 Good afternoon. My name is Ray Tsuchiyama for another episode of Business in Hawaii. We are going to be discussing, for a very business investor point of view, all about a small piece of the island of Oahu that has become a global center for hotels, for retail, for restaurants. It's called Waikiki. In Olalo, Hawaii, or the Hawaiian language, it means loading of water. Waikiki. And it used to be very swampy in the past. And the Alawaii Canal has become a major drainage canal for the area. And now, through the years, from the 60s, the 70s, and now in 2019, with nearly two million Japanese tourists last year, rising numbers of Chinese, Korean, North American, of course, and Canada, and even Europe. So it has become a global destination. To speak more from the investor and how to achieve success in the business world of Waikiki, we have Mr. Andrew, or Andy Starrin, is the Senior Vice President and Retail Market Expert at Cushman and Wakefield, Cheney Brooks. Welcome to the show. Hey, thank you, and thank you to Think Tech for having me. Great being here. Well, you're a local person, right? And you went away from college. Tell me about your background a little. So I was born and raised in Hawaii, grew up in Kaimuki area, was fortunate to go to Punahou School, and then graduated from there, went to the University of Colorado in Boulder, and then moved back after a little bit of travel post-school, and spent 16 years at C.B. Richard Ellis doing predominantly retail, focusing on Waikiki, and then now I'm at Cushman and Wakefield, Cheney Brooks, and doing the same thing, focusing on Waikiki, specifically within the retail markets, and then the other resort markets around the state. Now, Waikiki, you know, too many visitors, they just know it as a place to stay and then walk around and shopping. Tell me, what's unique about Waikiki to you? So, you know, I think if you look at retail across the country, what's amazing is that on Oahu we have two areas that are kind of globally known and globally strong performers and it's strong performers in the United States, and one is Kalakau Avenue, and you have retailers that do phenomenal there, and you have Alamoana Center. And so the fact that this little island on Oahu in the middle of the Pacific has these two kind of retail mechas is just incredible. Well, why don't we turn to the first slide and see what's going on. Now, and this is all about retail and rent. Describe the scene to me. So this is, you know, for people in Hawaii, this will look a little strange. The biggest reason it looks strange is because these are how people across the United States look at numbers. It's per square foot per year. So these, you know, you have to divide them all by 12 to get to the per square foot per month, which we talk about in retail in Hawaii. What you see is, now the other thing we have to clarify is this is taking New York City as a whole, Los Angeles as a whole, because New York probably has six or seven of the top 10 streets in the whole country. But Fifth Avenue, they have, you know, rents up to $4,000 per square foot per year, you know. So it's just an extremely high volume, expensive street. But what's surprising is the fifth strongest street in the country is Calacao Avenue. And so you have New York, you have Rodeo Drive, you have the Union Square area of San Francisco, you have the Miracle Mile of Chicago, but then you also have Waikiki, and Waikiki has rents of $38 to $40 per square foot per month, you know, for the very best portion of that street. All right. So this kind of frames our discussion. Waikiki is really up there. Competing against other major retail centers in North America. I think Waikiki is probably the most underrated street in the country. It's opened 365 days of the year. It has a global tourist base from 10 a.m. to 11 p.m. And so it's just such a tremendous area for these brands to, you know, have sales and connect with their customers. And then we actually have amazing local retailers. I mean, global world-class competitors that have, you know, grown in Waikiki to be as good as they are. And so it's really an amazing retail market. And the global brands are here, the Prada's, the Louis Vuitton's and Tiffany's are here. And one of the ways they really kind of leverage their brand is to showcase their brand to visitors from all of the world, from Asia, from North America and Europe. And so Waikiki doubles as a kind of place to promote their brand to global visitors. Absolutely. And so, you know, you have the almost 2 million Japanese visitors. You have somewhere between 140, 170,000 Chinese visitors, 500,000 Canadian visitors coming every year, 400,000 Australian and New Zealand visitors. And so one, it's an incredibly diverse market. And two, it's an extremely productive market. Like those luxury brands, these stores can be one of their top five stores in the world. And it's here on Kawakawa Avenue. Well, why don't we go to the next slide? And this is all about flights to Wahoo. And we're just talking about the global visitor destination, which is Wahoo and Waikiki now. So I think what's great about this slide is it just really is a visual on how diverse Waikiki is. And I think that's just hugely to the benefit of Waikiki and to the benefit of Hawaii as a state. I mean, this is where a huge amount of the general excise tax revenue is generated. And it's just so important because on some level, the money from Waikiki from those hotel jobs, construction jobs, you know, it's kind of supporting the rest of the entire state. And so it's just an extremely important part of Hawaii and Hawaii being a great place to live and work. And, you know, what you see here is just that it's global in