Not all of the country has the sequestration jitters. The stock market hit a record high recently--well over 14,000--and there are other indications closer to home that echo the same bullish sentiment.
In that little strip of land called South Maui, veteran commercial real estate brokers Ed Bello of Bello Realty Inc. in Kihei and Bill Gresham of The Gresham Co. Inc. in Wailea are whistling a happy tune. Both men have been active in the local market for over 25 years, and they both reported a decided uptick in the pace of commercial activity in recent months.
Bello, who has been in and out of many deals over the years, is owner and developer of the South Maui Center on Lipoa Street in Kihei. This 19-unit complex with approximately 20,000 square feet of leasable space was deliberately built with more than the minimum number of parking stalls. It opened in 2009--perfect timing to feel the full impact of the 2008 real estate crash.
Veteran commercial real estate brokers Ed Bello (left), broker-in-charge at Bello Realty Inc. in Kīhei, and Bill Gresham, principal broker at the Gresham Company in Wailea, discuss commercial real estate trends in South Maui at Wailea Town Center, where Gresham’s company is based. Both men report that the climate for commercial real estate is improving in South Maui.
Though times were tough for a while, Bello reported that his property is now at 100 percent occupancy. But, he added, "I had to really roll up my sleeves to do it." He said his retail units were priced at about $3 per square foot plus a 75-cent Common Area Maintenance (CAM) fee, while upstairs, offices went for $2.25 with CAM included. He observed that one of his anchor tenants, Fabiani's--a home-style Italian eatery--has done so well, they have plans to open a second location in Wailea soon.
Bello thinks that his current success comes from flexibility and a willingness to tailor his leases to the needs of his clientele. When it comes to commercial leases, he said, "one size does not fit all."
The longtime realtor thinks the surge in the visitor industry is driving the improvement in the demand for commercial space. He said there is substantial interest in the vacation rental portion of his business.
"The phone is ringing off the hook" for the 150 units his company manages, he said. "We can't keep up with it."
Times may be tough on the Mainland, but Bello thinks travelers will keep coming to Maui. As far as he's concerned, "the trend is up."
He also sees a new acceptance of "the way things are" on the part of prospective tenants. "People have finally realized they can't use their house as a bank any more," Bello said. "They're finally living with reality. Little by little, the entrepreneurs are coming out of hiding." The result, in his opinion, is "the small offices for people ready to try something new are starting to fill up."
"The leasing market in Kihei has firmed up," he said. "The vacancies that remain reflect a lack of underlying quality." By that, he meant that while there is still a substantial inventory of unfilled space in South Maui, by and large, what's left lacks some key element to make it desirable: not enough parking or not enough visibility, too costly or has terms that are not suited to the prospective tenants' needs.
Gresham is more familiar with a different type of property. His company is based in the Wailea Town Center. This is the only existing property in Wailea where fee simple commercial condominiums have been built.
As Wailea has grown, so has the demand for services. Many of the people providing those services have chosen to locate as owner-occupants at Wailea Town Center. Gresham noted that all the units have owners now and only a few are available for re-sale. Of ground floor retail spaces, most have been leased by the owners, and there are only a few very small offices are presently available as sublets.
Gresham said the complex, which opened at 2007 at the top of the boom, took a significant dip during the recession but is on track to recover. He pointed to four fee-simple sales in the last 18 months, and quoted average square-foot prices from $450 to $465 for recent transactions.
The property has 30 fee-simple condominiums; 23 are commercial and the other seven are residential. At their low point, Gresham said rents in the center fell as low as $2.25 per square foot. They are now at about $3, and he predicts it won't be much longer before their 2007 highs of $5 per square foot are approached.
Gresham said the new buyers are doctors, dentists and professionals. He said a florist has come in, too.
"These are people who specifically want to be in this area because they provide a service," Gresham said. "They don't need the food traffic of The Shops at Wailea, where there are only commercial leases available and space goes in the $6 to $8 per square foot plus CAM range."
One property that both men think is a good value is a 2,400-square-foot, fully equipped restaurant at Wailea Town Center. It is the only fee simple restaurant property in Wailea; they have it jointly listed with an asking price of $1.39 million. According to Gresham, the building, with all its furniture and kitchen equipment, was a victim of the bubble and is looking for a new owner. He said it was built for a cost approaching $4 million but never opened. The setting has substantial kitchen, bar and dining area and an additional outdoor covered lanai seating area.
Both men point out that nothing commercial and fee simple has been built in Wailea in recent years, and given the current climate, they think it may be a long time until similar property comes on the market again.
They both mentioned the recent state Land Use Commission decision that stalled construction of a large retail project in Kihei planned by an out-of-town developer. Bello thought the decision was a bell weather signal that "further raised the barrier of entry for any quality development in Maui."
"Forget about the government and the media," Gresham said. "Here we take a practical approach to return on investment. You need to do your homework. There has to be a combination of reality and quality people for any deal to work."