Kauai Newsletter
June-July 2005

Aloha!

The hottest phrase this month on the Garden Island is:

Attention, Discount Shoppers!

It's official: Costco has won approval to build a massive warehouse store and a self-service gas station in Kauai. The 150,000-square-foot store will occupy 15 acres in Lihue near Home Depot, behind Kukui Grove Mall. The Kukui Grove Pavilion, which is part of the site, will be demolished this summer. No word yet on where the popular Tahiti Fest, a summer dance competition with native Tahitian dance troupes and Tahitian vendors selling gorgeous South Sea pearl jewelry at greatly discounted prices, will be held after the Pavilion is removed. I'm a big fan of Tahiti Fest myself, so I'll keep you posted!

Costco officials said they hope to be open for business here this fall. That's pretty fast construction, especially for Kauai, considering that before they start, they will be required to make traffic improvements around the site. The company will also be required to use outside lighting that minimizes effects on seabirds, which can become disoriented and confused by them, and landscaping that uses native plants. Costco prices are usually about 10 percent lower than other retailers', and out here in the middle of the Pacific where shipping costs drive prices up, they should expect to do a booming business.

Sounds of Building Everywhere

Here on the North Shore, Princeville is abuzz with hammers and saws as a flurry of construction projects gets underway. Along Pepelani Loop in the center of the community, behind a long black running construction fence, the last two condo complexes that Princeville is zoned for are being built. Many have already been presold and are changing hands at higher prices. Kaiulani, a luxury development of duplexes and triplexes located on a bluff just beyond Villas on the Prince at the entrance to Princeville, is breaking ground this summer. Of the 77 units planned, only 7 are still available. And giant wood stakes are being placed in the ground for construction of a road behind Villas on the Prince. The road will lead to the Greens, an area where homes can be built surrounded by the Prince golf course. Jeff Stone, Princeville's new owner, will be selling lots in the Greens for individual development once the infrastructure is complete. No word on pricing yet (just wild rumors.) With just 15 lots left for sale in Princeville and massive numbers of people wanting to live here, additional land will be greatly appreciated. And that will be all the development for residential Princeville as we know it. Princeville also includes many acres of land on either side of the highway stretching from the fountain entrance, south almost to Kilauea. But none of that land is currently zoned residential and none of it has any infrastructure, so and development there is many years and council meetings away.

One of Jeff Stone's first goals as the new owner of Princeville is to expand the Princeville Shopping Center. To do that, as a government concession, he must first build employee housing somewhere in the area. No word on that yet, but he's clearly thinking ahead to the shopping center, because massive clearing has been going on behind the existing center so that he can produce a topographical map of the area.

Affordable Housing at Last

In other parts of the island, affordable housing developments for residents are finally starting to take shape. D.R. Horton/Schuler Homes will be building 56 affordable condos in Puhi, just south of Lihue. The company will go on to build other affordable homes as well as higher-end ones in the area. Other developers are joining the bandwagon, and a total of 400 new affordable homes should be available on the island in the next five years, according to an executive for the Kauai County Housing Agency.

As property values here have appreciated, they have not only created a shortage of affordable housing, but have made it difficult for many long-term residents to stay on the island as their tax burden increases. A public referendum to hold taxes down, similar to California's Proposition 13 of the '70s, passed by an overwhelming popular majority last fall, but the county council struck it down as illegal. Now the case is scheduled to be heard by the Hawaii Supreme Court. In the meantime, the county has read the handwriting on the wall and agreed to a 2 percent per year ceiling on tax increases for most categories of residential ownership. Even with the ceiling, this year the county will experience the biggest increase in property tax revenues in county history, due to higher property values.

What Does the Future Hold?

Some people are wondering how much higher values can go. In Princeville, for example, there are now only two homes for sale for under $1 million. There is talk in the press and in coffee houses of a real estate bubble on the East and West coasts. Some markets, notably southern California, have shown signs of being overheated and have cooled down in the past few months. Will that happen here in Kauai? I wish I could tell you, but I just don't know. I do know that for the past four years in this market I've been hearing the refrain, "It can't go any higher; I'm going to wait until prices fall!" ... and then the market shoots up again. What we have here is a classic supply-and-demand problem. In order to keep the island green and beautiful, the county and state have limited development. At the same time, we are experiencing a massive influx of Baby Boomers buying second homes and retirement properties. Others are diversifying out of the stock market and into real estate. And as Oahu and Maui start to turn some people off with their high rises and traffic jams, Kauai is increasingly becoming the place to be. And of course, record low mortgage rates no matter what the Fed seems to do also contribute to higher prices. With demand way up and supply chronically low, prices are forced up. The island is also finding appeal among an increasingly well-heeled clientele. New luxury developments are having no trouble finding investors.

One of these is the Kukuiula development on the island's south side. I recently took an extensive tour of the site for this vast upcoming project, and what impressed me was not just the project itself, but its implications for the whole island. Sprawling over 1,000 acres ranging from lowlands to hillside bluffs between historic Koloa town and Allerton Gardens, the Alexander and Baldwin development will be divided into several different neighborhoods surrounding a Tom Weiskopf signature golf course and a world-class spa. Density will be relatively low, with a total of 1500 units planned, some to be built by the developer and others sold as lots. The quality of those that the developer builds will be top notch. Development of this huge project has been approved by the county, but sales can't start until plans are further refined and approved. But the company can sell "certificates of interest", a sort of pre-reservation system. Its first release of certificates sold out in 48 hours. They expect to issue the next release in October or November. Homes in this development will be priced from $1.5 million to $4 million, and lots from $1 million to $3.5 million, yet they are having no trouble preselling them. What this means is that a class of buyers paying beyond what banks are willing to issue mortgages for is not blinking at paying cash for high-end property here, especially if it's new.

