The Hawaii hotel acquisition market has shifted from a scarcity of available properties to a pricing disagreement, according to a recent analysis by Mark D. Bratton, CCIM, of The Bratton Team at Colliers International Hawaii. In Waikiki, several hotels are now available to buyers willing to accept a first-year return of around five percent, but the market generally underwrites closer to a seven percent return. This two-point gap between buyer and seller expectations has led to a slowdown in transactions, though not distress.
The buyer pool has become polarized, with independent investors and family offices showing increased activity, while institutional capital, particularly publicly traded REITs, has stepped back. Bratton notes that REITs have seen significant share price declines, constraining their ability to raise capital. He highlights the difference in perspective: stock investors might prefer high-growth tech stocks, while owner-operators underwrite hotels as a business they understand.
Recent transactions illustrate this range. PACIFIC 19 Kona, formerly the Kona Seaside Hotel, was acquired by Nine Brains, a Santa Monica-based firm backed by individual investors and family office capital. At the other end, Host Hotels acquired Turtle Bay Resort and repositioned it under the Ritz-Carlton flag. Both buyers changed the business plan substantially, arriving from opposite ends of the capital market.
The pricing gap is not irrational; it reflects the cost of debt. With borrowing costs around six and a half percent, a seven percent return offers a modest spread, while a five percent return results in negative leverage. Buyers are declining to purchase into negative leverage, and most acquisitions are underwritten to a future position they intend to create through improved operations or repositioning.
Equity requirements are running well above conventional levels. While typical hotel financing assumes twenty to thirty percent down, Hawaii transactions often require thirty to fifty percent equity. At fifty percent down, buyers can secure better terms on remaining debt, as lenders face less exposure. Additionally, deals in Hawaii take time, with supply visible years in advance and transactions moving slowly compared to mainland expectations.
Hotels are a unique asset class, described by Bratton as "a business inside of a piece of real estate." Unlike apartments or office buildings, hotels are resold nightly, with staffing and operational costs attached. Operating experience is crucial in underwriting, and labor structure often surprises mainland buyers. Two major unions operate in Hawaii hotels, with renegotiation cycles every three or four years. More than half of the state's hotels are non-union, but larger and legacy properties are more likely to be organized. Some buyers will underwrite union properties, while others refuse them entirely, but discovering this after closing can be costly.
Fee simple beachfront hotels are highly sought after but rarely available, as much of Waikiki sits on leased land. The families who assembled those positions leased rather than sold, limiting opportunities for fee simple ownership.
To bridge the pricing gap, some transactions are structured to give buyers control before title. PACIFIC 19 Kona is a prime example. After a ground lease expired in January 2020, the property was taken back by a Hawaii family with no interest in operating it. The seller required a 1031 exchange, complicating the deal during the pandemic. Nine Brains took a leasehold position with the right to acquire the fee at a stepped-up price, invested about ten million dollars in improvements, and closed the fee purchase in July 2026 at $23 million, six years after the process began. This structure has been applied to other assets, allowing sellers to achieve better outcomes—around thirty percent above an as-is sale—while buyers gain control early.
The market is currently quiet but not stressed. Debt levels across Hawaii hotel ownership are conservative, preventing a wave of forced sales. Owners are absorbing lower distributions rather than facing maturity problems. This combination of visible supply, disciplined balance sheets, and a spread that could close if debt costs move suggests a market waiting for a catalyst rather than undergoing a correction.
