) Wai'ulu Villas (24) The Villas at Ke Alaula (17) The Hales at Ke Alaula (15) Estate Villas at Hainoa Na Hale @ Kahikole Hainoa Villas Mauna Lani Terrace The Point The Islands The Villages Pauoa Beach Palm Villas Golf Villas Ke Kailani Kamilo Kulalani Nohonakai Mauna Kea Villas The Uplands The Uplands Kauna'oa Wai'ula'ula Wai'ula'ula Waikoloa The Shores Vista Waikoloa Fairway Villas Waikoloa Colony Villas Kolea Condos Waikoloa Beach Villas Hali'I Kai Hali'I Kai Condominium Condominium Two & Three Bedroom Two & Three Bedroom Three Bedroom 6-plex Two & Three Bedroom Oceanfront/Oceanview Golfview 1990s 1990s 2001 2002 2003 2005-2006 2005-2006 2005-2006 1,250 - 1,350 1,250 - 2,000 1,033 - 2,198 1,236 - 1,700 1,250 - 1,650 1,750 - 2,150 1,103 - 1,874 1,082 - 1,677 1,082 - 1,677 $350 - $425 $250 - $880 $275 - $455 $380 - $500 $800 - $1,000 $2,150 - $3,000 $600 - $800 $1,000 - $2,500 $600 no resales in '06 $612 - $775 $575 - $850 $550 - $760 $1,250 $2,150 - $3,000 $600 - $800 $1,000 - $2,500 $600 na $388 - $490 $387 - $557 $446 $758 - $1,000 $1,229 - $1,395 $427 - $544 $924 - $1,491 $550 Detached Homes Detached Homes Condos Duplex Townhomes Detached Homes Three Bedrooms 1980s & 90s 2000 2000 2004 2004-2006 2004-2006 2,684 2,600 - 3,000 1,300 - 1,650 3,375 - 3,843 2,930 2,517 various $750 - $1,000+ $550 - $758 $3,550 - $3,843 $3,095 - $3,800 $1,200 - $2,650 $3,520 $2,695 - $3,775 $1,400 $3,900 - $5,400 $3,095 - $3,800 $1,200 - $2,650 $1,311 $1,036 - $1,258 $950 $1,156 - $1,405 $1,056 - $1,297 $477 - $1,053 One & Two Bedroom One to Three Bedroom Three Bedroom Three Bedroom 3 Bedroom detached Two to Three Bedroom Two to Three Bedroom Townhomes Detached Homes & Duplexes Two to Three Bedroom Two to Three Bedroom 1987 1993 1993 2001 2003 2004 2004 2005-2006 2005-2006 2006 2006 1,058 - 2,462 1,100 - 1,988 Avg. = 2,267 2,174 - 2,750 2,700 1,100 - 1,900 1,100 - 1,900 3,300 2,599 - 3,781 1,331 - 2,673 1,863 - 3,319 $450 - $1,900 $520 - $1,425 $490 - $895 $695 - $2,200 $1,900 -$2,650 $490 - $630 $500 - $660 $4,100 - $4,500 $899 - $2,200 $798 - $1,035 $1,400 - $3,300 $1,100 - $3,400 $1,100 - $2,200 $1,025 - $1,685 $1,293 - $2,559 no resales in '06 $526 - $883 $503 - $740 $4,100 - $4,500 $899 - $2,200 $798 - $1,035 $1,400 - $3,300 $1,040 - $1,380 $1,000 - $1,660 $452 - $743 $595 - $1,177 na $465 - $478 $389 - $457 $1,242 - $1,364 $346 - $582 $387 - $600 $751 - $994 18th Hole 16th Hole 15th Hole 15th Hole 15th and 16th Holes 4th Hole 5th Hole 2nd & 3rd Hole 6th & 7th Hole na Weiskopf Course Ke'olu Course 1996 - 1998 1996 - 1997 1998 1998 2000-2001 2000 2001 2002 2002 2003 2004 2006 2,600 Various 1,800 - 2,600 3,000 3,500 2,200 - 2,700 1,800 - 2,600 2,657 - 2,755 3,489 - 4,186 3,600 2,571 - 3,111 1,760 - 2,122 $1,500 - $1,700 $865 - $2,000 $900 - $1,400 $1,450 $3,700 - $4,750 $1,000 - $1,800 $1,190 - $2,370 $1,770 - $2,390 $3,260 - $4,400 $4,300 - $4,700 $3,700 - $4,200 $1,800 - $2,320 $3,450 - $5,000 no resales in '06 $2,180 - $2,495 $3,250 no resales in '06 no resales in '06 $1,750 - $2,875 $2,275 - $3,450 no resales in '06 $4,983 $3,876 - $4,548 $1,800 - $2,320 $856 - $1,253 na $1,395 $1,462 - $1,507 $1,023 - $1,093 $1,327 - $1,923 na $920 - $,1211 $1,083 na na Comments Sales Period Size (Sq. Feet) Original Prices ($000) Price as of Dec. 2006 ($000) 1 Current Price / s.f.
1 2
Resales for sold-out project. No recent sales: estimated range of current values listed.
Source: Individual Properties
Table V-3 OVERVIEW OF LOT PRICING AT SELECTED PROJECTS ON THE BIG ISLAND
Price as of Project Name Hualalai Lau'eki Estates Lau'eki Place Estates Wai'ulu Estates Kumukehu Estates Kai Malino Estates Kaulu Estates Anea Estates Lipoa Estates Hokuloa Estates Other New Lots Mauna Lani The Cape Point Estates Champion Ridge 49 Black Sand Beach Pauoa Beach Ke Kailani Mauna Kea The Bluffs High Bluffs Kauna'oa Hokulia (252 lots) Kukio Kukio Ka Lae Waikoloa Naupaka Place Kolea Kohala Ranch Kohala Waterfront
1 2 3
Lot Sizes (sf)
Lot Description
Original Prices ($000)
Dec 2006 ($000)
19,000 - 44,000 35,000 - 64,000 25,000 - 30,000 20,000 - 38,000 14,000 - 20,000 2/3 - 1 1/2 Acre 1 acre 1 acre 28,000 - 41,000 1/2 - 1 Acre
15 lots, golf and distant ocean views 6 lots, golf views 17 lots, ocean and golf views 13 lots, ocean and golf views 15 lots, distant ocean & golf views 18 Lots, ocean and golf views 7 lots next to gate 10 lots next to the gate 8 lots next to Weiskopf course Front Weiskoff course with ocean views
$1,650 - $3,100 $2,700 - $4,400 $1,800 - $5,500, avg. $2,500 $1,500 - $3,200, avg. $2,800 $650 - $900 $890 - $4,400, avg. $1,800 $1,500 -$2,699 $1,500 -$2,699 $2,350 $2,700 - $3,500
$2,780 - $7,890 $2,780 - $7,890 no recent resales $2,200 - $2,800 no recent resales no recent resales no recent resales $1,800 - $1,950 $2,350 $2,700 - $3,500
1 Acre 1/2 Acre 1/2 Acre 1 - 1 3/4 Acre 1/2 -1 Acre 1 - 1 1/3 Acre
14 Lots, Ocean & Golf Views Ocean & Golf Views 33 Lots, Distant Ocean / Golf 49 Lots, Oceanfront, Ocean and Golf Views 40 Lots, Oceanfront, Ocean & Golf Views 43 Lots, Oceanfront & Golf Views
$1,200-$1,900, Avg.=$1,413 Avg. = $550 $450 to $1,000 $800 to $10,000 $1,600 to $7,100 $7,500 - $8,500
no recent resales Avg = $710 $550 - $3,800 Avg = $2,550 $2,200 - $2,800 $1,000 - $8,500
1 Acre 3/4 Acre 3/4 - 1 Acre 1 to 3 Acres
22 Ocean-Front Lots 9 Distanct Ocean / Golf Lots 28 Lots Partial Ocean to Oceanfront/Golf
$1,250 - $5,000, Avg. = 2,000+ $1,550 - $1,750 $1,200 - $4,200 $900 - $2,500
no recent resales no recent resales $1,900 - $4,800 $1,600 - $4,200
1/2 to 2 1/2 Acres 1 to 2 1/2 Acres
400 Lots, Oceanfront and Ocean View Oceanfront lots north of Hualalai
$1,000 - $16,500 $8,000 - $18,000
$2,100 - $12,000 $8,000 - $18,000
1/2 - 1+ Acre 1/2 - 1+ Acre 3 - 10 Acres 1/2 - 1.5 Acre
11 Lots, 9 Oceanfront 17 Oceanfront and Near-Ocean Lots 477 lots (resales) no amenities Oceanfront and 2nd tier no amenities
$2,500 - $6,000 $1,000 - $4,500 $145 - $700 na
$3,650 $2,300 - $7,500 $395 - $887 no recent resales
Based on recent resales and current listings. No oceanfront properties have resold. Original high-end prices were for oceanfront or ultra prime lots which are now sold out. Prices are estimates of current value: no recent resales have occurred.
Source: Individual Properties
During the injunction, the developer suspended golf membership dues and homeowners association dues. The suspension will be extended until 2008 as a courtesy to those members who remained during the injunction. When the suspension is lifted, golf members will pay $7,200 annually and home owners will pay $2,400 for common area maintenance. Currently there are a just under 300 golf members. Full memberships will be capped at 390 and there are no plans for expansion of the golf amenity. The developer expects to release Phase II in May 2007. Phase II will contain lots closer to the ocean. Sales prices will range between $2.5 and $12 million, with an average of $4.2 million. The lots will be the same size as Phase I, ranging between 1 and 3 acres with an average of 1.3 acres per lot. Table V-4 shows sales and resales at Hokulia since 2000. Table V-4: Sales and Resales at Hokulia Since 2000
Total Year 2000 2001 2002* 2003 2004 2005 2006 (YTD) Average Median Sales Volume $36,352,213 $34,970,743 $28,278,610 $14,978,950 $16,335,200 $19,577,399 $23,440,000 $24,847,588 $23,440,000 Acres 67.49 57.26 35.32 17.72 25.03 25.21 25.67 36.25 25.67 Number of Sales 39 41 16 15 15 17 18 23 17 Sale $932,108 $852,945 $1,767,413 $1,152,227 $1,089,013 $1,151,612 $1,302,222 $1,178,220 $1,151,612 Average $/Acre $561,700 $614,664 $733,006 $881,586 $721,599 $788,611 $941,495 $748,952 $733,006 Acres 1.73 1.40 2.21 1.36 1.67 1.48 1.43 1.61 1.48 Sale $700,000 $700,000 $890,250 $950,000 $875,000 $1,025,000 $1,250,000 $912,893 $890,250 Median $/Acre $505,781 $523,171 $686,714 $718,281 $627,381 $760,785 $948,644 $681,537 $686,714 Acres 1.31 1.30 1.41 1.41 1.31 1.29 1.32 1.34 1.31
Kukio Kukio offers the highest priced real estate on the island. Through December of 2006, Kukio has closed approximately 149 lots for over $491 million in revenues since 2001. Prices have ranged from $500,000 for an interior lot to $18 million for oceanfront. Oceanfront lots have sold for $10 to $18 million, while second tier lots have sold for from $4 to $9 million. Several sales in 2006 consisted of oceanfront lots located north of Hualalai. Lot sales since 2001 have been as follows (Table V-5): Table V-5: Lot Sales at Kukio Since 2001
Year 2001 2002 2003 2004 2005 2006 Total Lot Sales 13 14 38 52 13 19 149 Total Revenues $93.5 million $83.5 million $94.0 million $91.6 million $25.1 million $103.7 million $491.4 million
Kukio has also been selling cottages. They sold 18 cottages in 2002 and 2003. Buyers paid by installments as the cottages were completed. Thus, buyers were helping to finance construction. Exact pricing was not disclosed Total sales and resales of lots at Kukio were over $189 million in 2004, $302 million in 2005 and $175 million in 2006. Table V-6 below summarizes total lot sales and resales activity at Kukio in 2004, 2005 and 2006. Table V-6: Lot Sales and Resales at Kukio
2004 $189,130,000 65 $2,909,692 0.95 $3,066,708 2005 $302,405,000 83 $3,643,434 0.85 $4,313,478 2006 $174,862,000 31 $4,456,839 1.63 $2,832,294
Total Transactions Total # of Homesites Average per Homesite Average Homesite Size (acres) Average per Acre
Hualalai Hualalai started development in the early 1990s. The project was halted during the recession from 1990 to1992. The project was redesigned and opened in 1997. Sales were strong in the late 1990s and early 2000s. Since the summer of 2002, sales at Hualalai have generally been slow due primarily to a very conservative pace of inventory release. The new products that have been offered are all on the mauka side of the property, and have not been selling particularly quickly. This explains the slow pace of releases, as Hualalai wants to make sure they sell out their previous inventory before introducing more. In June 2006 the Hualalai Resort was sold for a reported $600 million. During the time that the sales was in escrow and due diligence was completed no resort owned properties were sold. A total of 37 units sold in 2004. These included 8 built products and 29 lots. The inventory of developer product is limited now at Hualalai, which is certainly having an impact on sales. The lots at Anea, Lipoa and Hainoa sold out in 2004. It must be noted that very little other inventory has been available. These sales provide a snapshot of premiums that are being paid for golf frontage. The Lipoa lots that did not have golf frontage sold for $1 to $1.3 million, while the Anea lots on golf sold for $1.7 to $2.3. This would indicate a golf front premium in Hualalai of about 75 percent. Sales slowed to a virtual standstill in 2003 with only 4 units sold including 3 sales at Ke Alaula and 1 lot at Laueki Estates. The Villas at Ke Alaula were not a particularly popular product. From the fall of 2002 through the spring of 2004, there were 8 resales of other condominium and townhouse products at Hualalai, while the Villas at Ke Alaula had not sold. Hualalai Realty attributed the slowdown in 2003 to a number of factors including the poor economy and uncertainty about the war in Iraq. The new products that were offered included the Villas and Hales at Ke Alaula and the homesites at Laueki Estates, Anea Lots and Estate Villas at Hainoa. All of these have a mauka location compared to the rest of the project. They also blamed the opening of the new Weiskopf golf course for making buyers wait to see the new products that would be offered on the new land parcels around the Weiskopf course.
The Ke Alaula Villas were not perceived to have a desirable design with staggered units and living rooms upstairs and bedrooms downstairs. Total sales and resales of lots and built products at Hualalai were over $160 million in 2004 and $143 million in 2005. Table V-7 summarizes total lot sales and resales activity at Hualalai in 2004 and 2005. Table V-7: Lot Sales and Resales at Hualalai
2004 Homesites Total Transactions Total # of Homesites Average per Homesite Average Homesite Size Average per Acre Homes Total Transactions Total # of Homesites Average per Homesite Average Homesite Size Average per sf Villas Total Transactions Total # of Homesites Average per Homesite Average Homesite Size Average per sf $61,865,000 25 $2,474,600 0.979 $2,527,065 $19,355,000 4 $4,838,750 5,027 $963 $79,728,750 25 $3,189,150 2,847 $1,120 2005 $59,000,000 22 $2,681,818 0.813 $3,296,922 $27,950,000 4 $6,987,500 4,069 $1,717 $56,231,692 17 $3,307,747 2,911 $1,136