nature. And so when we had things like the 2008 recession, you know, the international visitors propped up Waikiki and it's still, you know, it was off, but it wasn't off 40, 50 percent. And, you know, it was strong. And then when you had, you know, an event like the Japanese earthquake and tsunami, which I personally was like, this is horrible. There's going to be no sales. And really the U.S. domestic market kept, you know, Hawaii and Waikiki afloat and things were still relatively strong. So we can hedge our bets. Yeah, exactly. And it's not just one group that Hawaii depends upon. It's really an international grouping. Next slide, please. Oh, go ahead. Oh, no. This is about malls. And I see number 10 is Alamoana, which is one of the largest malls in the country and in the world. And again, I'm surprised because I wouldn't have put Alamoana shopping center in the top 10. Yeah. So Alamoana, in terms of sales productivity, is the 10th strongest mall in the country. But some of these other malls I see are huge. They're like unbelievably large places. And like the Central City one is in LA, extraordinary large. So what do you attribute to Alamoana having that type of visitor spending? You know, I think Alamoana benefits from one, the million residents on Oahu. And I think it is, you know, if you're going to have a big shopping experience, you're going to go to Alamoana because it has everything, but then it also is close to Waikiki. And so, you know, on a visitor trip, they'll spend one day going and shop, especially, you know, Japanese, Chinese, Korean visitor. They'll spend a day and go to Alamoana and shop. And so, you know, I think it also benefits from those visitors shopping at the mall. Well, this is also a slide that shows that, again, in spite of Hawaii in an isolated location, it does attract high-spending visitors, especially from Asia. And we'll go further in our discussion about if you were a business investor, how would you find Alamoana or Waikiki as a place to do business? And it must be not that simple. I mean, you have a lot of competition out there. It's like, where do you begin to really see what to prioritize? What advice would you say, first off, to anybody who's even thinking, contemplating of opening a shop along Kalawa Avenue? There's a couple of different components of that. If we're talking about people coming in to have a retail business in Waikiki or Alamoana, I think most important is it's getting the right advice, getting your support from your legal support, your real estate support, your tax support. All of these different pieces to do it right is really important. And people that can get that right support, make good decisions. They have the right business from their restaurant experience or retail experience from where they're coming from. If that all gets coupled together, I think you see groups that are very successful. But if I see very local advice, I mean, people who are expert in the market have seen how others have failed or succeeded. Yeah, Hawaii's unique. It has its own nuances. It has its own things that can make you do really well or not be successful. And so as you, you know, getting those things right is a huge, you know, piece of whether you're successful or not. We'll get back to a drill down, especially on the real estate side, after we take this very important break. Hey, loha. My name is Andrew Lanning. I'm the host of Security Matters Hawaii, airing every Wednesday here on ThinkTech Hawaii, live from the studios. I'll bring you guests. I'll bring you information about the things in security that matter to keeping you safe, your coworkers safe, your family safe, to keep our community safe. We want to teach you about those things in our industry that, you know, may be a little outside of your experience. So please join me because security matters. Aloha. Aloha. This is Winston Welch. I am your host of Out and About, where every other week, Mondays at three, we explore a variety of topics in our city, state, nation and world, and events, organizations, the people that fuel them. It's a really interesting show. We welcome you to tune in and we welcome your suggestions for shows. You got a lot of them out there. And we have an awesome studio here where we can get your ideas out as well. So I look forward to you tuning in every other week where we've got some great guests and great topics. You're going to learn a lot. You're going to come away inspired like I do. So I'll see you every other week here at three o'clock on Monday afternoon. Aloha. We are back with our guest, Andy Starn. And we're having a very drill-down discussion on how to succeed in retail in Waikiki. And we've seen through Andy's slides how Waikiki, Halaaka Avenue, Aalamoa Shopping Center are ranked in the top 10 of the most successful destinations in the U.S. So we're going to go back to some decisions that investors make. And they're going to rely on local experts. You're absolutely right. And you're one of the local experts that can provide such guidance. And how would you go about choosing the right retail location? Yeah, so, you know, the thing about Waikiki is that it's not apparent in terms of what's available. It's such an opaque market that if you go online or go on Loopnet or CoStar, one of these listing agencies, you're only going to see what's empty and being marketed for available. The reality is you have to work with someone that's tracking the future lease terminations and knowing what's coming up, you know, six to 18 months before. Because that's really when decisions are being made for these really prime locations. So it's about getting in front of, you know, what may be available in two to three years. And, you