Our Steal: 305 Plantation Estates Drive, Lahaina, Hawaii, listed by Patrick Sullivan with Sullivan Properties Inc for $5,495,000.
The temps may be cooling down, but things are heating up in the Hawaiian islands, and somehow we just can’t stop dreaming of Maui. For those of you who follow us, you can read our last Splurge vs. Steal in Maui here. Today we dive deeper into Maui real estate to share two exceptional retreats that are just too good to pass up! Which one would you choose, the Makena Road splurge or the Plantation Estates steal?
The world is captivated by the images coming out of the big island of Hawai’i this week as Kilauea erupted into the Leilani Estates subdivision. Thus far there are 10 fissures opened along the Eastern Rift Zone that runs along a historic volcanic path, marked by ancient volcanic ridges to the south.
Heat Map listing the 10 current fissures.
Next week, I’ll be in Hawaii on special assignment (ha!) looking into the perils of natural disasters and how insurance is likely the best defense in areas prone to a host of potential disasters. As you can see from the heat map above, there are a lot of homes near this unfolding eruption. There are already multiple stories out about how many regular insurance policies won’t cover homeowners’ damage.
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 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 firstname.lastname@example.org. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.
Ocean Views from Everywhere. Second floor shows Master Bedroom.
Talk about location, location, location — 202 Kaikuono Place in Honolulu is two doors away from what’s arguably the most famous piece of residential property in Hawaii, Doris Duke’s Shangri-La estate. Both are located on the ancient lava flow “toe” that juts out into the Pacific called Black Point. It’s one thing to say you live in Diamond Head, but to call Black Point home raises your cred exponentially. It’s been estimated that were Duke’s five-acre oceanfront estate ever to make it to market, it would be the most expensive piece of residential real estate in the state. And it’s two doors down.
When I say “old Hawaii,” I mean places where locals have lived for decades. These are not the new flashy high-rises in Kaka’ako, but rather buildings like this one that rose from the ground in 1969. The Regency at Kahala is a tall, 20-plus-story slice of Hawaii.
There are four units per floor … a one-bedroom, two two-bedrooms, and a three-bedroom unit. There are minor differences in square footage in the same floor plan due to some units having enclosed their patios (and you know how I feel about that!).
Sunday, I braved sheets of rain to walk over to a quadruple open house that featured two one-bedroom units and one example each of two- and three-bedroom units. My favorites were the one-bedroom and the three-bedroom units, which mostly came down to view. These two face the water, though on Sunday they all faced the rain.
It’s no surprise that Hawaii captures the imagination of people dreaming of a getaway. Tropical breezes, the deep blue Pacific, technicolor sunsets, and lush greenery set the stage for a dream vacation or the ultimate home away from home.
The contest highlights exceptional homes from across the globe in eight exciting categories: Waterfront Homes, Master Retreats, International Homes, Living Large in Small Spaces, Bringing The Outside In, Kids’ Spaces, Classic Living and Making an Entrance. All featured homes are represented by members of Leading Real Estate Companies of the World and Luxury Portfolio International. Consumers vote for their favorite, and a winner is chosen at the end.
This year, Hawaii cleaned up, winning honors in three categories as well as the overall winner. Massachusetts homes won in two categories, as did Florida homes and the International award winner is located in Lugano, Switzerland.
View from Waikiki towards Diamond Head and the Gold Coast
It’s 34 degrees, windy and icy in Dallas with snow on the way.
It’s 83 and sunny in Hawaii.
Enough said, right?
For a few years after graduating college, I spent Christmas and New Year’s in London – to escape, versus be with, family. While I continue to love London, it only took a few years for this college-educated Chicago boy to realize Hawaii was warm, which in December is a scarce commodity in Chicago.
It took three visits before I unlocked the secret to enjoying Hawaii. I hated Waikiki and its flocks of bargain-hunting Japanese tourists. I hated the outer islands with their pretentious American tourists and unendingly sedate lifestyle. On my third visit I met a guy in a bar…(shush!)
After sharing my woes on Hawaii, he suggested meeting for lunch the next day to see where he was staying. Turns out he was staying at the Diamond Head Beach Hotel which is one of a group of high-rises at the foot of Diamond Head called the Gold Coast (that photographers love to crop out of pictures). They’re oceanfront and separated from Waikiki by the rather large Kapiolani Park which serves as a DMZ that tourists rarely cross. (Tip: if you saw the movie The Descendants, there really is a Gold Coast Real Estate – No idea what that placement cost!)
I was hooked. Here was the peace and quiet I was looking for by day, but just a beautiful 10 minute walk along the ocean from the shops, nightlife and restaurants of Waikiki. And his room had a kitchen, eliminating the non-stop trolling for every single nosh and tipple.
The next year I rented a condo a couple of buildings down for three weeks, and a few years later in 2000 purchased one for myself – my personal Y2K event. After my first rental, my new friend rented one for himself the following year. He and his partner purchased their own unit in 2009. Small world.