Waikoloa Waikoloa has been experiencing a construction and sales boom from 2002 through the present. There have been several projects that are currently or recently under construction and sales have been very strong. The Fairway Villas project located across the Kings Lake from the Kings Shops had very strong sales on their relatively affordable condominium products and sold out in 2003. The Waikoloa Colony Villas, located on the north edge of Waikoloa also experienced very strong sales at the same market positioning and sold out in early 2004. Two other lot developments located on the property between the Hilton and the Marriott, namely, Naupaka Place and Kolea are positioned at the high end for Waikoloa, with oceanfront and near ocean homesites ranging from $1.5 to $3.5 million. Kolea contains 128 condominiums in 3-story 6- and 12-plex buildings. All units were sold by July 2006, with an average sale price of $1.25 million. Additional Bay Club timeshare units are under construction on a site adjacent to the Bay Club on the inland side. Meanwhile, the
Kamalani subdivision sold to Centex Destination Properties who is currently selling upscale condominiums called Halii Kai ranging from $600,000 to $2.5 million. Additional lower end condos, Waikoloa Beach Villas, have been constructed on an inland parcel from the Kings Shops. Of the 120 units, seven remain available as of December 2006. Current sale prices range from $600,000 to $800,000. A new shopping center called the Queens Marketplace is under construction near the Kings Shops, with completion estimated for winter 2008. Mauna Lani Mauna Lani has also been experiencing a construction boom in recent years. Sales of new products at Mauna Lani have been occurring at the Ke Kailani, Kulalani, Nohonakai and Kamilo. The Villages, Pauoa Beach, Palm Villas, and Golf Villas, have all sold. The Villages is a single family and townhouse development. Pauoa Beach is a beachfront homesite project, which also offered some detached condo units. The Palm Villas and Golf Villas are 4 to 6-plex townhouse units located on 2 inland sites. Ke Kailani is a new lot and townhouse project that offers oceanfront, golf front, and interior lots with an oceanfront recreation club and a mauka pool club. Townhomes at Ke Kailani range in price from $4.1 to $4.5 million, with lots ranging from $915,000 to $8.5 million. Of the initial release 3 townhomes and 15 lots have been sold. Standford Carr is developing both Kulalani and Nohonakai. Kulalani will include 126 units when completed. Sales commenced in July 2006, with the release of 60 units. Of the initial release 36 sold as of December 2006. The two and three bedroom units range in size from 2,000 to 3,240 square feet (including garage and lanai). Of the remaining units, prices range from $818,000 to $1.195 million. Released in January 2006, Nohonakai will contain 92 single family units when completed. The homes are comprised of two built products: cottages and estates. The cottages range in price from $1.4 to $1.5 million, and in size from 1,800 to 2,200 square feet. The two developments will share amenities. In addition, the Villages retail project located at the roundabout is close to completion. This will provide retail shops for the Mauna Lani community. Mauna Kea From 2001 to 2004, Mauna Kea Resort had no new products on the market since the Uplands finished sales in 2001. Limited inventory remains at the High Bluffs subdivision. In 2002, the North Fairways lots were converted from leasehold to fee simple. Owners paid from $400,000 to $600,000 to convert their properties to fee simple. Interest in resale properties increased at Mauna Kea in 2003, however, there was little inventory for resale. Homes located on the Fairways lots are priced from $3.1 to $11.5 on fee simple lots. Lots on the High Bluffs are now priced at $995,000, but are still not selling. A 51-acre oceanfront development parcel, located between the 2 hotels was developed in 2004. The project is called Kaunaoa at Mauna Kea. This parcel includes 28 estate lots of approximately 1 acre and 20 large duplex units. The duplex units are 3,373 to 3,843 square feet with 4 bedrooms and 4 bathrooms. Each duplex is designed to look like one large home. As of December 2006 there are 8 estate lots (including 3 resales) and 8 townhouses on the market. The lots range in price from $1.9 to $4.8 million. Most of the lots are about an acre.
The townhouse units are priced between $3.9 and $5.4 million. The townhouses are built in duplexes. They started construction of the first duplex in September of 2004. Waiulaula is a relatively new project at Mauna Kea. The project is located on 48 acres and contains three build products: The Estates - 14 single family units; The Villas - 32 duplex units; and The Ridge - 56 fourplex units. Sales stated in November 2004, contraction commenced in January 2005 and Closing started in June 2006. Table V-8 summarizes total sales and resales activity at Waiulaula since 2004. Of the built product, realtors report that the price points sell the fourplex units. The buyers anticipate renting out the units with rates of $500 to $610 per night for a duplex units. Table V-8: Lot Sales and Resales at Waiulaula Since 2004
Sold as of New Product Sales The Estates The Villas The Ridge Inventory 14 32 56 Dec 2006 3 14 52 Price Range (MM) $3.095 - $3.85 $2.1 - $2.65 $1.2 to $1.8
Future Outlook There has been significant increase in development activity within the resorts in 2005 and modest increase in 2006. The development outlook for each of the main resort and high-end second home projects along the coast are highlighted below. Hokulia Phase II is planned to be released in May 2007. This release will contain 86 homesites, ranging in price from $2.5 to $12 million. Phase II will include the first oceanfront parcels in Hokulia. Kukio Most of the development in Kukio is expected to occur on 400-acre site that is not contiguous with the rest of Kukio. It is a waterfront site located on the north side of the Kona Village resort. Sales have ranged from $8 to $18 million for 1 to 3 acre lots. Values at Kukio are expected to continue to increase as supply is becoming very limited. Hualalai Hualalai has built out the parcels surrounding the original Four Seasons and the Jack Nicklaus golf course. The new Weiskopf golf course opened up a whole new section of the property for development. Hualalai was sold to new owners that intend to continue development around the Weiskopf course. Hualalai will be developing its typical broad range of product types including homesites, single-family homes, townhouses and duplexes. Hualalai says it will be selling very few homesites without home packages. Hualalai is also positioned at the very top of the market. New development at the resort will maintain this high-end positioning.
Waikoloa Hilton Grand Vacation Club is developing 800 timeshare units to be located behind the recently opened Kohala Suites. Construction is planed to commence in the Fall of 2008, with the introduction of 80 units per year. In addition construction of the Queens Marketplace is nearing completion. Mauna Lani Development at Ke Kailani, Kulalani, Nohonakai and Kamilo is expected to continue. Mauna Kea There are no more development parcels available on the makai side of the highway. The Uplands contains a 20 acre development parcel that could be development in the near future. The most significant issue facing all developments within Mauna Kea is the recent closing of the Mauna Kea Resort Hotel. The hotel suffered significant damage from the 6.6 earthquake that occurred on the island in October of 2006. It is reported that the hotel will reopen, however, the timeline and market positioning of the hotel is unknown. The Shores at Kohanaiki Site work is currently underway for the 210-acre project known as the Shores at Kohanaiki. This project is located just south of the airport on the makai side of the Queen Kaahumanu highway. It is being developed by Rutter Development out of Irvine, California. The project will include an 18-Hole Golf championship golf course and up to 500 residential units. The residential units will range from to 1-acre lots, duplex homes and other multifamily products. There will be an 8,000 square foot residents beach club. An athletic and tennis facility will include 4 courts, with a stadium court and a 2-story clubhouse w/ food and pro shop. The tennis and athletic facility will have limited public access. The coastal area will be designated as a 128-acre coastal park. Bridge Capital Aina Lea Bridge Capital, out of California, recently received state approval to begin building 1,924 homes, two 18-hole golf courses, a shopping center and other amenities on a site located mauka of the Queen Kaahumanu Highway from Mauna Lani. The timing of development is uncertain. However, initial reports were that Bridge Capital was expected to break ground on the new community called Aina Le'a in 2007. The 1,060-acre project will include a 30-acre site for a public school and 26 acres of parks and walking and biking paths. Bridge Capital promised to price 385 of the homes at around $200,000 to ease some of the overwhelming demand for workforce housing. Queen Lilioukalani Trust ERA has conducted research for the Queen Lilioukalani Trust on property they own in Kailua. Portions of the property have been considered for primary housing and resort residential development. This development would not take place for a number of years. Honokohau Harbor Jacoby has a development agreement for expansion and development around the Honokohau harbor. Development around the new harbor expansion would include mostly high-density residential elements including possible timeshare. Much of this would be targeted to the
resort and seasonal residents. The residential elements would probably not take place until at least 2008. Recent community opposition has brought timing into question. Several parcels between Honokohau and the airport have been before the County Planning for zoning approvals. These include mixed use and some residential development projects. These are not likely to have product on the market for a number of years. Surety Kohala, Mahukona Surety Kohala Corporation owns 630 acres at Mahukona in North Kohala. This property includes 13 acres of high-density zoning with the remaining being mostly Ag-1 lots. Surety has undertaken several master planning efforts. Plans are not yet settled. However, it is likely to be positioned as a low-density high-end project. Lynch, Makalei and Big Island Country Club Lynch is developing single family lots around the existing Makalei golf course and the Big Island Country Club. The Makalei project will include 179 1-acre lots developed in 3 to 4 phases. This includes 101 lots around the golf course and 78 lots below the Mamalahoa Highway. Sales of these lots are on hold indefinitely. Pricing is expected to range from $500,000 to $800,000 depending on golf frontage and/or views. The Lynch development around the Big Island Country Club will include 106 1-acre lots. Sales of these lots is also expected in October of 2006. These lots will be priced at $400,000 to $850,000. Hokukano Ranch / Kealakakua Ranch Hokukano Ranch is being developed by the Pace Family on property mauka of the town of Kealakakua. The combined ranches amount to approximately 22,000 acres. The plan includes approximately 200 lots with 20 acre minimum size. There will also be a private Hale Irwin golf course, a beach club at Keauhou Bay and other amenities on the ranch. The project is expected to begin sales in 2009 Analysis of Resort Residential Lot Sales We have collected data for selected lot projects on the west coast of the island. These data show a consistent pattern of demand and price fluctuation over the past decade and a half. Each of these is highlighted below. Data shows comprehensive closings through December 2005. Champion Ridge, Mauna Lani Champion Ridge is a golf front lot project located in the back portion of Mauna Lani. It consists of 35 lots including golf front and interior lots. Some of the lots have ocean views while others have very little view. Views are distant, since it is located at the back of Mauna Lani. Because of these characteristics, we believe it is a good comparable project for the proposed golf lot project in Waikoloa. While Mauna Lani is generally positioned at a higher price level than Waikoloa, Champion Ridge shares frontage and view characteristics of the proposed development. Table V-9 shows transactions and average prices at Champion Ridge since sales began in 1990. Average prices are interpolated during years of no sales to estimate the trend in pricing over the period.
Table V-9: Transactions at Champion Ridge, Mauna Lani

