Marco Polo: Can Adversity Spell Opportunity in a Hawaiian Getaway?

Share News:

 

There’s an old investment adage: Buy when people are selling and sell when people are buying.

On July 14, 2017, there was a fire at the Marco Polo high-rise in Honolulu that damaged some 200 units and will cost approximately $100 million to repair.  It wasn’t the first. There was also a fire just four years prior in 2013 causing $1.1 million in damage.  There are no sprinklers in the 1971 building.  After the first fire, the HOA got an estimate to retrofit the building with sprinklers. The average cost was $8,000 per unit or roughly $4.5 million.  After this fire, I think it’s highly unlikely a sprinkler retrofit wouldn’t happen. I suspect insurance companies would demand it.

Doesn’t exactly smell like a dream Hawaiian getaway, does it?  What it should smell like is opportunity.

There hasn’t been a sale that made it to closing since the fire. In a 36-story building used to closing a few of its 586 units per month, this is highly unusual.  Currently there are six units on the market with countless others waiting for the building repairs to be completed.  All six are on floors below the 26th floor blaze.

For most homeowners, while repairs are ongoing, it’s business as usual. Not so for sellers.

The building is in a good location.  It’s across the Ala Wai canal from the tourist hubbub, but close enough for a dinner stroll into Waikiki, Ala Moana, or Kaka’ako. There’s a park and a canal in front of the building, so views to the ocean are pretty protected and offer a great “city lights” view of the Waikiki hotel and condo towers.  In short, it’s a “locals” kind of place close enough to the fun without being stuck in 24/7.

The building is a wave with varying size units ranging from 436-square-foot studios to 1,205-square-foot, two-bedroom units. Some are rectangular and some have a little curve.  While I’d prefer the Ocean view side, the lush green mountain views are pretty great, too.

What Marco Polo will look like again after repairs.

Marco Polo is also odd for most mainland buyers.  It began as a leasehold building that has made the fee available for purchase.  Leasehold means owners own the building but not the land under it.  Buying the fee means buying your stake in the land.  Many, if not most units, have converted to traditional fee-simple ownership.  There is nothing dangerous in this, it’s just a remnant of a bygone era.  Simply make sure the unit is fee simple or use the fee purchase amount as a discount. Essentially, if a leasehold unit is $100,000 and the fee is $50,000, that’s $150,000 as a fee simple unit. If the same unit one floor below is also for sale at $125,000 and it’s already fee simple, that means that the leasehold is $25,000 overpriced. Local Realtors will help you navigate this.

Unit 1909 (Leasehold)

Unit 1909 is a leasehold unit with 824 square feet, two bedrooms, and two bathrooms. There’s also an 86-square-foot lanai. As you can see from the floor plan above, the xx09 stack faces Waikiki and the ocean.  It’s listed with Celeste Newhall of Pacific Rim Properties for $419,000. The fee purchase adds another $173,904 to the equation, bringing the total up to $592,904 or $719 per square foot. Compare that with the two other leasehold units that sold in 2017 before the fire for $373 and $329 per square foot.

Fee simple units are going from the high-$500s per foot to mid-high-$600s per foot. The highly renovated, two-story, 1,661-square-foot penthouse only achieved $662 per foot. This may explain why 1909 has been on the market since before the fire.

Walking in there is a small dining area before rounding into the living room and kitchen combo.  As you can already tell, this is a renovation candidate (another data point in negotiations and comps). I’d remove the kitchen and extend it into the dining area for a large kitchen with an equally large island that would do double-duty as a dining table. That would open the space up to the views and make everything feel larger.

Because, here’s the view.  Plenty of water and the dynamic visual of other nearby high-rises. The Ala Wai Canal also offers green space plus the relaxing view of outrigger canoe teams quietly paddling up and down its waters each day. Beyond lies the Pacific Ocean.

Like I said, renovation.  But it’s good to see there’s a washer hookup.  Imagine another eight feet in length and an island. Plenty of space for cooking, eating and with a little creative cabinetry, hidden laundry.  The kitchen may not be ideal for laundry, but it’s a lot better than schlepping down to the basement laundry room.

It would be a blessing to remove that awful mirrored wall with the kitchen pass through and enjoy one large open living, dining and cooking area.  Perfect to watch the sunsets.

The bedrooms are your typical carpeted boxes with windows that have the same great views as the living area.  The bathrooms are renovation candidates, too.  What’s good to note here is the space you have for a second sink.

The building itself offers a lot of amenities within the lush green lot, including a pool, sauna, tennis court, outdoor kitchens, basketball/volleyball court (it’s Hawaii), car wash (blessing in a salty environment), and a convenience store in the lobby.

Renovation-wise, I’d ditch the second bedroom to make a larger living room and master bedroom. Sure it’s then a one-bedroom unit, but forget visitors — this is all about you.

With a little bargaining and renovation, I think you could have a sweet Hawaiian getaway for around $500,000 including the fee purchase and renovation costs. Depending on the heebie-jeebies of the market, the fire may drive the prices lower before they return once the sprinklers are in and repairs have been made.  Of course you’ll want to make sure you’re free of any financial responsibilities from the fire and sprinkler installation too.

Remember: When I’m not stirring up trouble in Dallas, Texas or Honolulu, Hawaii for Candysdirt.com and SecondShelters.com, I’m off scouting interesting locations for a second home.  In 2016 and 2017, the National Association of Real Estate Editors has recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. If you’re a Realtor with second home clients who’d like me to feature their journey, shoot me an email sharewithjon@candysdirt.com