Kauai Newsletter (current edition)
Fall 2006
Aloha!

Much has happened on the Garden Island since the last newsletter. New real estate developments are reaching for a level of buyer sophistication the island has never seen before. Shopping and transportation alternatives are creating competition and more options for consumers. The island’s demographics may have reached a tipping point signifying that Kauai is poised for dramatic growth and mainland-style goods and services. And the real estate market, our economic mainstay, is finally slowing its warp-speed rate of appreciation. We’ll examine all of these trends and more in this issue, but first, let’s have a look at an event you’ve all heard about and see where Kauai fits into the picture.

All Shook Up

Sunday morning, October 15th, 7:07 a.m. Lying in bed, I am awakened to the sound of the mirrored closet doors rattling and shaking. Then it stops. Then it starts again, more violent this time, and goes on for about 20 seconds. It isn’t the wind, because there is no wind. I get up and walk out to the living room, where my husband is sitting on the sofa.

“Are we having an earthquake?”

Being fully conscious and in the living room, he has noticed more than I have. The sofa underneath him started vibrating, then the whole house shook and creaked and cracked. Looking out onto the lanai, he could see the house shaking. He heard the neighbor’s house cracking and rattling. Having lived in Los Angeles, he knew immediately what was happening, and calculated that it was either too small or too far away to affect us seriously.

And it didn’t, though it jolted us. One guest at the Princeville Hotel was knocked out of bed. But the island had no reported structural damage and few power outages, though some computers haven’t worked right since (including mine).

Fortunately for us, Kauai is not seismically active, and is the farthest in the island chain from the island that is. Earthquakes don’t worry us so much here; it’s what can happen after a quake that concerns us.

Because this quake occurred offshore and miles undersea, there was no chance of its generating a tsunami, so the islands’ warning system didn’t go off. However, it left us with an eerie feeling. Because government officials didn’t get the news out to radio stations until 3 hours after the quake, many were left wondering whether there was no warning because there was no tsunami coming, or whether the warning system may have malfunctioned. It didn’t, but we had no way of knowing for sure. We crossed our fingers and hoped that no news was good news. As a result of this confusion, the state government is working with radio and television stations to devise a better system of communication during an emergency.

Costco: Kauai on the Cusp

Far bigger news on Kauai than the earthquake was the much-anticipated opening of our own Costco in Lihue two days later. Don’t laugh! When Costco opens a store, it means something beyond increased savings and a mainland-style selection of goods. The Issaquah, Washington-based national chain does extensive demographic studies before it decides to build a store, and many communities have noticed a surge of growth and development following a store’s opening. It’s not that Costco itself spurs development. Rather, the store’s appearance is an indication that a community has the growing and sophisticated consumer base needed to support the volume-based business and increase its sales year after year. In other words, the community has a growing population base and a strong economic future. Costco may be among the first to see the trend and capitalize on it, but other businesses and developers usually aren’t far behind, and in fact, some may follow Costco’s lead. There’s a snowball effect, and pretty soon, little Kauai may find itself in a whole new league in its ability to provide mainland quality and variety in its goods and services.

Next up is Wal-mart, which has decided to make Kauai the location of the state's first Supercenter store. Though the chain has seven stores in Hawaii, none of the others have the Supercenter format, with a full-service grocery store that adds an average 85,000 extra square feet and 53,500 more items compared to a regular Wal-mart. It’s interesting that Wal-mart, which has Supercenter stores in 47 states, would choose Kauai to inaugurate its big-store format in the state of Hawaii. If the store is successful in obtaining permits to expand its existing Lihue store into a Supercenter, it will increase competition and consumer choice here even more. The new store would have to compete not only with big grocery chains such as Safeway, but also with Costco.

In perhaps a taste of things to come, Costco has already created a powerful competitive effect of its own on local gas prices. The Kauai store includes a gas station and tire store, and gas was offered for $2.79 a gallon on opening day, some 40 cents cheaper than other gas stations had been offering in the days before the store’s opening. Immediately, the other stations lowered their prices from a previous high of $3.34 to a range of $3.17 to $3.05.

Not everyone is gung-ho on increased competition. Supermarket unions are opposed to Wal-mart’s proposed Supercenter. Employees at Kauai’s Cost-U-Less store are worried about their future with Costco in the picture. Call it the creative destruction of capitalism. But because of geography, distance, and traffic, sometimes local stores survive even in the face of unbeatable price competition and selection. When the island’s Home Depot opened three years ago, all the small local hardware stores were worried, but they’re still there. When you need a flashlight or a pack of batteries, it’s just not worth a drive to Lihue – even if you can fill up on cheap gas while you’re there!