Date 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Transactions 23 2 0 3 1 2 15 1 3 0 4 4 6 1 7 6 Avg. s.f. Avg. Price % Change 23,771 22,113 0 24,204 22,869 24,588 24,619 20,188 22,253 0 20,833 25,218 24,995 23,782 24,329 24,518 $831,083 $932,500 $807,500 $682,500 $250,000 $400,000 $271,833 $500,000 $255,333 $348,917 $442,500 $323,000 $559,703 $730,000 $498,271 $640,500 $/s.f. % Change $34.96 $42.17 $35.18 $28.20 $10.93 $16.27 $11.04 $24.77 $11.47 $16.36 $21.24 $12.81 $22.39 $30.70 $20.48 $26.12
12.2% -13.4% -15.5% -63.4% 60.0% -32.0% 83.9% -48.9% 36.7% 26.8% -27.0% 73.3% 30.4% -31.7% 28.5%
20.6% -16.6% -19.9% -61.2% 48.8% -32.1% 124.3% -53.7% 42.6% 29.9% -39.7% 74.8% 37.1% -33.3% 27.6%
Figure V-3 below plots the average sales prices over time along with a trend line. The trend line shows the general pattern that has been followed consistently in the market. There was a peak in 1989 and 1990 and then a decline through the 1990s and a recovery and peak again in 2000. Prices in the 2000s have been fairly buoyant. The slight decline in 2005 is more a function of the sale of a single high priced lot in 2003. Figure V-3: Trend in Sales Prices at Champion Ridge at Mauna Lani Annual Average
$1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0
The Point Estates, Mauna Lani The Point Estates at Mauna Lani is a 19-lot project located along the 16th and 17th fairways of the south course, inland from the Cape. It is close to the oceanfront and the fishponds at
19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Mauna Lani and includes golf frontage. The project started sales in 1989. Table V-10 below shows the history of sales and resales at the Point Estates. Table V-10: Transactions at Mauna Lani Point Estates
Year Transactions 1989 19 1990 9 1991 1 1992 0 1993 0 1994 0 1995 0 1996 1 1997 1 1998 0 1999 2 2000 2 2001 2 2002 1 2003 2 2004 2 2005 1 Avg. s.f. Avg. Price % Change 18,821 $406,316 18,586 $1,173,333 188.8% 21,694 $965,800 -17.7% 18,821 $810,975 -16.0% 18,821 $714,481 -11.9% 18,821 $656,642 -8.1% 18,821 $627,794 -4.4% 25,633 $346,500 -44.8% 25,633 $425,000 22.7% 18,821 $483,125 13.7% 18,341 $541,250 12.0% 19,147 $472,500 -12.7% 19,716 $825,000 74.6% 18,278 $550,000 -33.3% 17,806 $527,500 -4.1% 18,149 $852,500 61.6% 25,633 $710,000 -16.7% $/s.f. % Change $21.59 $63.13 192.4% $44.52 -29.5% $43.09 -3.2% $37.96 -11.9% $34.89 -8.1% $33.36 -4.4% $13.52 -59.5% $16.58 22.7% $25.67 54.8% $29.51 15.0% $24.68 -16.4% $41.84 69.6% $30.09 -28.1% $29.63 -1.5% $46.97 58.6% $27.70 -41.0%
Figure V-4 below plots the average sales prices over time along with a trend line. The graph shows a decline in 2005 that was due to the sale of a single less desirable lot. Figure V-4: Trend in Sales Prices at the Point Estates at Mauna Lani Annual Average
$1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
49 Black Sand Beach, Mauna Lani 49 Black Sand Beach is a decidedly more upscale lot project in Mauna Lani. It includes 49 lots, of which 17 are oceanfront lots. The project also includes a high quality beach club located on a small beach. Sales started in 1999, with the majority of sales occurring in 2000. Table V-11 shows the sales and resales history of the project. Sales are broken into oceanfront and non-oceanfront due to the significant difference in pricing.
Table V-11: Transactions at 49 Black Sand Beach at Mauna Lani

