Jul. 27—Outrigger Hospitality Group is slated to close in late August on its purchase of the Sheraton Kona Resort &Spa at Keauhou Bay, which expands the company's investment in Hawaii where its property count is now 26.
Outrigger had planned to purchase the 509-room oceanfront property, which will be rebranded the Outrigger Kona Resort and Spa, prior to the pandemic, which stalled its development pipeline.
The company, which is bullish on Hawaii, is ready to continue its five-year growth plan, said Jeff Wagoner, president and CEO of Outrigger Hospitality Group.
The Kona acquisition, which is being sold for an undisclosed amount, is the company's fourth this summer. Outrigger announced last week the purchase of three hotels in southern Thailand, including locations in Phuket, Khao Lak and Koh Samui. The purchases bring Outrigger's global property count to 32, and the company closer to its goal of becoming the "premier beach resort brand in the world."
"We are very active on the development front, and we don't anticipate stopping here, " Wagoner said, adding that it's been quite some time since the company has purchased four properties in such a short time frame.
Wagoner said the chain is eyeing numerous properties, including others in Hawaii, which will likely remain the company's largest asset footprint.
The last Hawaii resort transaction was in 2018 with Outrigger's acquisition of Honua Kai Resort &Spa's on-site resort rental program in Maui.
The Outrigger chain, which was founded in Hawaii by Roy and Estelle Kelley in 1947, improved its access to capital in 2016 when it was acquired by KSL Capital Partners, a Denver -based private equity firm specializing in travel and leisure.
While the pandemic is not over, the reopening of travel and rebounding tourism are calling to investors, including KSL, who have been biding their time, said Mark Bratton, senior vice president for Colliers International.
Bratton said there were only six earlier hotel transactions this year, including the Waikiki Sand Villa Hotel, which sold for $52 million ; the Hilo Seaside Hotel, which sold for nearly $11.8 million ; the Hale Ohia Cottages, which sold for nearly $2.9 million ; the Kai Aloha Apartment Hotel, which sold for $8.1 million ; the Residence Inn Maui Wailea, which sold for more $99.3 million ; and the AC Hotels by Marriott Maui Wailea, which sold for $83.6 million.
"I think you'll see a bunch more hotel sales by year's end. Hawaii is coming back quickly, and there's so much money sitting on the sidelines, " he said. "It's like the roaring'20s."
Bratton said the timing of the Sheraton Kona Resort &Spa sale is a sign that Hawaii's hotel market is attractive, and investors are optimistic about its future.
"Hawaii has come back from every event that has slowed us down in the last two decades, even 9 /11. We will rise from the pandemic, " Bratton said.
Emmy Hise, CoStar's director of hospitality analytics, said recovery of the nation's hotel market is being driven mostly by leisure demand. Hawaii as a primarily leisure destination is well positioned to take advantage of those trends, Hise said.
"Maui has the highest (average daily room ) rate out of all U.S. markets for June. Oahu was the fifth highest, and Hawaii island was the third highest, " she said. "In general we are seeing that rates are outpacing occupancy, which we've never seen in a cycle. Normally, occupancy recovers first and then rate."
Keith Vieira, principal of KV &Associates, Hospitality Consulting, said demand from hoteliers for Hawaii is strengthening. That's good, he said, because sales typically lead to renovations, which create jobs and reposition properties to command higher rates.
"When properties are able to improve and increase their rates, it tends to attract higher-spending visitors, which is a more sustainable tourism model, " he said.
Wagoner said Outrigger plans to invest $25 million to $30 million in the future Outrigger Kona Resort and Spa.
"Our intention is a full modernization of the property, " he said.
The 22-acre resort, which is perched atop lava-rock cliffs on land owned by Kamehameha Schools, is surrounded by waters where people are known to swim with manta rays. The resort includes an oceanfront pool and waterslide, spa, wedding chapel, cultural center, fitness center, kids club, two restaurants and four indoor meeting venues. It also has a 10, 000-square-foot convention center, the largest on the Kona Coast.
The resort, which is owned by Kona Surf Partners, is represented by ILWU Local 142.
"We'll retain all the employees at the property, " Wagoner said. "There's a current union agreement in place that will continue, and we'll continue to work with the union on what the future of that agreement looks like."