Four Seasons at Hualalai

Mr. Dell owns the Hualalai resort complex on the Big Island of Hawaii and while his two major resort hotels suffered significant damage and are now closed, it looks like the long-term impact will be positive – for him.

Both hotels, The Four Season’s Resort and Kona Village have loyal fans – albeit on distinct end of the resort spectrum. Kona Village offers a kid-friendly, family oriented, no-frills package which is popular with a wide variety of customers including Apple Computer’s Steve Jobs.

The Four Seasons caters to the upper end of the income scale and the Hualalai location has long had the highest occupancy rate of any Four-Season’s run facility.

Both resorts are currently closed -  the Four Seasons until April 30 and Kona Village permanently.

But don’t shed a tear for Mr. Dell, insurance will cover most if not all his losses and will also allow him to complete some much needed renovations that were planned, but he would have had to  finance on his own. Don’t look for construction photos anywhere though, the resort is keeping a tight lid on any information and employees who have been called in to work have to sign a non-disclosure agreement promising not to reveal the extent of the damage to the resort.

Workers are racing to meet the April 30 deadline when the insurance coverage for  employee wages runs out and many locals have doubts about an on-time completion. Several island fund-raisers, including the annual Cancer society’s Cattle Baron’s Ball, April 16th,  have already had to find new homes, but the events will be held.

Workers at the Four Seasons who have been impertinent enough to post, what they thought were innocuous pictures of storm damage, have faced disciplinary action, including firing.

Guests who were not able to be accommodated in the adjoining Hualalai condo/home complex, were shifted to nearby hotels, providing a bonanza  for the  Mauna Kea, Hapuna Prince, Mauna Lani and Fairmont Orchid properties – although they certainly are not getting the ‘Four Seasons Experience.’

As for neighboring Kona Village, many of the small homes, or hales, were knocked off their ocean-front foundations and a number were destroyed. Rebuilding would require permits under new building regulations with much larger setbacks, so Mr. Dell has decided just to convert the property into an extension of the Four Seasons.

Kona Village has always had the better beach, but if the county approves, that beachfront will now be surrounded by several hundred new rooms at $800-$3000 per night, in place of the $3,000 per week package plans that Kona Village featured.

Sounds like a win-win situation if you are Michael Dell. He wins on both ends. We’ll see what happens when the actual applications get filed – the natives are already upset.

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What sold for well over $1million in 2007 is now priced at $600,000 thanks to the large number of foreclosures and short sales. According to my friend in the business, the problem is that current buyers – and there are many people on the Big Island shopping for property – are trying to time the market.

Countless books on economic psychology explain why everyone hates to pay too much, but it’s starting to get a bit irrational. According to one agent people are coming with their minds made up. ‘They think that if they wait longer they can get a better deal, or that they can purchase via a short sale and really make a killing, but they don’t realize what it’s going to cost them.

As federal reserve programs holding down interest rates expire in a few months the cost of borrowing will increase, she pointed out. Plus a short sale often takes 9 months to complete and right up until the end the bank can change its mind. It may cost more to buy from an owner but loans are available and you’re getting a normal closing for a property at half price.

There is still a large number of foreclosed units, especially in the condo market she says, but the pressure to sell isn’t the same as a single family home, so many of the banks just hold on to the property and will wait for prices to increase.

Plus the homeowner trying to arrange a short sale does not have an easy time proving to the bank that the sale should be allowed and often the difference has to be made up by the seller. That doesn’t even include the tax folks who tend to count your ‘loss’ as a tax gain – especially since most of the properties are vacation homes, not primary residences.

So the good news is that there seems to be lots of potential buyers, the bad news is that they may be waiting for conditions that will never come. If I had any money, I’d invest and plan to sell in about three years when the bust cycle returns to boom.

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So, I thought I’d check in with some friends there and see what the future may hold for the mainland. Hawaii has been hit hard by the bursting real estate bubble and the general retrenching of the US consumer.

Happily my friends, who deal with reality and not economic theory, are actually optimistic for the first time in many months.

First of all, this is whale season, the according to everyone the joint is jumpin’ – literally – so the tourists and residents are seeing a great show out in the water.

A friend who works at the airport in Kona told me, that tourist traffic is up. “The tourism bureau has been saying traffic was down 10% last year, but it was really closer to 30-40%,’ he says, “but now, there has been an increase, probably because the airlines have dropped the fares.” He admits it’s not back to what it was 3 years ago, but at least it’s headed in the right direction.

Further evidence of an increase can been seen in the food business, where many businesses either went broke of cut back hours. Several stopped serving lunch, but one manager friend said they have decided to open up again for lunch starting April 1.

According toa property manager, the condo rental market seems to be picking up too. “We’re going to have our first full quarter in the black in over two years,” she said noting that occupancy percentages were almost 80% for the first three months of the year.

People are still waiting until the last minute to book vacations, but as the weather has gotten colder in the western US and Canada, booking have increased from, Colorado, Utah and Canada where snow-storm after snow-storm has left people looking for an escape.

Another rental agent pointed out that many visitors used to head for Mexico, but between the kidnappings and drug violence they figure “why chance it.” Plus as one agent noted, “they can keep their money in the US.”

In my next post I’ll tell you what my real estate friends are saying out in the middle of the Pacific. But until then, the next time you read a story about an economists making a prediction based on numbers and charts, suggest “On the other hand, here’s what the people on the ground have to say.”

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The announcement was a major blow to the many workers who depend on the hotel, but since the facility was among the oldest on the island, a closure during the year’s slowest season did not seem unreasonable.

The employees took the news in stride, more or less, but everyone watched anxiously to see what changes might be in store. As the two months progressed, what many assumed would be a burst of activity and employment for construction workers became mostly a bust.

No huge delivery of material or even new furniture was seen and as September turned to October the locals began to suspect the ‘renovation’ was nothing more than an excuse to cut costs during a slow period and get ready for the December-March season.

As no news was announced the employees grew increasingly nervous wondering if the hotel would indeed open. After all, with tourism down dramatically it wasn’t too much of a stretch to image the owners just throwing in the towel.

But in early winter, as the employees were allowed to return to work they breathed a sigh of relief as they cleaned, polished and readied to hotel for guests. The ‘soft opening’ saw 100 rooms occupied and the employees declared their personal recession over.

But it raises the question: Could your business just close up and hope for better times. Would your brand be strong enough to survive?

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