Date Transactions Oceanfront 1999 9 2000 9 2001 1 2002 2 2003 2 Non-Oceanfront 1999 7 2000 27 2001 13 2002 2 2003 1 2004 2 2005 5 Avg. s.f. Avg. Price % Change 49,876 55,200 32,365 66,037 50,530 38,936 37,400 37,090 38,224 49,136 44,083 50,765 $2,955,556 $4,583,333 $4,400,000 $5,950,000 $4,612,500 $1,538,571 $1,075,822 $961,538 $1,113,750 $1,200,000 $2,050,000 $2,559,780 $/s.f. % Change $59.26 $83.03 $135.95 $90.10 $91.28 $39.51 $28.77 $25.92 $29.14 $24.42 $46.50 $50.42
55% -4% 35% -22%
40% 64% -34% 1%
-30% -11% 16% 8% 71% 25%
-27% -10% 12% -16% 90% 8%
The fluctuations in average pricing is shown in Figure V-5. These data show the buoyancy of prices in the most recent years. Figure V-5 Trend in Sales Prices at 49 Black Sand Beach at Mauna Lani Annual Average
$7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 1999 2000 2001 2002 2003 2004 2005
Oceanfront
Non-Oceanfront
Ke Kailani at Mauna Lani Ke Kailani is a new lot and townhouse project located behind 49 Black Sand Beach in Mauna Lani. It opened in April of 2005. The project is being developed on the V/Y parcel along the 4th through 6th fairways of the South course. The site also extends down to the waterfront with 3 oceanfront lots and 1 near ocean lot. A beach club is under construction at the oceanfront and another recreation and pool facility will be built in the interior portion of the site. The lots include 27 golf front lots and 13 second tier lots that surround the recreation facility. All of the townhouses will be golf front. The townhouses are modeled after the
large Kaunaoa townhouses at Mauna Kea with duplexes of 3,500 square feet per unit. The golf front lots average about 1 acre, while the rear lots average just over half an acre. Table V-12 shows pricing of the lots at Ke Kailani. Table V-12: Lot Pricing at Ke Kailani
Lot 1 2 3 4 5 6 7 8 9 10 13 14 15 17 21 22 23 24 25 27 28 Sq. Ft. 43,783 44,148 43,813 49,499 55,726 59,271 56,194 48,080 44,133 43,363 34,968 35,508 38,905 38,251 45,307 50,104 Price reserved reserved $7,500,000 $8,500,000 $4,950,000 $3,500,000 $3,300,000 $2,800,000 $2,500,000 $2,500,000 $2,150,000 $1,950,000 escrow $1,650,000 $1,550,000 $1,490,000 escrow escrow escrow $1,495,000 $875,000 $/s.f.
$169.88 $194.01 $100.00 $59.22 $47.24 $44.49 $44.72 $44.18
$44.33 $41.96
$29.84
Source: Ke Kailani
Non-Resort Residential in Kona / Kohala There are a wide range of non-resort residential projects, product types and price points in Kona and South Kohala. Very High-end residential can be found south of Kailua in the Keauhou area. New residential in the hills above Kailua is more mid to upper market in terms of price. There is a mix of old and new with the commensurate mix of pricing in and around Kailua. In-fill residential projects have virtually built out Kailua south of Palani Road. New projects are being planned just to the north of Palani, including the large Queen Lilioukalani Trust property and the DHHL properties to the north of the QLT property. Meanwhile upscale agricultural lot subdivisions have been selling well just below the Mamalahoa Highway such as Makalei Estates and Ooma Plantation. Other large subdivisions of lots have been in the market for a long period and have strong price increases in recent years. These projects are discussed below. Kohala Ranch Kohala Ranch is a large lot subdivision that is not inside a resort. The project offers mostly larger lots from 5 to 10 acres and sweeping ocean views. It is located just south of Kawaihae on the relatively steep slopes of the Kohala Ridge. The project is gated and equestrian oriented, but does not offer other significant amenities. Price positioning is lower that what
would be expected in a resort community. However, the project provides a good depiction of price shifts that occurred during the 1990s in a pure lot project. Table V-13 shows sales and resales at Kohala Ranch. Table V-13: Transactions at Kohala Ranch
Date 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Transactions 16 120 110 121 143 48 21 27 19 28 32 52 29 36 145 29 46 81 127 69 Avg. s.f. Avg. Ac. 283,534 250,998 273,171 194,090 198,776 206,879 224,383 228,546 203,193 219,108 244,138 212,645 187,739 279,266 391,767 211,272 220,553 259,101 226,331 246,316 6.5 5.8 6.3 4.5 4.6 4.7 5.2 5.2 4.7 5.0 5.6 4.9 4.3 6.4 9.0 4.9 5.1 5.9 5.2 5.7 Avg. Price $174,281 $166,942 $219,641 $227,350 $304,136 $342,146 $294,350 $218,514 $223,349 $166,854 $169,370 $155,176 $152,990 $152,329 $80,514 $195,131 $197,713 $224,437 $355,834 $480,552 -4.2% 31.6% 3.5% 33.8% 12.5% -14.0% -25.8% 2.2% -25.3% 1.5% -8.4% -1.4% -0.4% -47.1% 142.4% 1.3% 13.5% 58.5% 35.0% % Change $/s.f. % Change Comments $0.61 $0.67 $0.80 $1.17 $1.53 $1.65 $1.31 $0.96 $1.10 $0.76 $0.69 $0.73 $0.81 $0.55 $0.21 $0.92 $0.90 $0.87 $1.57 $1.95 8.2% 20.9% 45.7% 30.6% 8.1% -20.7% -27.1% 15.0% -30.7% -8.9% 5.2% 69 ac. @ $0.44/sf (8 lots) 11.7% -33.1% 48 ac. @ $0.22/sf (4 lots) -62.3% 790 ac. @ $0.12/sf (101 lots); 304 ac. @ $0.01/sf (3 lots) 349.4% -2.9% -3.4% 81.5% 82 ac. @ $1.73/sf (20 lots); 120 ac. @ $1.39 (20 lots) 24.1%
Figure V-6 shows average sales price by year for Kohala Ranch. Prices have increased significantly in recent years. This may be due to the relative affordability of the project as the resort projects get priced out of reach and the lack of lots elsewhere in recent years. Figure V-6: Trend in Sales Prices at Kohala Ranch Annual Average
$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0
19 8 19 6 8 19 7 8 19 8 8 19 9 90 19 9 19 1 92 19 9 19 3 94 19 9 19 5 9 19 6 97 19 9 19 8 9 20 9 00 20 0 20 1 02 20 0 20 3 04 20 05
Kohala by the Sea Kohala by the Sea is another lot subdivision that is not inside a resort. This project is located near the lower portion of Kohala Ranch on its south border. Unlike Kohala Ranch, these lots are mostly just over 1-acre in size. The lots offer sweeping views of the coastline. Price positioning is also lower that what would be expected in a resort community. Table IV-14 shows sales and resales at Kohala by the Sea. Table V-14: Transactions at Kohala by the Sea
Date Transactions 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 46 4 3 4 2 3 4 4 4 4 9 11 24 24 17 4 Avg. s.f. 48,261 58,239 45,273 45,596 47,436 48,583 48,950 48,896 49,767 49,037 48,646 47,021 46,995 47,705 45,920 45,520 Avg. Ac. Avg. Price% change 1.11 1.34 1.04 1.05 1.09 1.12 1.12 1.12 1.14 1.13 1.12 1.08 1.08 1.10 1.05 1.04 $230,196 $250,000 $228,707 $163,750 $131,500 $78,333 $102,188 $89,897 $85,500 $123,000 $145,556 $167,091 $147,141 $194,917 $280,523 $411,750 $/s.f.% change $4.77 $4.29 $5.05 $3.59 $2.77 $1.61 $2.09 $1.84 $1.72 $2.51 $2.99 $3.55 $3.13 $4.09 $6.11 $9.05
8.6% -8.5% -28.4% -19.7% -40.4% 30.5% -12.0% -4.9% 43.9% 18.3% 14.8% -11.9% 32.5% 43.9% 46.8%
-10.0% 17.7% -28.9% -22.8% -41.8% 29.5% -11.9% -6.6% 46.0% 19.3% 18.8% -11.9% 30.5% 49.5% 48.1%
Figure V-7 shows the trend in average sales prices over the period for Kohala by the Sea. This project also shows a sharp increase in prices in recent years. Figure V-7: Trend in Sales Prices at Kohala by the Sea Annual Average $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0
19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05
Makalei Estates Makalei Estates is a large lot subdivision, just mauka of Palamanui. The project opened in 2003 with 3+ acre agricultural lots. The lots sold quickly in 2003 and 2004. Some of the lots now have large upscale homes built on them, and some are planted in coffee. The elevation of the project is well suited for coffee cultivation. Lots are currently selling for $625,000 to $1+ million. Ooma Plantation Ooma Plantation is located near Kaiminani Road in Kona. Kaiminani Road is the main mauka-makai road connecting the Queen Kaahumanu highway with the Mamalahoa Highway near the airport. Ooma is offering 19 two-acre agricultural lots. The lots include 10,000 square foot graded building pads. They are currently offered at $629,000 prior to any infrastructure being in place. The expected price for the next release will be $725,000, once the infrastructure is installed. Large Lot Transaction Data ERA has collected and analyzed large parcel land sales data for vacant land that is zoned for agricultural use. Table V-15 shows a summary of vacant land transactions for the districts of North Kona, South Kohala and North Kohala. Summaries and averages are shown for size range categories. Generally, price per acre drops significantly with size, especially for lots of more than 9 acres. Table V-15: Vacant Lot Sales January 2004 to June 2006
Average # of Sales 67 78 70 13 12 3 5 Sale Size 6 11 29 69 118 362 2,951 $/Acre $172,917 $70,319 $55,168 $45,706 $22,727 $28,998 $9,259 Sale Price $998,390 $764,743 $1,695,724 $3,058,083 $3,435,893 $10,783,333 $15,405,429 Median Sale Size $/Acre Sale Price 5 $101,075 $555,000 10 $45,902 $495,000 25 $24,702 $665,000 61 $22,727 $1,705,083 108 $14,851 $1,988,530 358 $27,933 $10,000,000 867 $5,770 $11,550,000 $ per Acres High $1,651,792 $600,000 $879,869 $163,495 $64,279 $18,638 $20,962 Low $18,312 $18,232 $6,128 $7,556 $5,921 $18,638 $2,777
5 to 9 10 to 19 Acres 20 to 49 Acres 50 to 99 Acres 100 to 249 Acres 250 to 499 Acres 500+
Source: HIS Only includes sales above $100,000 located in North Kona, South Kohala and North Kohala districts
Development Approach and Positioning The preceding research provides a basis for the formulation of a market driven development strategy for the proposed resort. Specific recommendations are set forth below including unit types, pricing and absorption estimates for the residential components. As with all large master planned projects, market shifts will dictate adjustments to be made in future years. The programming laid out in this section provides a road map for planning and phasing the residential components of the project. These recommendations are pro-forma and do not relate to a specific land plan. Adjustments will need to be made when a more definitive land plan is developed. The market research along with successful development approaches at other master planned resort projects indicates a possible viable approach for developing the resort. Given the resort real estate conditions on the island, the topography of the land, and the preferences of the market, ERA would recommend a mix of built product and lots sales. The built product should be a mix of condominiums, attached products and detached single family products. ERA would recommend abiding by the following rules of thumb for resort residential development at the project. Hold the highest value parcels, such as those with water frontage or premium views, to let values build over time. An exception to this is when high initial infrastructure costs require cash flow generation. Hold the lowest value parcels, such as those with no water view to let the value of the resort and the cachet of being inside the gate build over time; Offer a range of product types and price points to appeal to different market segments at any given time; Capitalize on the high value cachet of being located on the Big Island. Develop a resort core with hotel, residential, golf and associated amenities from the start of the project Make sure that residential in the first phase has good ocean views; Provide some limited commercial support for the project, keeping in mind that it may need to be subsidized in terms of minimal rent initially. Develop natural amenity features such as access to the beach and maximization of views.
The recommended development program includes a mix of residential products with an overall high-end positioning. We would recommend positioning at a level that ranges from slightly below that of the Hualalai down to Waikoloa. We expect, however, that oceanfront lots will fetch very high prices, as has occurred elsewhere on the island. It must be kept in mind that, generally, the higher the positioning the slower the sales pace. A mid to upper level positioning, similar to Waikoloa or the recent developments at Mauna Lani can bring larger numbers of buyers to the project to populate it and support the amenities and commercial facilities. This will enhance absorption of the real estate and populate the resort.
