After ‘80s Boom and ‘90s Bust, Hawaii Resorts Are Looking Up

The fairways and greens on the hillside below the West Maui Mountains are filling in as new seeds take root. Up at the clubhouse, they’re installing specially commissioned artwork and polishing the floors.

With the grand reopening of King Kamehameha Golf Club scheduled for May, its new owners are discovering just how much work and money it takes to erase a decade of neglect.

Conceived during the Japanese investment boom of the 1980s as one of the most exclusive private clubs in the world, the place once known as Grand Waikapu instead became one of the most notorious landmarks to Japanese overspending and failure in Hawaii.

Built at a cost of $135 million, Grand Waikapu featured waterfalls, a wind-blown layout and a unique, dome-roofed clubhouse based on an old Frank Lloyd Wright design for a weekend home commissioned by Marilyn Monroe and Arthur Miller.

But by the time the club opened in 1993, there were no longer any Japanese tycoons willing to pay $200,000 for a membership. Overbuilt and undercapitalized, Grand Waikapu struggled for years, its fairways eventually scarred by weeds and dead grass. It closed in 1999 and was picked up at the fire-sale price of $12.5 million in 2004.

In the old real estate adage, a property’s three most important factors are location, location, location. Masaru “Pundy” Yokouchi, a Maui businessman and partner of several Japanese developers in building the Grand Waikapu, sees it another way: “It’s timing, timing, timing.”

“They were too early,” Yokouchi said. “The market has finally caught up with it.”

After spending years buying and building hotels, resorts and golf courses in Hawaii at an unrelenting pace, Japanese developers have spent the last decade selling. The Grand Waikapu was part of an estimated $1.7 billion of resort property in Hawaii unloaded by Japanese companies over the last five years, including $430 million sold in 2005.

Japanese firms now own 15% to 20% of the state’s 50,000 hotel rooms, down from 61% in 1992, according to Hospitality Advisors, a Honolulu-based tourism consulting firm.

For many companies that overindulged in Hawaii resort property, the hangover that followed the boom has been a lingering ache that has lasted nearly 15 years.

Just this month, the Japanese company that owns the 1,230-room Hyatt Regency Waikiki Resort & Spa filed for bankruptcy protection. Azabu Buildings Co. blamed “troubled real estate transactions in Japan related to the ‘bubble’ economy of the early 1990s.”

And one of the last of the old-line Japanese conglomerates to control a significant number of Hawaii properties, financially troubled Seibu Holdings Co., which owns four hotels and golf courses on Oahu, Maui and the big island of Hawaii, is expected by industry experts to sell them soon.

The Japanese exodus from Hawaii created a once-in-a-lifetime buyer’s market that began in the mid-1990s and enabled private equity funds, real estate investment trusts and hotel companies to pick up some of the islands’ newest and most luxurious properties for as much as 80% less than they cost to build.

The Fairmont Orchid, a 540-room luxury resort on the Kohala Coast of the big island, sold in December for $250 million. The sale to Westbrook Partners of Boston generated a $110 million profit for Fairmont Hotels & Resorts Inc., which had bought the property in 2002 from Los Angeles-based private equity firm Colony Capital for $140 million.

Colony Capital had picked up the resort from Dai-ichi Kangyo Bank of Japan for $75 million in 1996, about $100 million less than it cost to build six years earlier.

The 1,200-room Hyatt Waikoloa on the big island opened in 1991 at a cost of $300 million. It was sold by Mitsubishi Bank in 1993 for $55 million and today is the bustling Hilton Waikoloa Village, owned by Hilton Hotels Corp.

The 40-acre Grand Wailea Resort on Maui cost more than $700 million to build. It opened in 1991 and was sold by its Japanese owners seven years later for $260 million. It’s now owned by CNL Hotels & Resorts Inc., an Orlando, Fla.-based real estate investment trust.

Though Japanese companies dominated Hawaii’s $11-billion annual tourism industry for a relatively brief time, they left behind a rich array of properties -- luxurious resorts built at a cost of $1 million a room, fairways scraped out through layers of lava rock -- that are now the foundation of the state’s efforts to draw more high-spending visitors.

The wealthy vacationing in Hawaii today are more likely to come from Orange County than from Tokyo.