Go! Shakes Up the Airline Business

In yet another instance of competition and price wars, Phoenix-based Mesa Airlines’ new Hawaii carrier, go!, made friends of fliers and enemies of other airlines when it cut interisland fares from $49 to $39, then $29, and finally to $19 for a one-way ticket in September. Hawaiian and Aloha matched the $39 and $29 fares, but called a halt when the newcomer dropped to $19. Both Hawaiian and Aloha have suffered from financial problems, and Aloha, which just emerged from federal bankruptcy protection in February, is suing go!, claiming it used confidential Aloha information to get its business started and is now trying to drive Aloha out of business. Go! also flies to Phoenix directly from Lihue (as well as from the other islands) and can offer visitors substantial savings on flights to and from the mainland as well. Though the $19 fares probably won’t last, another player in the airline industry is a boon to consumers even as it forces competitors to re-think their tactics and improve efficiency.

The Superferry and Change

A different kind of transportation alternative will arrive in the islands next July. The Hawaii Superferry, a football-field-sized high-speed catamaran, is now fully funded and approved and well underway to begin transporting 900 passengers and 250 cars from island to island. Passengers will pay $42 per person and $55 per vehicle to travel. The massive project is costing $235 million to put together, including $20 million in state funds. Some environmentalists oppose the ferry, citing its potential to harm whales and noting that no environmental impact studies were done. The company says it will have whale watchers trained in whale behavior on every boat, but at the ferry’s high speeds, will they really be able to spot whales in time to avoid them? And what about other environmental impacts? Some Kauai residents also worry about increased traffic and the potential for criminals coming to the island with a new means of escape. On the positive side, the ferry will provide an opportunity to island-hop without having to wait at a different rental car desk at every stop, and to carry goods your luggage might not accommodate.

With every change there are potential problems and unanticipated problems. Not all change is for the better, and every change has its own set of drawbacks. But change is inevitable, and it can be exciting. Kauai has just reached a point where the rate of change is accelerating dramatically. The sleepy agricultural out-island of mixed-plate restaurants and surf shacks is no more, and taking its place, in fits and starts, is a world-class resort. Like it or hate it, love it or leave it, that’s where we’re heading, and it’s too late to switch course.

New Developments

Several new developments in all price ranges are about to begin or already in progress on Kauai. The newest developments are starting to accept reservations at pre-construction prices now, so if you are interested in investing, give me a call or drop me a line. If the prices in a development seem out of line, keep reading, and you’ll find others that may work for you. Or give me a call. I have detailed information, floor plans, and color photos for all of these developments.

Kauai Lagoons

The first phase of this project, located near the Marriott where the wildlife safari used to be (they’ve relocated the monkeys and the zebra) will be Kalanipu’u, 78 two- and three-bedroom condos, most with spectacular ocean, bay, and coastline views. The fully furnished condos will feature gourmet kitchens, granite counters, and spacious lanais. In a unique, Venice-like feature, boat taxis will ferry owners through the lagoons. Owners can also play golf at the Kiele course, which is being re-designed by Jack Nicklaus, and will have access to Kalapaki Beach.

The Lagoons project is situated on 520 acres overlooking the Pacific, with 38 acres of freshwater lagoons meandering through the tropical grounds. There will be a spa, a fitness center, miles of bike and walking paths, and beach access trails. For those who like short travel time, it’s located just a 5-minute drive from the airport. When the entire development is built out over the next ten to twelve years, it will include 750 units of condos, private homes (including a few on their own small islands within the lagoon), and timeshares.

This is a very high-end project being developed under the auspices of the Ritz Carlton, with amenities and services to match. Pre-construction prices at Kalanipu’u start at about $1.9 million, and delivery of finished units will begin in spring of 2008. The project is located within the county’s Visitor Designation Area, so the condos will be fully vacation-rentable.

Wainani and Pili Mai on the South Side

In Poipu, the Wainani development will feature 71 luxury single family homes curving around the fourth and fifth fairways of the Kiahuna Golf Course. The homes of plantation-style design will feature vaulted ceilings, two-car garages, spacious kitchens and lanais, air conditioning, and natural stone flooring. The developers have already begin grading for the project, and delivery of the first units is expected in August or September of 2007. Owners will get a discount on golf at Kiahuna, and beach access is across Poipu Road near the Sheraton. Pre-construction prices start at $1.69 million.

Offered at more reasonable prices, at least for now, is Pili Mai, a townhouse development of 191 units that also borders the Kiahuna Golf Course. Pili Mai features attached plantation-style homes from two to four bedrooms, each with a one-car garage. The complex will have two pools and an exercise center. The closest beach access will also be the Sheraton, a 10-minute walk away. Kiahuna Shopping Village is a 3- to 4-minute walk from the complex. Both 1- and 2-story units are available. Sales have already begun at this complex, and the developer says they are moving briskly. First delivery of completed townhomes will be in December 2007 or January 2008. Pre-construction prices are currently in the $600,000 to $900,000 range for the first phase of 13 units, half of which have been sold, and are expected to rise soon for the next phase of development.