While projects such as Hualalai, Kukio and Hokulia have maintained a more narrow range high-end and exclusive positioning, the resort projects of Waikoloa, Mauna Lani and Mauna Kea offer a wider range of real estate, resort hotels, public amenities and retail. We would expect that with the mix of hotels proposed for this project and the commercial facilities and amenities that will need support, this project should be positioned more akin to these latter resort projects. This does not preclude high-end residential. Projects such as 49 Black Sand Beach and Pauoa Beach in Mauna Lani; Kolea in Waikoloa; and Kaunaoa and the Bluffs in Mauna Kea are examples of high-end residential in broader range resort projects. Target Market Segment The target market for the proposed resort will be the continuingly burgeoning baby boomers. The majority of these buyers will be residents of the western US, primarily California. The baby boomers (currently those over 43 years old to about 65), have driven the booming market on the Big Island, and across North and Central America over the past 8 years. The number of people entering the peak second home purchasing age groups of about 50 to 55 years old will continue to grow through about 2015. Several trends have started to emerge that distinguish the purchasing habits, use patterns and buying motivations of the baby boomers. This generation is showing patterns that are different from that of their parents. The previous generation purchased second homes to escape, rest, and hideaway. On the other hand, baby boomers can be characterized in the following ways. Interest in community rather than exclusivity seeking out body heat; Desire for self improvement through education, health and fitness, outdoor pursuits and spa treatments; Desire to be with friends and family for recreation, entertaining at home and dining out; Desire for authenticity in a destination and in resorts; Wanting to connect with and understand the history and culture of the place they are visiting; Interest in green and sustainable resorts and environmental stewardship;
The proposed concept for the Kau resort is particularly well suited to appeal to this target market given its authentic Hawaiian setting and theme, the environmental programs and the cultural and historical programs that are being proposed. Residential Programming and Pricing Following the above positioning, a range of product types could be developed at the Kau resort. Products and phasing will depend on a number of influences including but not limited to: Master plan layout and orientation of development parcels near golf, oceanfront or other features and amenities that bring price premiums and dictate product positioning;
Need to generate cash flow immediately to cover infrastructure costs; Development deals with hotel developers that typically require residential components to augment cash flows; The preferences of developers and development partners; and, Changing market preferences.
Therefore, the following program is illustrative and is intended to follow the positioning described above. It should be noted that the pricing recommendations are based on current market conditions. We believe the subject project with its sweeping coastal views can command relatively high prices. Pricing also assumes that the prestige and amenities of resort hotels will add value to the real estate. Significant price escalation has been occurring recently and could likely occur in the future. ERA has based its pricing upon the assumption that the vast majority of the real estate products will offer excellent ocean views. As in nearly all destination resort markets, ocean views command a considerable premium. As a result, the developer should do everything possible to preserve views in order to maximize achievable value for the real estate products and the project as a whole. The product mix is based on ERAs industry knowledge, current market conditions, current practices in resort real estate development and inputs from local professionals in the industry. The mix of products is intended to provide a range of products and price points in order to broaden the market reach of the resort. The product types are intended to maximize flexibility by allowing for adjustments based on market response. Lots There has been mixed signals about lot sales in recent months. High-end projects such as Kukio and Hokulia continue to sell lots. There also continues to be a market for large agricultural lots. However, realtors note that buyers are hesitant about the building process in Hawaii characterized by expensive material costs, expensive and overbooked contractors and managing projects from distant primary homes. Other developers, notably Hualalai, have stated that they prefer to capture the profit from building rather than to just sell lots. Nevertheless, there is a segment of the second home market that seeks to pursue the dream of designing and building custom homes within a resort setting. Therefore, it is recommended that a range of lot products be offered in the resort. These would be as follows: Golf Lots The golf lots should range from half an acre to an acre. These lots should be developed in enclaves no larger than 50 units. Golf frontage or at least golf foreground views would add value to these lots. It is assumed that these lots would also have ocean views. View Lots View lots would not be as close to golf and would be larger ranging from 1 to 3 acres. These would be similar to the lots in Hokulia. These lots would be released in 8 to 10 unit development parcels similar to Anea, Lipoa and Laueki Estates in Hualalai. Oceanfront Lots - The oceanfront and near-ocean lots can be some of the highest value products sold within resort communities. These lots should average one acre in size. Frontage on the ocean is obviously quite limited, and other land uses will compete for this premium value.
Ag Lots Large agricultural lots could be offered in the mauka portions of the site. These could range from 5 to 20 acres and would provide buyers the low density ranchette product within a resort community. This is something that is not yet available on the island, although the Hokukano Ranch project near Kealakakua is currently planning to offer this product in a private golf community setting. Pricing for these products based on todays market conditions could be as follows: Unit Type Golf Lots View Lots Oceanfront Lots Ag Lots Size Range to 1 Acre 1 to 3 Acres 1 Acre 5 - 20 Acres Price Range $1 - $2 million $1 - $2 million $3 $10 million $2 - $4 million
Multi-Family Condominium Units Condominiums are a popular product type at resorts in Hawaii. Multi-family products have been developed in Mauna Lani, Waikoloa and Mauna Kea by third party builders who purchase development parcels from the master developer. Actual product types and pricing are determined by the builders with the approval of the master developers. We recommend offering various development parcels that can accommodate a range of multi-family housing types as follows: Mid Level Condos Using Kulalani at Mauna Lani and the Waikoloa Beach Villas an as an analog, these units would range from 1,300 square feet to about 1,800 square feet. There should be a mix of 2 (dual-master) and 3-bedroom models with 3bedroom being most prevalent. Unlike Mauna Lani, these units would have ocean views. Higher End Condos These units would be similar to Nohonakai at Mauna Lani but with ocean views. They would be larger 3-bedroom 3+ bath units with sizes ranging from 2,000 to 2,800 square feet. These units would also feature more luxurious specifications, appliances and finishes and have higher ceiling heights and appointed outdoor lanais / patios.
Pricing for these units is based on todays market conditions. The higher pricing of the high-end condos is a function of more luxurious appointments, higher construction costs such as for higher ceilings, larger kitchens and bathrooms and larger more appointed outdoor spaces. Prices could be as follows: Unit Type Mid Level 2-bed Mid Level 3-bed High-End 3+ bed High-End 3+ bed Avg. Size 1,400 1,800 2,000 2,800 Avg. Price $800,000 $1,000,000 $1,500,000 $2,050,000 Price / s.f. $575 $550 $750 $730
Townhouses and Villas Townhouses The townhouse product would provide a step up in size and price from the high-end condominiums. These units would range from 2,500 to 3,500 square feet. They would offer luxurious finishes and specifications. Duplex Villas This would be another form of the townhouse product built in pairs. These units would have the same size and price ranges as the townhouses. Detached Condominium Villas This is a product that has been increasingly popular in Hawaii. It is a detached single-family product that is maintained under a condominium regime with an HOA available to handle outdoor maintenance. These units would have private outdoor spaces and plunge pools. The HOA maintains landscaping, streets and even building exteriors. We would recommend a range of sizes and prices for this product. Smaller lower priced units might range from 2,000 to 2,400 square feet. Larger units could range from 3,000 to 4,000. These types of products are often sold as cottages at resorts such as Kukio and Hualalai in Hawaii. Lower priced examples can be found at Kaanapali on Maui. Pricing for these units based on todays market conditions could be as follows: Unit Type Townhouses Duplex Villas Detached Villas (sm) Detached Villas (lg) Avg. Size 3,000 3,000 2,300 3,500 Avg. Price $3,000,000 $3,000,000 $3,000,000 $4,000,000 Price / s.f. $1,000 $1,000 $1,300 $1,140
Fractional Condominiums Once the destination gets established, it may be possible to sell shared ownership products within the resort. Fractional ownership, distinguished from timeshare by offering more than one to two weeks of use, is just now being introduced in the Hawaiian market by Ritz Carlton at Kapalua, Maui. Ritz is offering its typical 1/12th share product at Kapalua. We would expect a 1/10th to 1/12th share would be appropriate for Hawaii, giving owners 4 to 6 weeks of use. Unit types that could be sold as shared ownership could include the higher end condos and townhomes. Generally, fractional projects should be located on top notch sites close to amenities or key natural features. They are typically high-end products in high-end locations that allow buyers to buy into this level of location, size and luxury at a reduced price due to the shared ownership. Fractional projects tend to have a limited number of units up to say 20 or 30 units at a time. Too many units divided into shares (20 units x 10 shares = 200 shares) creates an inventory of product that can be challenging to sellout. Fractional ownership requires a strong sales and marketing effort and is generally most successful when it developed and sold by the major hotel brands. Major flags such as Ritz or Four Seasons can sell the appeal and recognition of their brands and have the major advantage of having large customer data bases and adjacent lodging. Fractional pricing is typically a function of the pricing of whole-ownership units. The whole ownership price is divided by the number of shares and then factored up at 1.5 to 2 times to account for increased sales and G&A costs and increased profit. Accordingly, if whole ownership 3-bedroom condominiums were priced at $1.5 million, a one tenth share would be priced at $1.5 million / 10 times 1.75 or $262,500. Timeshare Timeshare has become increasingly popular in Hawaii with strong sales by the major hotel brands such as Marriott (Maui, Oahu, Kauai); Westin (Maui, Kauai); Hilton (Waikoloa and Waikiki). For a number of years, timeshare gained the reputation of being low-end to middle market and cheap. However, these upscale brands have developed high-end projects in luxury resorts such as Kaanapali, Maui; Princeville, Kauai and Koolina, Oahu. They have performed quite well in these locations and have not reduced the cachet of these resorts. Again, timeshare is not typically an early phase development. The above mentioned projects were added to the resorts after they were mature. Since timeshare is a higher density development, it is best suited for hotel sites or near hotel areas of the site. It should be kept separate from lower density areas of the project. Timeshare can occupy both upscale sites such as Marriotts Hawaiian properties or lower value sites such as the new Hilton project at Waikoloa. Phasing Strategy The phasing strategy is based both on the layout of the property as well as the development strategy for the project. The overall strategy will be to establish a core of accommodations, facilities and amenities to drive initial sales in Phase 1. There will also be an immediate need