The Gold Coast
The Gold Coast
The Gold Coast includes 16 oceanfront mid/high-rises, one off-ocean high-rise (where Hawaii 5-O’s original Danno lived until his death in 2010) and three small hotels with a total of just 236 rooms. All were built in the late 1950s (pre-statehood) up until the late 1960s when construction stopped for fear of ruining the view of Diamond Head.
The area’s buildings are perfectly sandwiched between the ocean and 108-acre Kapiolani Park. When you hear about newer buildings in Waikiki like Trump or the Ritz Residences, remember even at their much higher prices, they’re not oceanfront and they’re not peaceful.
Each building has its own slightly different vibe and history…and of course stories and lore abound. Tennessee Ernie Ford, Lana Turner and Grace Park from the current Hawaii 5-O have lived in the Colony Surf. Magnum P.I. regular Larry Manetti lived at Colony Beach during filming. Dance-school namesakes Arthur and Kathryn Murray took up residence at Sans Souci. Even my humble home was once occupied by a woman who appeared in Vaudeville with the Gum Sisters (one of whom was Judy Garland).
The smallest building is the one-per-floor Colony Beach with just 8 units located right next door to the largest, Colony Surf at 172 units – two of a trio built by John Barkhorn. Several buildings have just one or two units per floor, resulting in generally larger, always more costly units. I know of one penthouse offering 360-degree views with just over 5,000 square feet.
Two of the condo buildings, The Colony Surf and Sans Souci allow owners to rent their units for a minimum of one month. They’re also two of the buildings that have their own sandy beach (most have a seawall). Depending on time of year, unit size, location and condition, rentals range from $2,000-5,000 per month (a fraction of an oceanfront hotel room and with a kitchen). The remaining buildings either don’t allow rentals or require a full year lease.
Purchasing in the area enters nose-bleed territory with fee-simple, decent-view units fetching upwards of $1,200-$1,400 per square foot. In the past 12-months, sold units ranged from $784 to $2,800 per square foot and are on an upswing. Units tend to be smaller with some as little as 350 square feet with the largest non-combined/non-penthouse units topping out around 2,000 square feet.
View from the Gold Coast towards Waikiki
Leasehold, Co-Op and Condotel
Three words not familiar to most Texans are leasehold, co-op and condotel. If you’re seeking to purchase a property with any of these designations and you require a mortgage, understand that they will increase your rate and may toughen requirements or disqualify you for financing.
Leasehold means the building doesn’t own the land under the building. The building has a lease for a set period that calls for regular rent payments. At the end of the lease, it may or may not be renewed by the land owner. The land may also be sold to the unit owners for a fee. Buying leasehold property can be risky. If the landowner decides not to renew the lease, the building (and your unit) is surrendered to the landowner for no compensation. Even if the lease is renewed, the new rental fees will almost certainly be exponentially higher (a lot changes in the decades a lease is in force). In your best Dirty Harry, “Do I feel lucky?” Well, do ya punk?
Leaseholds were originally encouraged from the 1950s to the 1970s to boost housing stocks during a post-war shortage. Leasing kept land in the family but generated income and had a certain patriotic flair. But when leases expired or were renewed, homeowners faced big changes in their payments. While many single-family properties converted to fee simple, condos (more valuable) didn’t. In 1991, Section 38 was passed to allow condominium meeting certain requirements to force the City of Honolulu to condemn the property, purchase it and flip it to the condo owners. Many condo buildings converted (voluntarily and forced), but by 2005 the political winds had changed and the law was repealed leaving many buildings with quickly expiring leases.
There is one oceanfront building in Kahala (the Highland Park of Honolulu) where condo prices, once $1+ million, now equate to the rental income from the remainder of the lease because the owner, a charitable trust, has made no secret of the lease not being renewed.
On the Gold Coast, the Sans Souci building’s lease, expiring in 2024, has a cloud over it as remaining landowners decide what to do. This has caused price erosion with banks refusing to lend on a building once one of the most expensive in the area. Whipsawing in prices can be seen in the two oceanfront units sold in December 2014, one for $382 per square foot while the other fetched $746 – compare that to fee simple neighbors selling for over $1,200 per square foot. Of course if the building is able to buy the land, the payment will be formidable – hundreds of thousands per unit. One thing working in Sans Souci’s favor is that unlike the Kahala building, Sans Souci is owned by a dwindling family, not a charity seeking to monetize its investment.
Co-ops are corporations that own the building. Homeowners own a share in the corporation that equates to their unit. Banks view this type of ownership as being more risky than a condo, but personally I think banks see risk everywhere to increase their profits.
For reference, my unit was in a leasehold co-op building. Since I purchased, it has converted to fee simple condo ownership. The leasehold situation didn’t deter me because the building sat on four parcels of land belonging to different owners. By 2000, three of the four had already been purchased and the remaining scrap of land was in the middle of the attached parking garage. There was no useful purpose to the landlocked parcel except as part of our building and if the worst happened, there was a hole in the parking garage but the residential tower (and my investment) would be intact.