know, some of these brands are making decisions that far in advance. And when you're talking about tens of millions of dollars in potential sales per year, it is that important to be thinking that far ahead. For some investors who also will open businesses, there's the significant area of leasehold that is kind of not that well known on the mainland. And when you buy properties, usually on the mainland, it's fee simple. Here, if you want to buy a building and the land and go forth and do business there, how is that different in Hawaii? So, I mean, most investors coming in, if they can buy fee simple, they can buy that fee simple interest, that's what they want. Now, in Waikiki, you know, a big portion of the land is not fee simple. And what ends up being important is that underlying lease. How long of no one rent do you have? How often does it reset? You know, it's really an interesting story. This goes all the way back to the late 1800s. And the Hawaiian monarchy was looking forward and kind of said, are people may have issues going into the coming centuries? And they set up a trust for health care, a trust for education, a trust for orphans, and they left those land holdings to those groups. And so, a lot of the land in Waikiki is actually owned by Queen Lilio Kalani, Queen Emma, Kamehameha schools. And so, the money from those lands are now going to support health care, support education. And so, that legacy is still, you know, a lot of the lease hold interest. Now, the least fee, the groundless sea, who ends up having a hotel on top of it, or having a retail center, you know, if you have a long no one amount of no one rent, and you have, you know, I mean, ideally it's 40 years or longer of a lease term, it becomes almost, so it's very close to owning a fee simple property, because that residual value is so far out. And so, I mean, it still is an extremely strong investment. The other thing I would say is, you know, if you're buying existing real estate that's already there, then you know what you have, and that's an easier thing to accomplish as a buyer. To do development in Hawaii is extremely challenging. And as we know, Waikiki is a very special design district with onerous rules and regulations, even for local people to construct or something on an open lot has many, many restrictions. And I think it's, you know, this is really an area where you have to be working with good advisors. I mean, you probably even want to be working with one of the local Hawaii developers that do that every day to get it right, because there's so much to accomplish in your goals. Now, the flip side of that is that if you own real estate in Hawaii, everything, all these difficult steps you had to go through to become a successful property owner, it's that hard for someone else to come in behind you. And so, once you own real estate in Hawaii, in a certain way, you're insulated and protected from, because it is that difficult. And that means that, you know, your neighbor can't just go and emulate your success easily. It takes so much more than that. You have a very huge advantage if you own the land. That's where it all begins. And, you know, even leases, if they can get structured in the right way, you know, it's very valuable because it's so difficult for it to be reproduced, especially on an island. Yeah, and leaseholders is something, you know, back in the 1450s was a way to have businesses, you know, spend their money on growing their business, not buying land. I mean, that's one of the original thoughts behind leasehold, but you're correct. Just because it's leasehold doesn't mean it's an obstacle. That there are ways to look at it as a way to, you know, establish a business. Absolutely. Well, we want to talk about hotels now. And that's the other category of major investor interest is on the hotel scene in Waikiki, that rarely there's transactions. Of course, the last booming transactions came in the 80s when many Japanese firms bought hotels along Kalakaua and all over Waikiki. And but the fact remains that during the last 20 years, there haven't been many new hotels built. And during the 70s, the built more was destroyed. The high regency was built. Kaiser Permanente was raised for the Waikiki Hawaii Prince Hotel. But the story of the last 15 years was in timeshare. And the Princess Kailani that's going to be built on that side along Kalakaua is very rare to see a new hotel. But how is the hotel, I guess, market evolving today? Is it a place where investors get a huge return or is it very, very a challenge for outside investors to have a good ROI on owning hotel properties? So, you know, Hawaii is probably the number one hotel market in the country in terms of average daily rate. So typically, you know, New York would have been the number one market and Hawaii is actually stronger than New York currently. On top of that, you have a market that has, you know, instead of hotel rooms growing and there being more hotels, they're actually being reduced. It's getting changed to timeshare. It's getting changed to condo hotels. So those two market influencers actually make owning hotels extremely valuable in Hawaii. And I mean, it's a great category. I think it's something that you see investors like, you know, Blackstone and Mide and, you know, these different investors coming in and buying here because those, you know, those pieces of the market make it a really compelling argument. Now, return on investment is all based on your purchase price. So it really depends on what you're paying for the property. But I mean, I think to own a piece of Waikiki and to be in this market, I mean, I think it's an extremely valuable real estate. Yeah, I think