for cash flow to help cover the high initial costs of infrastructure and amenity development. Therefore, it will be important to initiate and sustain strong real estate sales from the start. Phase 2 will then build from and continue the momentum of the first phase. It will be necessary to make significant expenditures on initial infrastructure, amenities and resort core facilities in the first phase. However, the phasing strategy seeks to minimize infrastructure expenditures until they are required to open new revenue generating real estate zones. Phase 1 It would be optimal to include the smaller 4-star resort hotel in Phase 1 in order to develop the resort core facilities and amenity features. Real estate products included in Phase 1 would consist of both lots and built products. Lots would require less investment in terms of construction and would help generate cash flow. Condominiums and town homes located near the resort core would help establish the resort core and would be attractive to hotel developers as part of their development deal. A beach club facility for the use of real estate owners would enhance real estate values. At least the first 9 holes of the golf course should be constructed in phase one. This will create the resort environment and add value to the real estate. It would be optimal to build the entire course. Phase 2 We recommend adding the 5-star boutique hotel and the higher priced townhouses and lots to the mix in Phase 2. Phase 2 should introduce the Beach Club if it was not developed in Phase 1. The golf course should be completed by phase 2. Subsequent Phases We would recommend continuing to develop the above mix of residential products over time depending on demand. The conference hotel would also be introduced once the resort hotel has been established. A second golf course, timeshare and fractional should be held for the later phases. Development Plan Features General Planning Considerations Features that we believe to be important for maximizing values and marketing appeal are as follows: With regard to economics, the oceanfront areas of the site are by far the most valuable. These areas of the site will provide a significant amount of the return on investment. This part of the site should be reserved as much as possible for highpriced residential and hotel sites. Non-revenue generating land uses such as the heritage reserve should be minimized on the oceanfront. At least one oceanfront golf fairway or green can significantly add to the prestige of the golf course and the overall resort. Ocean views should be protected and maximized; There should be gated access to the resort and to some if not all residential enclaves; We recommend that a resort core / village center with shops and services be developed as soon as possible;
Hotels / timeshare sites should be located near the oceanfront; The resort character must be reflected in quality of improvements, sensitivity to land, local culture, environment, ecology and service; There should be consistent architecture featuring authentic Hawaiian theme with authentic natural materials and careful use of landscaping to unite buildings and create a lush, lower density feel but the theme should be applied with a light hand. Heavy theming is not advisable, especially for real estate products. There should be concern for owner privacy, exclusivity and security reflected throughout the resort; and There should be cart paths to facilitate transportation across the site via golf carts or electric vehicles, as well as walking and biking. Trail systems are often cited as the most desirable and most often used amenities within resort communities. Trail systems are consistently cited in surveys as the most desired amenity of resorts and residential communities. There should be an extensive trail system that connects key features on the site including the oceanfront, the petroglyphs, the turtle sanctuaries and the Hawaiian heritage park. A beach club that is accessible only to residents would be beneficial. This should be located down next to the beachfront. The beach club should have a small lap pool and a small fitness center. Indoor facilities should include changing rooms, and a small kitchen and indoor living / dining area for members to entertain and/or for social gatherings. Individual enclaves can offer small pool / recreation centers within their developments. A spa located either as a stand-alone feature or within one or all of the resort hotels will be a popular feature(s) as an amenity for the residential buyers as well as hotel guests. The preliminary development program includes a Hawaiian Heritage Center. This facility would provide an interesting attraction to draw hotel guests and particularly other day visitors to the project. It also will provide the connection to history and culture that baby boomers are increasingly seeking. However, this facility should be carefully sited so as not to occupy too much high-value real estate. Public parking and traffic flows have to be kept separate from private residential areas. Beaches on the site are largely protected as turtle sanctuaries. Beach access is clearly critical to values at the project. If beach access is limited or cannot be provided, it would be beneficial to create lagoons that bring water into resort sites or otherwise provide ocean access. The preliminary development program includes an equestrian center and rodeo ground. This facility might provide an amenity more for the existing local community rather than for new residents or resort guests. The land form that exists on site is not particularly well-suited for equestrian activities. This is in contrast to
Amenities
the northern and central portions of the Big Island where there are vast areas of pasture lands, forests, public lands and riding trails. Therefore, it is likely that horse enthusiasts would choose equestrian oriented properties in these regions rather than the subject site. For this reason, we suggest limiting the size and scope of the equestrian facilities. The preliminary program includes an airstrip that could accommodate private jets and other smaller planes. We would expect this feature to enhance real estate sales for the higher priced real estate products. Built units should have wide profiles facing the ocean in multi-story construction. If possible, it is desirable to create neighborhood enclaves to preserve privacy and a sense of community within subareas of the project. Protection and shielding from the wind will be important. South and west facing orientations should be maintained. Most of the site slopes to the south, so this will be easy to achieve.
Unit Configuration
Unit Design Features Unit design features will vary by target market segment. Some of the features, especially for the high-end market, that are appealing include: Large covered or sheltered outdoor spaces when possible that emphasize outdoor living and entertainment; Access to patio (dining) from kitchen and family/living room using pocket doors; Grand, maximum impact entry, ideally with see through (to the ocean) views; Twin master suites/ separated bedrooms are highly desired; High ceilings, preferably 9-10 feet, including ceiling fans would be necessary for upscale housing; High quality kitchen appliances and gourmet kitchen elements; Five fixture master bathroom with outdoors area and quality bathroom fixtures; Emphasis within the unit layout for entertaining and family gatherings; Technology friendly design; and Availability of upscale furniture packages.
Illustrative Development Scenario and Absorption Based on the above recommendations regarding positioning and product types, Table V-16 shows a possible development scenario and mix of unit types that we believe would be supportable based on prevailing rates of development and absorption on the island. Comparable resorts such as Mauna Lani and Waikoloa have achieved absorption that exceeds these levels. However, the timing of new releases of product can vary significantly due to the variety of builders active in these projects and their individual scheduling considerations.
Table V-17 shows a reasonable absorption schedule of the above development scenario. The variety of products and price points allows for increased absorption as various demand segments are tapped. It is significant to note that the comparable resorts on the Kona / Kohala coast are approaching build-out. Kohanaiki will open with new units and golf, but it is more a private golf community than a resort. We believe this will enhance the ability of the Kau resort to sell resort real estate over the next decade.
Table V-16 ILLUSTRATIVE DEVELOPMENT PHASING AND ABSORPTION FOR KA'U RESORT 2007 to 2017
Development Phasing 4-Star Hotel 5-Star Boutique 4-Star Conference Hotel Mid Market Condos High End Condos Townhouses Duplex Villas Golf Lots View Lots Oceanfront Lots Ag Lots Fractional Timeshare
Totals 250 100 400 320 240 150 120 170 200 200 60 30 20 150
2007
2008
2009
2010 250
2011
2012
2013
2014
2015
2016
2017
100 400 60 30 30 30 50 50 20 50 50 20 10 60 30 40 40 50 50 10 10 20 150 75 30 40 50 50 50 75 30 40 50 30 40 50
30
30 40
30 40
20
Table V-17
ILLUSTRATIVE ABSORPTION FOR KA'U RESORT 2007 to 2017
Development Phasing
Totals
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Mid Market Condos High End Condos Townhouses Duplex Villas Golf Lots View Lots Oceanfront Lots Ag Lots Fractional Timeshare
320 240 150 120 170 200 200 60 30 20 150 25 25 20
30
60 30 30 40
60 30
30 40 40
50 30
50 30 40 40
50 30
50 30 40
30 25 25 20 25 25 20 10
40 25 25 10 25 25 10
50 25 25 25 25
50 25 25
10
10 75
75
SECTION VI: COMMERCIAL RETAIL ANALYSIS
There are a variety of types of shopping centers in Hawaii. Regional and neighborhood centers target local residents. Traditional street-front shops in towns such as KailuaKona and Hilo cater to both locals and tourists. Upscale shops in the resort areas such as the King Shops in Waikoloa and the Shops at Mauna Lani target upscale tourists and typically have much higher sales per square foot and lease rates. This section of the report provides market background on the retail commercial market in Hawaii. Following the background, ERA will present a development strategy for the retail component of the Kau resort development. General Market Conditions Table VI-1 shows a summary of key shopping centers in Hawaii. This summary does not include retail in traditional street-front locations. Table VI-1: Selected Retail Centers, Big Island, 2006.
Submarket Community Centers N.I. Keauhou Shopping Center Parker Ranch Shopping Center Lanihau Center Kona Coast Shopping Center Puainako Town Center Crossroads Shopping Center KTA Center Regional Malls Prince Kuhio Plaza Resort Centers Kings' Shops Coconut Grove Marketplace Shops at Mauna Lani, the Strip Centers Waikoloa Highlands Center Kopiko Plaza Value Centers Waiakea Center Location Opened Keauhou Kamuela Kailua-Kona Kailua-Kona Hilo Kailua-Kona 1984 1969 1987 1975 1979 1996 GLA 169,723 120,000 88,079 86,755 80,554 75,247 46,000 504,387 75,000 27,136 75,000 73,637 33,526 229,334 Parking 893 570 496 440 400 394
Hilo Waikoloa Kailua-Kona Mauna Lani Waikoloa Kailua-Kona Hilo
1985 1992 1996 2006 1991 1990 1997
2,831 398 228 270 300 169 1,157
Source: CB Richard Ellis and ERA
The main shopping areas on Hawaii are Kailua-Kona and Hilo. There is also retail in the various towns and in several of the resort communities. Kailua-Kona contains both neighborhood community centers and tourist oriented retail. Most of the entertainment and restaurant retail is located along Alii Drive in Kona Village, while the big box stores and service oriented retail is located in the community centers located off of Queen Kaahumanu Highway. Retail in Hilo is mostly oriented to the local residents. Waikoloa and Mauna Lani have each developed retail centers to service the tourists and secondhome residents.
Kahuku Ranch Market Assessment Page VI- 1 Commercial Retail Analysis
Visitor Expenditures According to the DBEDT, visitors to the entire state of Hawaii spent 11.9 billion dollars in 2005. Visitors to the Big Island spent a total of $1.6 billion or approximately 14 percent of statewide visitor expenditures. The largest visitor expenditure was lodging, followed by food and beverage and shopping. During a single visit to Hawaii, a visitor on average spent 37 percent of his total expenditures on lodging, 19 percent on food and beverage and 19 percent shopping. Figure VI-1 illustrates the distribution of visitor expenditures over the duration of a single trip to Hawaii. Figure VI-1: Distribution of Visitor Expenditures, 2005.
6%
2%
19% 9%
37% 8% 19%
Food and Beverage Transportation Lodging Supplemental business Entertainment & Recreation Shopping All other expenses
Source: DBEDT.
The DBEDT only reports visitor expenditures by category for the entire state, thus ERA applied the percent spent on each category for the State to the County total of $1.6 billion. Assuming there were 1.5 million visitors to Hawaii County, in 2005, and that each visitor spent on average 6.62 days on the island, ERA estimates that each visitor to Hawaii County spent $1,096 per visit and $165 per day. Excluding lodging and transportation, visitors spent a total of $920 million over the year or approximately $605 per visit and an estimated $91 per day. Table VI-2 details visitor expenditures by category for the entire year, per visitor and per day.
Page VI- 2 Commercial Retail Analysis
Table VI-2: Estimated Visitor Expenditures, Hawaii County, 2005.