Spending last year by tourists from the West Coast, primarily California, increased 9% over 2004 to $4.3 billion, and arrivals increased 8%, according to state tourism data. Total spending by Japanese visitors was flat, and arrivals were up 1%.

“These places attracting the super-rich Americans were all built 15 years ago for the super-rich Japanese,” said Jon T. Miho, a Honolulu attorney whose partnership recently purchased Kahala Mandarin Oriental Hawaii hotel in Honolulu for $175 million from its cash-strapped Japanese owner.

Thirty years ago, Seibu Holdings helped pay for a pipeline that changed the course of development in Maui by moving water from the north end of the island to the arid south, spurring construction of condominiums in Kihei and luxury homes and hotels in Wailea and Makena.

“Their mark was deep here,” said Kalei Ka’eo, a community college instructor on Maui.

“Makena was a place where at any time you could go to the beach and stay overnight and fish. At this point, you can’t even drive down there or find a parking place.”

Paul H. Brewbaker, chief economist for Bank of Hawaii, said the wave of Japanese money created a “distorting effect” that rippled through Hawaii’s economy and politics, with resort development taking precedence over discussions of housing, traffic and conservation. Water, roads and even ancient Native Hawaiian burial grounds were moved to accommodate hotels.

“If there is a dark side, it was that capital found its way to the wrong places.... It built things that weren’t worth what was spent,” Brewbaker said. “The distortion did preclude other kinds of investments; you were outbid for the land or you were outgunned on the political front.”

Beyond wistful descriptions of empty beaches and open fields that were lost when the big hotels and condominiums were built, there is little resentment directed specifically at the Japanese. On Maui, they are seen as simply having accelerated the inevitable, compressing 20 years of development into five.

“There’s no place in the world that had that kind of money thrown at it in such a short time,” Ka’eo said.

Even as they were buying Rockefeller Center and Las Vegas casinos, the Japanese had an affinity for Hawaii. It was close, familiar and had been reliably profitable for the Tokyo conglomerates that began speculating in the 1960s.

By 1991, Japanese companies had invested $18 billion in Hawaii real estate, representing about 20% of the total value of all real estate that they held in the U.S.

“The Japanese parked some world-class assets here. We absolutely were the major winners out of all of this,” said Andre S. Tatibouet, the former owner of a Hawaii hotel chain who is now a consultant in Honolulu. “I thank them profusely.”

What the Japanese couldn’t buy, they built. Private country clubs were an especially appealing status symbol for the expanding fraternity of Japanese billionaires.

As plans were laid for Grand Waikapu on Maui, Masao Nangaku and his partners were spending close to $100 million on Oahu, hacking through a jungle to carve Koolau Golf Club into the foot of a mountain range 10 miles outside Honolulu.

Nangaku sunk most of the money into a huge, glass-walled clubhouse, more suburban shopping mall than St. Andrews. There’s an indoor waterfall and locker rooms big enough to practice chip shots.

The course opened in 1992 and was in receivership by 1996, when it sold for $12 million.

“I sure don’t have any pleasant memories about the results of assets sold during the first half of the ‘90s,” said Shinichiro Fujisawa, an executive of Shimizu Corp., a Tokyo construction company that was involved in several resort projects in Hawaii.

But Fujisawa said in an e-mail that even though companies took heavy losses here, none would ever blacklist Hawaii.

“Hawaii still is the ultimate resort and paradise for many Japanese.... Though real estate is local, the global nature of capital becoming more and more apparent is another reason why I think we should revisit the possibility of diverting more of our corporate resources to the U.S.”

Indeed, even as longtime companies depart, a new generation of Japanese investors is already looking for opportunities in Hawaii. Hotel brokers, as well as Bank of Hawaii’s Brewbaker, said that as the real estate market strengthens in Tokyo, Japanese deal makers are inquiring about Hawaii properties.

Among them is the man who is spending $25 million to reopen King Kamehameha Golf Club as a private membership club. He is a Japanese millionaire with a son who loves to golf.

“They’ll be back again,” said Miho, one of the new owners of the Kahala Mandarin hotel.

“It will be a different generation of people who fall in love with Hawaii. They’ll hear the stories of what happened during the bubble time and they’ll say, ‘We’re too smart for that.’ ”