These cash buyers not dependent on mortgage interest rates add stability to the market, and the high prices of Kukuiula and other new developments are likely to raise island real estate prices generally. Kauai is not immune to economic forces, however, and if the U.S. housing market crashes, or if Asian countries stop buying so many U.S.Treasury bonds, which fuels our spending, we will suffer as much as everyone else, or perhaps even more so. But the new developments make it increasingly clear that the island is emerging, for better or worse, as a destination resort.

Bike Path and Roadway Improvements

Work is underway to build the 16-mile coastal bike path along the island's east side. One of six legs of the project has already been completed, and the county (awash in property tax receipts -- see above) just awarded $12 million for another segment. When the path is completed, it will not only provide a unique, scenic way of viewing Kauai, but will provide better beach access for both residents and visitors. Beach access is already a sore spot in some areas, and is bound to worsen as development increases unless the county takes further steps like this one to ensure access for all.

Another new roadway development is a $31. traffic round-about just constructed at the entrance to the Kapaa bypass road. Although the bypass road is seen as a temporary fix to Kapaa traffic, it is being extended north along an old dirt cane road that will terminate in the Kawaihau area. The traffic circle at the bypass's Kapaa entrance provides safety in an area where merging traffic had no clear path before, and the cane road bypass will help ease some congestion, but the heart of the congestion, from mid-Kapaa town to Lihue, is still not being addressed.

Congestion will be eased, however, in another transportation project that will widen the highway from Lihue to the turnoff for the Humane Society headquarters on the island's south side. That $31.5 million project is scheduled to begin in mid-2007, assuming the funding is in place.

Health and Beauty

A local Hanalei community group, the Hanalei Watershed Hui, recently won an award from the national Department of the Interior for its research on the coral reefs on the island's North Shore. The group worked with scientists and government experts to identify sources of pollution of the reefs and devise ways to manage their continued health.

Maintaining unspoiled natural beauty in Hawaii is its own end, but it 's also the main draw for visitors, who ranked the islands as their top choice for a vacation destination if they could go anywhere in the world and money were no object , according to a recent poll. The Hawaiian Islands garnered 14 percent of the vote in the national telephone survey poll conducted for Associated Press by Ipsos. Next on the list was Europe in general at 9 percent, then Italy at 6 percent, Australia at 5 percent, the Caribbean at 7 percent, Alaska at 4 percent and Florida at 3 percent. We beat the Mouse by a wide margin! A heartening sign pointing to the evolving taste of Americans -- at least, in my totally unbiased opinion.


Big Fish for Sale

In real estate news, a couple of important properties have come on the market. One is the Courtyard By Marriott at Waipouli Beach, which was just renovated and reopened a few months ago. Now the 311-room hotel is for sale again. The hotel has been spruced up and includes a a health club, spa, and business center. If you have $70 to $80 million to invest, you might want to think about it. Otherwise, you can wait and see what the new owners decide to do. Zoning would allow the sale of individual rooms as increasingly popular condo-tels.

Another high-profile property for sale, but of a completely different type, is the Menehune Fishpond, a storied and unique 103-acre parcel of land that is listed on the National Register of Historic Places. According to legend, the pond was built by the Menehune, a race of little people who preceded the Hawaiians and who only worked at night. The Menehune meticulously cut and pieced together without mortar a 900-foot-long lava rock wall to create a pond where young river fish would swim in, grow, and become unable to swim back out. Archaeologists say the pond was constructed about 580 years ago. Did the Menehune really exist? They are cited throughout Hawaiian oral tradition, and in the last census a handful of people living near the end of the island's North Shore listed their ancestry as Menehune. The fishpond has enormous historic significance as a structure, even though its origins remain mysterious. But the site has been neglected, its wall overgrown with mangroves and the pond itself filled with silt. My company, Century 21 All Islands, has the $12 million listing, and has tried to market it to Hawaiian and conservation groups, but so far without success. The fishpond could be an invaluable resource for learning about and preserving island culture. It needs to be acquired by the right hands before it's too late. Anyone with connections to a museum or foundation with interest in the Pacific region, please take note.


Real Estate

Sales and prices continue to be very strong on the island. For the month of May, the median home price increased 43 percent over that of May 2004 to $665,000 (in May 2004 it was $465,000.) Condo prices as a whole dropped slightly, from $381,250 to $375,000 over the same period.

Breakdowns by area for May haven't been tabulated yet, but here are the April statistics for the two resort areas, the Hanalei district, which stretches from near Kula School to the end of the island and includes Princeville; and Koloa, which includes Koloa town, Poipu, and Kalaheo.

In the Hanalei district, the median residential price rose from $700,000 to $742,500, a 6 percent increase. Condo prices went from a median of $425,000 to $633,000, a 48.9 percent increase. Vacant land rose from $635,000 to $877,500, a 38 percent increase.

In Koloa district, the median home price was $675,000, up 42.11 percent from April 2004's $475,000. Condos went from $404,000 to $527,500, up 30.5 percent. Land prices show a decrease of 65 percent and mainly illustrate how statistics for small numbers can be deceptive, since there was just one land sale in the district in April 2004, a parcel that went for $1.2 million, and the median this year of $420,000 was for 6 sales of small parcels.

That's all for now. Please remember to contact me before your next trip so that we can set up showings in advance and not waste precious minutes of your vacation time.

Hope to see you soon!

With warmest aloha,