you're correct. For many institutional investors or many large investors, it's iconic. They have an iconic building on Kalakau Avenue. It's a great branding kind of, you know, promotion for their own firm or for their own organization. But you're right. On the other hand, there are these issues of hotel management firms to work with them, that Hilton's and Marriott's and Starwoods and so forth. And also to deal with some of the renovations that have to come up in the future. A lot of the hotel infrastructure has not really been changed in 20, 30 years. Some of them go back to statehood, to most of the gold cost condominiums, that is. But the hotel market, I think, will have a very exciting year. This year, I think, will be the return of a lot of transactions along Kalakau and a major interest, major focus on that area. And then I know we're running out of time, but to also focus on an area that you think that Waikiki is a gem for dining or culinary experiences and how did that evolve? But what you have is, it's really become a foodie street. You have things like Paya Fish Market, Uncle's Pizza in the Laila Hotel that are waiting to open. Across the street, you have Marukami Udon, which is one of the highest, I see lines out the street. Four places in Waikiki that has a line almost every day. Around the corner, yeah. So I think what's been happening on Kuhia with Michael Mena, the street, and then the third floor restaurants, like Stripped Steak, Kona Grill, up on the third floor of international marketplace. I mean, I think there's been a lot of awesome dining that's come to Waikiki. And then you have just huge volumes out of restaurants like Wolfgang Steakhouse, Dukes, Cheesecake Factory. I mean, there's probably over 12 restaurants in Waikiki that are doing over $10 million a year in Sam's. You were involved in the international marketplace from way back, am I correct? My first really coming to understand Waikiki from a commercial real estate perspective goes all the way back to the old international marketplace. I was leasing the back half Waikiki Town Center for Queen. I'm getting to work with really awesome people there. And it was really an education into the market. And it's that little piece of Waikiki I got to discover and learn about is why I made the decision to kind of give up all my business outside of Waikiki and really focus in doing commercial real estate there. And that has been a transformation. I would not have expected that type of fine dining and shopping that overlaid that really, really scattered marketplace like before. Yeah, it was a massive investment that they put in there. And it's getting more and more foot traffic. It's getting better and better. And I'm really hopeful that it's going to really hit its full stride and be a super successful project. Now, do we have one more slide left, a fifth slide? Oh, there it is. We come back to the end and we have two more. This defines kind of like the retail area and the hotel area right there. And you can see that it is not a big area. No, and this is kind of what we typically track in terms of Kalakawa Avenue. And it's not, it's even beyond the very best portion, the very best portion of Kalakawa starts it, Prada Kom Heart Max Mara, right where you intersect with Louis Street. There's Louis Vuitton. There's a brand new Tiffany that I think might be the most beautiful store in North America. There's very little rise in that area. They're not big places. Yeah, that's right. And it's right where you can walk in pedestrian access, right? And then it runs down, you know, to the high end. And that's that portion that's getting this $38 per square foot per month in these big reds. That's only a half a mile when you think about it. It's just, you know, it's really three long blocks. Wow. Last one, please. Last slide. Oh, we're getting really down to this. Yeah, so this is just, you can kind of see an upward trend in rents between 2015 and 2018. And then last year, we saw a tick up in retail vacancy. There was a couple things outside of that prime zone of Kalakawa that took a while to get leased out. And actually, most of that is now leased up. So I think in 19, the vacancy is going to drop down to below 2%. I mean, it's basically virtually no vacancy. One between one and two. So this is 2019 and 2020. What do you see? I mean, I think that the rents are going to continue to go up. I think that you see a new three-story Tiffany that's absolutely beautiful. The new three-story Hermes flagship is about to open. It looks, it looks beautiful. I can't wait to use it. So these are real class architectural designed destination retail outlets. And I think when the other luxury retailers, just other retailers in general, kind of hear the sales that I'm sure are going to be generated out of those locations, you know, they're going to want to come and be part of Waikiki 2 and the amazing retail opportunity there is there. Well, we have to end at this point with your very optimistic business growth projections. We wish to thank Andy Starn for his great insights. But as you can see, he was in the trenches at international marketplace and Waikiki has evolved as a global destination. And for investors and business people looking at Waikiki as an opportunity, there are lots. I think 2019, 2020 will be unbelievable years also in hotel transactions and renovations. As new people come in, new owners, they're going to look at and transform hotel properties again to world class standards. And it will be a unbelievable growth in the economy for Hawaii as the Waikiki is indeed the engine of economic growth in the state. This is your host, Ray Tsuchiyama, another great episode of Business in Hawaii.