A “condotel” is a former hotel that’s sold off its rooms individually but still retains hotel operations. Owners can place their units into the hotel “pool” for rental by the day with a pre-arranged revenue split. Not to be confused with a timeshare where one unit’s ownership is spread across multiple owners. Condotel owners own 100% of their unit and can live in it all year if they like. The hotel aspect is meant to give owners a way to generate revenue.
On the Gold Coast, the leasehold Diamond Head beach Hotel is a condotel whose lease expires in 2032. This building was never a successful conversion to condos. Its A-frame shape means the most desirable top floor units are the smallest. Few kitchens and daily rentals only add to the transient vibe. These issues make it the cheapest building in the area with unit sales in the $300 per square foot range (1/3 of assessed values; values are assessed on fee simple ownership even if its leasehold) and where “days on market” should be changed to “years on market.” Like Sans Souci, the closer to the end of the lease, the more the price drops. Prices today are mostly unchanged from a decade ago. Compare that with neighboring fee simple buildings that saw values double or triple over the decade.
Sunset on a Gold Coast beach
Hawaii Real Estate
If you have the time, Hawaii real estate is a hard place to lose money. For many decades, prices have followed a 10-ish year cycle of peak, crash, followed by an even higher peak. In decades past, real estate crashes have been blamed on the Japanese, Canadians, Dot-com bust and most recently, the global recession. During the recession, prices dropped around 25% after doubling or tripling in the previous decade’s upswing. Since the rebound, prices have reached another all-time high. In 15 years, my investment has almost quintupled. Of course like anything, if you buy high and are forced to sell during a trough, you’re going to lose. But long-term, it’s hard to beat.
Be aware there is a large disconnect between purchase prices and rental income. If you’re looking to buy and rent a home, the rental income will help, but you’re it’s in no way going to pay the mortgage, taxes and HOA fees.
However property taxes are a bright spot. Honolulu’s are among the lowest in the nation. I pay half as much for a property valued at triple my Dallas home.
Thinking about Hawaii for more than a week’s vacation? Here are some resources:
Captain Cook Resorts: Local firm that specializes in property rentals in the Gold Coast and Waikiki area. They have tons of properties under management and local folks who can answer any questions. Very professional outfit. http://www.captaincookresorts.com/
Tourism is up in Hawaii, which is a very good sign for Hawaiian real estate. The number one reason buyers purchase a vacation home in any location is because they love it. It goes like this: visit the location, love it, feel like you never want to leave. This is the point where buyers start perusing the real estate and actually, finally, pulling out the checkbook.
And you can see why buyers are getting out their checkbooks: the properties, in HAWAII mind you, are priced from the low $500,000’s to $3,813,900. They range from 580 to over 2,715 square feet. Some of the lanais alone (open, breezy patios) are 3,200 square feet.
My fingers are feeling itchy already: the resort features 628 full-ownership condominium homes situated in two buildings – Hokulani and Konea. A beachfront condo like this in Hawaii for $500,000?
And get this: almost 72% have closed to date. Bought. Gone. From July 2011 to June 2012 Honua Kai saw a 68% increase in home sales, with 85 purchased homes. In July alone seven juicy sales worth over $6 million closed. That could be because Honua is offering a “Stay & Play” opportunity for resort guests who fall in love with the resort and decide to buy a vacation home. They get a vacation stay for free, which I am definitely going to check out for us, as in, all of us who crave vaca homes.
The homes are studios, one, two or three bedroom homes with open floor plans; some have dramatic ocean views, others take in the mountains. Sizes range from 580 to over 2,715 square feet.
I can live in 580 square feet in paradise, can’t you? Plus I would guess these homes have tenants beating the surf down to lease.
Here’s the deal: According to the Wall Street Journal, more visitors are going to Hawaii. Visitor arrivals in August were up 10% from a year earlier, which should make the final tally for 2012 about 7.89 million. That’s 6.3% higher than in 2011. Where are they coming from? Japan, folks there looking to escape all the natural disasters they’ve suffered. Guess who is making up the fastest-growing group of visitors: Chinese.
But more Americans are coming, too. The WSJ quoted a flight attendant who said he decided to splurge and come to Hawaii again FINALLY after three recession-era vacas in Mexico. Is this guy just feeling flush or is he scared to death of Mexico. I vote for number two: you couldn’t get me back to Acapulco for a million bucks… well… maybe for a million. But seriously, it’s Cabo or “Nogo” to anywhere in Mexico right now. Everyone wanting sun and beach goes to Costa Rica and now, once again, the real paradise, Hawaii.
Hang on folks, because I will be kicking the tires out there very soon. I’ve been to Maui, Molokai and Lanai. I am returning. These homes appear to be stunningly finished out (look at that ogee-edged granite!), but do not worry for a minute, I will check. Here’s the million dollar plus view: West Maui mountains, Kaanapali North Beach, and Molokai and Lanai.
A million dollar plus view for $500,000? In Maui? Honua Kai, I am heading your way…