The Hilton and Condo-tels

In Kauai, as in other resort destinations, there has been a shift in the hotel business away from conventional hotel rooms and toward increased numbers of timeshares and condo-tels, or hotel rooms converted to condos for individual ownership. In Hawaii last year, the number of hotel units fell 4.8 percent, while condo-tels increased 8.7 percent. Here on Kauai, the latest such project is the former Radisson, which was just converted to a Hilton. The entire hotel is being sold as studio condo-tels, and most rooms have already sold. These popular units range in price from the $200,000s to the $400,000s. They don’t have stove, but are equipped with a microwave, wet bar, and room-size refrigerator. The complex has a beautifully landscaped pool and is located on a sandy beach. Financing is available. For further details, give me a call.

Tea Time! Calling All Farmers

Developers of a new 2,021-acre agricultural subdivision on the island’s east side intend to create something unique on Kauai: a true, working plantation, instead of the usual agricultural-zoned acreage where few people actually grow crops. The Kealiakealanani development calls for a tea plantation, and every owner of the 290 estate lots will be required to participate in some way. The developers consulted with tea experts from England and determined that the island has the right elevation, type of soil, and rainfall for growing tea. On the business side, they say the U.S. tea market is growing 20 percent a year, so there should be plenty of demand for the product. Taro fields and cacao fields are also a part of the project. No golf course, spa, or clubhouse will be in this development, though they do plan to have rodeos, and will offer 10 miles of hiking, biking, and horseback riding trails. One hundred of the lots will be set aside for affordable homes. Lot sizes range from 3 to 100 acres each, and prices will start at $500,000. The newly-formed Kauai Tea Company will oversee the production, packaging and processing of the tea. Each homeowner will develop an agricultural plan, and will either help farm the tea or enter into an agreement with others to do the work. It will be very interesting to see how this new product and new type of subdivision fares.

Princeville Hotel To Get a $40 Million Facelift

To its visitors and guests, the Princeville Hotel looks just fine as it is, even elegant. But to its new owners, Starwood Hotels and Resorts and Princeville owner and developer Jeff Stone, it needs upgrades. Lots of upgrades. Stone’s company will pay for them, and when they’re done, the 252-room hotel will join the prestigious St. Regis chain, Starwood’s most upscale brand. It’s all part of Stone’s master plan to put Princeville on the map as a world-class destination resort.

Which it what the island in general is fast becoming. Travel + Leisure magazine rated Kauai the best Hawaiian island and the world’s number two island in this year’s awards ceremony. The rating is determined by a vote of the magazine’s readers, who travel the world around.

Albatrosses: A Death and A Fledge

Some of you may recall the story of Longshot, the Princeville albatross who was hit by a car as he tried to cross a busy street and broke his wing. Without the ability to fly, Longshot could not support his family, so he and the chick in the family nest were moved to the Kilauea National Wildlife Refuge. Longshot never recovered, and passed away in August. But his son Prince, cared for by a wildlife biologist at the refuge, successfully fledged out to sea, where it will live for four to five years before returning to Kauai. The mother bird will return to Princeville next year and wait in vain for Longshot to return. After a season or two, she may choose another mate. Without human intervention, Prince never would have survived, as it takes both mother and father working fulltime to feed a hungry chick.

Real Estate Statistics

Real estate sales have finally joined the rest of the coastal U.S. in slowing down, though prices are still holding and have risen in resort areas. Appreciation is just not occurring at the frenetic pace of the past six years.

“There’s not as much craziness out there,” says Bank of Hawaii’s chief economist Paul Brewbaker.

In terms of the number of sales for the island overall, September statistics show a 50% decrease for all types of property compared to the same month last year.

In the north shore district of Hanalei, home sales were down 67%, with 7 sales as opposed to last September’s 21. Land sales were down 100% (none in September, as opposed to 4 in September 2005), and condo sales down 78% (5 compared to last September’s 23.)

Though number of sales fell on the north shore, prices were up in this resort district. Home prices on the north shore had a median of $1,206,500, a 34% increase over 2005 prices. The median condo price of $804,075, is 53% higher than September 2005’s.

In the south shore district of Koloa, the number of residential sales in September (11) is the same as last September’s, but there were just 3 land sales, as opposed to 7 in 2005, which translates into a 57% decrease. There was a 33% decrease in the number of condo sales form the month, with 6 sold to last year’s 9.

Median price for a Koloa home that sold during this period was $749,000, a 3% decrease from last September’s $775,000. Land price median was $300,000, as opposed to last year’s $384,000, a 22% decrease. Condo prices were up, however, with a median of $665,000 compared with last year’s $500,000.

Buyers now have more inventory to choose from, and with greater competition, some sellers have lowered their listing prices to persuade buyers to choose them. But don’t expect bargain basement sales on Kauai. Only 4 percent of the island can ever be developed, and there’s still plenty of demand out there, especially from high-end buyers. As you know, the island is a very special place, and more travelers continue to discover its charms every year .

Goodbye for now. If you have any questions about the island or what's for sale in the real estate market, just let me know. I hope to see you back on island soon!

With warmest aloha,