Total (Millions) $322.98 $220.97 $36.39 $65.63 $151.87 $140.53 $25.08 $14.45 $89.29 $11.71 $308.57 $104.51 $58.22 $11.09 $47.64 $30.50 $56.61 $606.58
1
Total Food and Beverage Restaurant food Dinner shows and cruises Groceries and snacks Entertainment & Recreation Total Transportation Interisland airfare Ground transportation Rental vehicles Gasoline, parking, etc. Total Shopping Fashion and clothing Jewelry and watches Cosmetics, perfume Leather goods Hawaii food products Souvenirs Lodging All Other Expenses
Per Visitor $212.28 $145.23 $23.91 $43.13 $99.81 $92.36 $16.48 $9.50 $58.69 $7.70 $202.80 $68.69 $38.26 $7.29 $31.31 $20.05 $37.21 $398.66 $70.56 $19.12 $1,095.60
Per Day $32.07 $21.94 $3.61 $6.52 $15.08 $13.95 $2.49 $1.43 $8.86 $1.16 $30.64 $10.38 $5.78 $1.10 $4.73 $3.03 $5.62 $60.22 $10.66 $2.89 $165.50
$107.36 $29.09 $1,667.00
Supplemental Business GRAND TOTAL
Source: DBEDT and ERA
Overview of Selected Centers The following discussions provide general descriptions of selected centers in Hawaii County. Keauhou Shopping Center The Keauhou Shopping Center is an open air center located seven miles from KailuaKona on Alii Drive. The center is part of the Keauhou resort however it aims to cater to both residents and visitors. The center includes shopping, dining and entertainment establishments and is anchored by Ace Hardware, KTA Superstores, KTA Pharmacy and Longs Drugs. Food & Restaurant and Service establishments dominate the center. The center also features a seven-plex theater. The center opened in 1984 and currently has 170,000 gross leasable space and almost 900 parking spaces. As of July 2006, the center had a 3.6 percent vacancy and a triple net lease rate of $2.50 per square foot.
Parker Ranch Shopping Center The Parker Ranch Shopping Center is located in the historic upcountry town of Waimea. The center is the retail hub for Waimea. Anchor tenants include Foodland, First Hawaiian Bank, Bank of Hawaii, Kaiser Permanente, Starbucks, Blockbuster and the Parker Ranch Store. In December 2005 Parker Ranch sold Parker Ranch Center to an affiliate of Chicago-based commercial real estate firm M&J Wilkow Ltd. for an undisclosed amount. The center opened in 1969 and currently has 120,000 gross leasable space and 570 parking spaces. As of July 2006, the center had an 8.1 percent vacancy and a triple net lease rate ranging from $1.75 to $2.50 per square foot. Lanihau Center The Lanihau Center is located in the heart of the retail district of Kailua-Kona. The center aims to cater to both visitors and residents. Lanihau Center offers a wide range of services, food and retail establishments. Service establishments include: pharmacy, financial, postal, photo, video rentals, travel, hair salon, nail salon, and wireless communications. Food establishments include: Chinese, Hawaiian, chicken, tacos and hot dogs, local style, sushi and bento, bakery, deli, grocery, snacks, shave ice, ice cream and yogurt. Retail establishments include jewelry, apparel, souvenirs, flowers, groceries, health food, vitamins and herbs, cosmetics, computer video games and cellular telephones. The center opened in 1987 and currently has 88,000 gross leasable space and almost 500 parking spaces. As of July 2006, the center had a 1.0 percent vacancy and a triple net lease rate of $4.00 per square foot. Kona Coast Shopping Center The Kona Coast Shopping Center is located within the Kailua-Kona retail district. The center offers apparel, electronics, food and electronics. The center includes several national retailers including: Blockbuster Video, Jamba Juice, Payless Shoes, Radio Shack, Rent-A-Center, Ross Dress For Less, Starbucks Coffee, Tesoro, and Wendy's. The center also includes several sit down restaurants and small service shops. Kona Coast Shopping Center opened in 1975 and currently has 87,000 gross leasable space and almost 440 parking spaces. As of July 2006, the center had no vacancy and a triple net lease rate of $3.50 per square foot. Crossroads Shopping Center The Crossroads Shopping Center is a 25 acre complex located in Kailua-Kona. The center includes many national retailers including: Borders Books & Music, Safeway, Wal-Mart and Dennys. In addition the center has an eclectic collection of specialty shops, restaurants, and services. Crossroads Shopping Center opened in 1996 and currently has 75,000 gross leasable space and almost 400 parking spaces. As of July 2006, the center had 0.1 percent vacancy and a triple net lease rate ranging from $3.00 to $6.00 per square foot.
Prince Kuhio Plaza Prince Kuhio Plaza is the largest regional mall on the island. Located in Hilo, the mall is anchored by Sears, Macys and a family fun entertainment center, which includes a nineplex stadium seating movie theater. The mall features over 100 retail establishments, including numerous national retailers. The retail establishments provide accessories, bath & beauty, apparel, house wares, jewelry, entertainment, restaurants & eateries, services and specialty stores. While the mall caters to the local community, visitors to Hilo also shop at the mall. The Prince Kuhio Plaza opened in 1985 and currently has over 500,000 gross leasable space and almost 3,000 parking spaces. As of July 2006, the center had 13.9 percent vacancy and a triple net lease rate ranging from $2.08 to $5.58 per square foot. Kings Shops Located within the Waikoloa resort, the Kings Shops is the oldest and most established resort center on the island. The Kings Shops included a collection of shopping, dining and services targeted to the resort visitors. The establishments range from high-end boutiques, such as Coach and Louis Vuitton to traditional resort gift shops. The Kings Shops include a few fine dinning restaurants as well as a food court. The Kinds Shops opened in 1992 and currently has 75,000 gross leasable space and almost 400 parking spaces. As of July 2006, the center had no vacancies. Coconut Grove Marketplace Located in the heart of Kona off of Alii Drive, The Coconut Grove Marketplace has a wide variety retail and food establishments. Restaurants range from sushi and steak establishments to subs and snack shops. The marketplace includes a two-plex movie theater and a Hard Rock Caf. In addition Coconut Grove offers a wide variety of tourist oriented retail including buy jewelry, clothing, locally created artwork and crafts, and children's fashions and toys. Coconut Grove Marketplace opened in 1996 and currently has over 27,000 gross leasable space and almost 230 parking spaces. As of July 2006, the marketplace had a 5.8 percent vacancy and a triple net lease rate of $5.00 per square foot Shops at Mauna Lani The Shops at Mauna Lani recently opened in the spring of 2006. The Shops offer a wide selection of luxury and resort shopping and dining. The center caters to the guests and residents of Mauna Lani and neighboring resort communities. The center features Hawaiian architectural design with lush tropical landscaping and water features and "center stage" court for shows, signature events and planned entertainment. Tenants are to include, Luxury Retailers, Grocery and Boutique Stores. There is planned to be 20,000 square feet of restaurants and casual dining which will include a range of cuisine and price points.
The entire complex is to include seven buildings with over 75,000 square feet of gross leasable space. There are planed to be 270 parking spaces. As of July 2006, the center was 50 percent leased. Gross lease rates were ranging from $2.75 to $4.00 per square foot. Queens Marketplace The Queens Marketplace is a new 135,000 square feet of upscale retail center to be located across the street from the Kings Shop in Waikoloa. The center is to have upscale retail, restaurants and services to service the visitors staying within the Waikoloa resort and along the Kohala coast. The center is currently under construction and will be anchored by a 20,000 square foot Island Gourmet Market. It is expected that the grocery store will open in the fall of 2007 and the center will be completed by the winter of 2008. Retail Demand Analysis Available Markets ERA has identified four available markets for the retail component of the Kau resort development. These include:
Hotel Guests: people who will be staying at the hotels within the Kau resort. Resort Residents: property owners of the resort real estate and their guests. Primary Residents: people who are residents of the Kau district. Travelers: people who are traveling through Kau.
The four available markets each represent a specific consumer type. Each consumer type will utilize the retail component differently. To determine the demand for the retail component, ERA evaluated the spending habits of each type of consumer and determined capture rates for each. The analysis evaluated three types of retail categories: prepared food & beverage, groceries and merchandise retail.
Estimated Expenditure by Available Market ERA determined the estimated expenditure for each available market. For hotel guests, and travelers, ERA used the DBEDT visitor expenditure estimates to determine spending habits. ERA assumed that hotel guests and travelers will have the same spending habits for the entire island. The difference will be in the amount the Kau development will capture. For resort residents, ERA used the DBEDT visitor expenditure estimates as a baseline, adjusting spending on certain categories based on resort residents needs and assumed increased amount of expendable income. For example, resort residents will spend more on groceries than hotel guests as resort residents have a kitchen in which they can prepare meals. For primary residents ERA determined the consumer expenditures of residents within 10 miles of the Kau site. Table VI-3 details estimated daily expenditures for each retail category by available market. Table VI-3: Estimated Daily Expenditures by Retail Category and Available Market
Retail Category Prepared Food-and-Beverage Grocery Retail Merchandise TOTAL RELEVANT SPENDING Hotel Guests $26 $7 $31 $63 Resort Residents $25 $20 $28 $73 Primary Residents $5 $10 $6 $21 Travelers $26 $7 $31 $63
Source: DBEDT, ESRI and ERA
Projected Estimated Visitor Days for Hotel Guests and Resort Residents Utilizing the hotel development recommendations, (Section IV) and the resort real estate development recommendations, (Section V), ERA determined the estimated visitor days per year for both hotel guests and resort residents. ERA projects that the hotel component of the development will generate over 143,000 visitor days in 2010 and by 2017 the hotel component will generate over 434,000 visitor days. The real estate component, which includes built product, lots, fractional and timeshare properties, will generate 3,500 resident visitor days per year in 2010. By 2017, ERA estimates that the resort residents will generate 103,000 resident visitor days per year. Table VI-4 details ERAs methodology estimating total annual visitors days for Hotel Guests and Resort Residents. Estimated Primary Resident Market ERA defined the primary resident market to include residents living within ten miles of the site. It is estimated that in 2006, approximately 4,440 people reside within ten miles of the development site. By 2010 it is estimated that 4,600 people will reside within the primary resident market and by 2017 the population will be over 5,100. ERA projected the population by applying the estimated annual increase of 1.2 percent for years 2006 to 2011. After 2011, ERA believes the annual growth rate will increase to 1.4 percent do to the establishment of the Kau resort development. Some of this growth in population could be housed in the proposed Kau Town.
Table VI-4: Projected Estimated Visitor Days for Hotel Guests and Resort Residents
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Hotel Guest # of Hotel Rooms Average Occupancy Number of Occupied Room nights/Year Party Size Total Projected Visitor Days/Year Resort Residents # of Units/YR Sold Cumlative # of Units Sold # of Units/YR Built Cumlative # of Units Built Average # of People/Occ. Unit Average Length of Stay (days) # of Visits per Year Total Projected Residents Days/Year Total Projected Visitor Days/Year Projected Average Daily On-Site Population Source: Economics Research Associates. 250 74% 67,525 2.13 143,726 250 74% 67,525 2.13 143,870 350 74% 94,535 2.13 201,620 350 74% 94,535 2.13 201,821 750 74% 202,575 2.14 432,907 750 74% 202,575 2.14 433,340 750 74% 202,575 2.14 433,773 750 74% 202,575 2.14 434,207
130 130 50 50 2.5 7.0 4 3,500 147,226 403
150 280 110 160 2.5 7.0 4 11,200 155,070 425
260 540 240 400 2.5 7.0 4 28,000 229,620 629
140 680 210 610 2.5 7.0 4 42,700 244,521 670
275 955 190 800 2.5 7.0 4 56,000 488,907 1,339
215 1,170 180 980 2.5 7.0 4 68,600 501,940 1,375
320 1,490 220 1,200 2.5 7.0 4 84,000 517,773 1,419
170 1,660 265 1,465 2.5 7.0 4 102,550 536,757 1,471
Estimated Traveler Market The traveler market is defined as non-primary residents who travel pass the site. The Hawaii State Department of Transportation (HDOT) has two traffic counting locations near the proposed site:
On Mamalahoa Highway between 69 milepost and South Point Road at Do Not
Pass signs.
On Mamalahoa Highway between Old Hawaii Belt Road and 72 milepost.
As of October 2006, HDOT estimates that between 2,400 and 2,800 passenger vehicles pass by either counting location, with an even split between either direction of the roadway. To determine the size of the traveler market ERA estimated the number of daily one-way trips and the approximate number of primary resident vehicles passing by the site. ERA estimated that the number of one-way trips by the site to be approximately 1,300 per day. To discount the trips conducted by primary residents ERA utilized the rate of car ownership in Hawaii County, the average number of trips per day and the estimated percentage of primary residents passing by the site. To determine the actual number of non-primary residents traveling in a motor vehicle pass the site, ERA applied the average number of occupants in a recreation trip to the estimated number of daily trips conducted by non-primary residents. Utilizing the above described methodology ERA estimates that over 240,000 people pass by the site annually. ERA does not foresee this market increasing significantly over the next ten years. (Table VI-5) Table VI-5: Estimated Annual Size of Traveler Market
Number of One-way Trips Daily Traffic Count Decrease to Account for Roundtrips Number of one-way trips Primary Resident Trips Residents in 10 mile radius Passenger Vehicles Registered in Hawaii County Population of Hawaii County Percent of Car Ownership Number of Cars in Primary Market Average Number of Trips Per Day Number of Primary Resident Trips/Day Percent Traveling by Intersection Number Traveling by Intersection Travelers per Year Number of Non-Resident Trips Average Number of Occupants Number of Travelers per Day Days per Year Travelers per Year
2,600 50% 1,300 4,414 124,632 167,293 74% 3,288 3 9,865 10% 987 313 2.1 658 365 240,283
Source: Bureau of Labor Statistics, Hawaii County DMV, Hawaii State DOT and ERA.
Capture Rates of Available Markets Regardless of the quality of the shops and establishments, the commercial retail at the Kau development will not capture 100 percent of the spending power of the available markets. As a result of the competition on the Island, ERA determined potential capture rates for each available market. The hotel guests and resort residents are more of a captive audience and thus it is assumed that they will utilize certain elements of the retail more so than the primary residents and the travelers. However, there is a lack of existing retail near the site, primary residents may utilize the prepared food and beverage and grocery retail at a substantial rate. The tourists driving passed the Kau site on route to Volcano or Kona may utilize the retail but at a significant lower rate. The following are ERAs estimates for capture rates for each available market and retail category. Table VI-6: Estimated Capture Rates for Available Markets
Capture Rate for Hotel Guests Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Resort Residents Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Primary Residents Prepared Food and Beverage Space Grocery Space Retail Merchandise Space Capture Rate for Travelers Prepared Food and Beverage Space Grocery Space Retail Merchandise Space
Source: Economics Research Associates.
60% 65% 85% 70% 90% 80% 50% 60% 30% 3% 5% 2%
Estimated Retail Demand Utilizing the above assumptions ERA estimated the annual potential spending by the four available markets on the four retail categories: prepared food & beverage, groceries and retail merchandise. Based on ERAs knowledge of both resort and traditional retail and the current real estate market conditions in Hawaii, ERA assumes that $375 in sales are required to support one square foot of retail. ERA assumes a three percent rate of inflation as the area is going to grow significantly with the development of the Kau resort. The sites distance from resort and traditional retail on the Big Island further supports the inflation rate as there is limited potential for sales leakage by the hotel guests and resort residents.
From the analysis above, based on the assumptions utilized, it appears likely that the four available markets could initially support an estimated 24,000 square feet of new commercial space, but that demand will grow quickly if the resort is successfully developed and marketed as envisioned. By 2014, the identified available markets are expected to represent sufficient demand to support about 68,000 square feet of new shops and restaurants and by 2017 support over 75,000 square feet of retail and restaurants. Tables VI-7, VI-8 and VI-9 contain ERAs projection of annual spending and supportable commercial space. Based on the ERAs analysis, it is estimated that 34 percent of the demand will support prepared food & beverage space, approximately 10 percent will support grocery store space and a about 56 percent will support retail merchandise space. The distribution is not expected to change significantly over the next ten years. While demand for most of this space is not expected to materialize until 2014, it will be necessary to develop most key facilities (main restaurants, primary shops, etc.) by the time the resort opens in order to make the resort a sufficiently attractive place to stay for initial sales prospects and other visitors. Program Recommendations ERAs key conclusions and recommendations by retail category are summarized below. Food & Beverage To establish an the Kau resort as a destination it will be absolutely critical to offer an appealing mix of highly attractive restaurants and bars within the resort, ranging from a casual beach club grill to a high quality, oceanfront fine dining venue. Several food and beverage tenants that would be appropriate include: Fine Dinning Bar and Grill Casual Dinning Japanese / Sushi Coffee House Ice Cream Shop Chain such as Roys Grocery Store Space Given the subject sites remoteness, it will also be important to have a grocery store, to service the resort residents and the primary residents. The grocery store could include a pharmacy and provide other general household supplies. The grocery store does not need to be built until there is a sufficient resort resident population. ERA recommends constructing the store in Phase II and allocating 8,000 to 10,000 square feet to the store.
Table VI-7: Estimated Annual On-Site Retail/Commercial Sales by Available Market PROJECTED TOTAL POTENTIAL ANNUAL ON-SITE RETAIL/COMMERCIAL SALES BY TYPE OF CONSUMER EXPRESSED IN THOUSANDS OF CURRENT DOLLARS
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Inflation factor: Rate = Spending by Hotel Guests
3.0%
1.00
1.03
1.06
1.09
1.13
1.16
1.19
1.23
1.27
1.30
1.34
Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: Spending by Resort Residents Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: Spending by Primary Residents Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: Spending by Travelers Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported:
$2,408 $665 $4,090 $7,162
$2,482 $686 $4,217 $7,385
$3,583 $990 $6,086 $10,659
$3,694 $1,021 $6,275 $10,990
$8,162 $2,255 $13,864 $24,281
$8,415 $2,325 $14,294 $25,035
$8,677 $2,397 $14,738 $25,811
$8,946 $2,471 $15,195 $26,612
$67 $69 $86 $221
$221 $227 $282 $730
$568 $584 $727 $1,879
$892 $918 $1,142 $2,952
$1,205 $1,240 $1,543 $3,988
$1,521 $1,564 $1,947 $5,032
$1,918 $1,973 $2,455 $6,346
$2,412 $2,481 $3,087 $7,980
$13 $30 $9 $52
$13 $32 $10 $54
$14 $33 $10 $57
$14 $35 $10 $59
$15 $36 $11 $62
$16 $38 $11 $65
$16 $39 $12 $68
$17 $41 $12 $71
$201 $86 $161 $448
$207 $88 $166 $461
$214 $91 $171 $475
$220 $93 $176 $489
$227 $96 $181 $504
$233 $99 $186 $519
$240 $102 $192 $535
$248 $105 $198 $551
Total Supportable Retail/Commercial Space
$7,884
$8,630
$13,070
$14,491
$28,835
$30,650
$32,759
$35,213
Table VI-8: Estimated Total Supportable Retail by Available Market
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Inflation factor: Rate = Required Sales/Sq.Ft. =
3.0% $375
1.00 $375.00
1.03 $386.25
1.06 $397.84
1.09 $409.77
1.13 $422.07
1.16 $434.73
1.19 $447.77
1.23 $461.20
1.27 $475.04
1.30 $489.29
1.34 $503.97
Space Supportable by Hotel Guests Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported by Hotel Guests: Space Supportable by Resort Residents (in square feet) Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: Space Supportable by Primary Residents (in square feet) Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: Space Supportable by Travelers (in square feet) Prepared Food and Beverage Space Groceries Space Retail Merchandise Space Total Relevant Space Supported: 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 491 209 393 1,092 31 74 22 127 31 75 23 129 32 76 23 131 32 77 23 132 33 78 24 134 33 79 24 136 33 80 24 138 34 81 25 140 163 168 209 540 523 538 669 1,729 1,307 1,344 1,673 4,323 1,993 2,050 2,551 6,593 2,613 2,688 3,345 8,646 3,201 3,293 4,098 10,592 3,920 4,032 5,018 12,970 4,786 4,922 6,126 15,834 5,876 1,623 9,980 17,479 5,882 1,625 9,990 17,497 8,242 2,277 14,000 24,520 8,251 2,279 14,014 24,544 17,698 4,889 30,061 52,647 17,715 4,894 30,091 52,700 17,733 4,899 30,121 52,753 17,751 4,904 30,151 52,805
Total Supportable Space (sq. ft.)
19,239
20,447
30,066
32,362
62,520
64,520
66,953
69,872
Table VI-9: Summary Estimated Total Supportable Retail by Retail Category
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Projected Supportable Food-and-Beverage Space (square feet) Guests Resort Guests Primary Residents Travelers Projected Total F&B Space Supported by On-Site Guests: Projected Supportable Grocery Store Space (square feet) Guests Resort Guests Primary Residents Travelers Proj. Tot. Grocery. Space Supported by On-Site Guests: Projected Supportable Retail Merchandise Store Space (square feet) Guests Resort Guests Primary Residents Travelers Proj. Tot. Retail Merchandise Space Supported by On-Site Guests: Total Relevant Retail/Commercial Space (in Square Feet) Supportable by Projected Local Spending by Overnight Guests: 9,980 209 22 393 10,604 9,990 669 23 393 11,074 14,000 1,673 23 393 16,088 14,014 2,551 23 393 16,981 30,061 3,345 24 393 33,822 30,091 4,098 24 393 34,605 30,121 5,018 24 393 35,555 30,151 6,126 25 393 36,694 1,623 168 74 209 2,074 1,625 538 75 209 2,446 2,277 1,344 76 209 3,906 2,279 2,050 77 209 4,615 4,889 2,688 78 209 7,864 4,894 3,293 79 209 8,475 4,899 4,032 80 209 9,220 4,904 4,922 81 209 10,116 5,876 163 31 491 6,561 5,882 523 31 491 6,927 8,242 1,307 32 491 10,072 8,251 1,993 32 491 10,767 17,698 2,613 33 491 20,835 17,715 3,201 33 491 21,441 17,733 3,920 33 491 22,178 17,751 4,786 34 491 23,062
19,239
20,447
30,066
32,362
62,520
64,520
66,953
69,872
Retail Shops Given the subject sites remoteness, it will also be important to offer an appealing mix retail shops at Kau, ranging from a convenience-oriented beachware shop to some small, high-end retailers: Casual Apparel Shops Art / Cultural Shops Jewelry Shop Beach Wear Souvenirs Sundries High End Apparel Shops Home Dcor / Lifestyle

