Hawaii Commercial Real Estate Is Pricing to the Market, and Capital Is Following

Every property market moves through periods where sellers and buyers are reading from different price sheets. Hawaii has been in one, and the useful news for investors is that the gap is closing in the way it usually does: sellers adjusting, and capital moving in behind them.

“The right investors have the money and they’re coming in,” says Mark D. Bratton, CCIM, of The Bratton Team. His reading is that price discovery is underway across most asset types, and that it is producing opportunity rather than paralysis.

How price discovery is playing out

The mechanism is straightforward. Financing costs have moved up over the past year, with hospitality debt quoting in the sevens and retail and industrial around six and a half percent. Buyers will not accept negative leverage, so they need an asset to generate at least what it costs to borrow against it.

That has required pricing to adjust, and it is adjusting. Properties that sat on the market for a period are seeing sellers decide to meet buyers where they are. Bratton describes it plainly: owners who need or want to move on are lowering asking prices to meet the market.

What follows is the part that matters for investors. “We’re starting to see signs of price adjustment and then capital flowing in behind it,” Bratton says, “to gladly come in here and invest.”

The buyer’s arithmetic

The investors moving now are underwriting a specific opportunity, and Bratton frames it in a single line.

“If I can pay X price instead of Y, I can make this a much better product and I can still make money.”

That is the case for acting in a repricing market rather than waiting it out. A lower basis leaves room to reinvest in the asset, improve the product, and generate a return that would not have worked at last year’s price. Where one buyer proves the model, others tend to follow.

Institutions are selling, too

One of the clearer signals in recent major transactions has come from long-term institutional holders that rarely sold anything.

Kamehameha Schools, Hawaii’s largest private landowner, has sold the land under the Four Seasons Resort Hualalai on Hawaii Island for about $400 million and the land under the Royal Hawaiian Hotel in Waikiki for $510 million, redeploying that capital toward its educational mission.

“Entities that five years ago, you’d say they never sell, they don’t ever sell anything, now they’re selling,” Bratton says. For investors, that is unusual access. Positions held for generations are becoming available to buyers who are ready to act.

Activity across the broader market reflects the same movement. Bratton’s team reviews the month’s transactions as they close, assessing whether each is arm’s length and why the parties are buying and selling, and September’s review covered 23 deals. Patterns like these are visible across recently closed Hawaii transactions.

Solving the capital stack first

As financing has grown more central to whether a deal closes, Bratton’s team has expanded into arranging the debt and equity behind transactions. Teammates within Colliers run competitive processes across local banks, regional banks, life insurance companies and CMBS lenders.

The approach starts before a property goes to market. “We want to be thinking about the capital stack up front,” Bratton says, “and think of it through the buyer’s eyes.”

The practical test is simple. A ten million dollar building with a 30 percent equity requirement needs a buyer with three million dollars in cash before anything else is discussed. Matching the property to a lender that favors that product type, and understanding any existing financing and the cost of paying it off, shapes who can realistically buy.

Bratton reports that local banks are currently competitive for Hawaii loans, and that clients increasingly expect capital advisory as part of the service rather than as an add-on.

Between transactions

The capital work has a second benefit that Bratton values. Hawaii commercial loans typically run five or ten years, so owners face refinancing decisions regularly even when they have no plan to sell.

“Some people are saying, I don’t want to sell, but I’ve got a loan coming due,” Bratton says. Running a competitive process among lenders keeps the team working with owners through the full period of ownership, not only at acquisition and sale.

For an owner facing a maturity, the options are well defined. Refinance and accept a different cash flow, or bring in partner capital where needed. In partnership-held assets, that capital most often comes from the existing partners themselves.

What this means for investors

Repricing periods tend to reward preparation. Investors who understand the capital stack, can move quickly, and have a clear plan for improving an asset are positioned to buy at a basis that will not be available once the market settles.

Hawaii’s fundamentals have not changed. Supply remains constrained, demand for quality real estate remains deep, and the investors with capital are finding entry points. Monthly Hawaii market statistics offer a running view of how the market is moving.

About the Expert:

Mark D. Bratton (R), CCIM, leads The Bratton Team at Colliers International Hawaii in Honolulu, specializing in hotel, resort, and commercial investment sales.

The Bratton Team is a Hawaii commercial real estate and investment sales group, exclusively contracted to Colliers International HI, LLC. Led by Mark D. Bratton (R) CCIM and Mike Perkins (S), the team has advised buyers and sellers across all Hawaii asset classes for 40 years.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.