Market Evaluation and Development Recommendatinos For Kau Ha

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Final Report

IV- 1 IV- 1 IV- 4 IV-11 IV-12 IV-15

V- 1 V- 1 V- 1 V- 3 V- 13 V- 17 V- 20 V- 21 V- 22 V- 22 V- 26 V- 27 V- 29 VI- 1 VI- 1 VI- 2 VI- 3 VI- 6 VI- 10 VI- 11

SECTION I: INTRODUCTION & SITE REVIEW

occupancies, amenities, guest profiles, lengths of stay, etc.;

including a phasing strategy;

Kahuku Ranch Market Assessment

I-2 Introduction and Site

Figure I-2 Preliminary Concept Diagram

Kahuku Ranch Market Assessment

I-4 Introduction and Site

Source: Hawaiian Department of Business, Economic Development and Tourism.

Kahuku Ranch Market Assessment

II-1 Executive Summary

Volcano Area, 2% Naalehu/ Ka'u, 1%

Hilo/ Honokaa, 12%

Kona, 45% Kohala/ Waimea /Kawaihae, 41%

Kahuku Ranch Market Assessment

II-3 Executive Summary

Kahuku Ranch Market Assessment

II-4 Executive Summary

Kahuku Ranch Market Assessment

Kahuku Ranch Market Assessment

II-8 Executive Summary

Kahuku Ranch Market Assessment

II-10 Executive Summary

Kahuku Ranch Market Assessment

Changing market preferences.

Kahuku Ranch Market Assessment

Kahuku Ranch Market Assessment

II-13 Executive Summary

Kahuku Ranch Market Assessment

II-16 Executive Summary

Kahuku Ranch Market Assessment

100 400 60 30 30 30 50 50 20 50 50 20 10 60 30 40 40 50 50 10 10 20 150 75 30 40 50 50 50 75 30 40 50 30 40 50

Kahuku Ranch Market Assessment

II-19 Executive Summary

Table II-2 ILLUSTRATIVE ABSORPTION FOR KA'U RESORT 2007 to 2017

320 240 150 120 170 200 200 60 30 20 150 25 25 20

Kahuku Ranch Market Assessment

II-20 Executive Summary

Kahuku Ranch Market Assessment

II-21 Executive Summary

Estimated Capture Rates for Available Markets

Kahuku Ranch Market Assessment

Kahuku Ranch Market Assessment

II-24 Executive Summary

Kahuku Ranch Market Assessment

Figure III-1: Historic Population Trends, Hawaii County, 1990 to 2005.

Source: Hawaii State Department of Business, Economic Development and Tourism

Source: Hawaii State Department of Business, Economic Development and Tourism

Kahuku Ranch Market Assessment

Page III- 2 Market Overview

Figure III-2: Distribution of Population Growth between 1990 and 2000.

North Hilo, 12%

South Kohala, 44%

Hamakua, 10% North Kohala, 41%

Source: Hawaii State Department of Business, Economic Development and Tourism

1990 1995 2000 2001 2002 2003 2004 2005 2006

Data is for November of that year.

Total Households Average Household Size

Kahuku Ranch Market Assessment