Hawaii’s hotel market, once defined by scarcity, is now characterized by a pricing impasse. According to recent analysis, while several hotels in Waikiki are available, buyers are hesitant to accept first-year returns around five percent, while sellers hold out for closer to seven percent. This two-point gap stems from the cost of debt and has led to a stasis rather than distress, with activity concentrated among independent investors and family offices at one end and institutional capital at the other.
The middle of the buyer pool has thinned, particularly among publicly traded REITs, which have pulled back nationally. As Mark D. Bratton of The Bratton Team at Colliers International Hawaii explains, “As a stock investor, why not go buy Nvidia?” This sentiment reflects how equity holders weigh hotel positions against alternative investments, unlike owner-operators who underwrite based on operational expertise.
The pricing gap is not irrational; it is tied to leverage. With borrowing costs around six and a half percent, a seven percent return offers a modest positive spread, while a five percent return results in negative leverage. Consequently, buyers are declining to invest in negatively leveraged assets. This has raised equity requirements, with Hawaii transactions typically requiring 30 to 50 percent equity, compared to the conventional 20 to 30 percent. Higher equity down payments often secure better debt terms, as lenders face less risk.
Time is another critical factor. Deals in Hawaii move slowly, with supply visible years in advance. Buyers often accept a price that feels full in exchange for a plan to improve operations and achieve positive leverage over two to three years. This patience is essential in a market where properties can sit longer than mainland buyers expect.
Hotels present unique challenges as “a business inside of a piece of real estate,” says Bratton. Unlike apartments or offices, hotels are sold nightly, involving staffing, food and beverage, and payroll. Operating experience is crucial in underwriting. Labor structure is a particular surprise for mainland buyers: two major unions operate in Hawaii hotels, with renegotiation cycles every three to four years. About half of the state’s hotels are non-union, with larger properties more likely to be organized. Buyers must decide whether to underwrite union properties or avoid them altogether, a decision that should be made before closing.
Leasehold versus fee simple ownership is another consideration. Fee simple beachfront hotel product is scarce, as much of Waikiki sits on leased land. Buyers seeking fee simple oceanfront properties face a very small pool of opportunities.
To bridge the pricing gap, some transactions are structured to give buyers control before title. The PACIFIC 19 Kona hotel is a prime example. After a Hawaii family reclaimed the property at the expiration of a ground lease, they required a 1031 exchange. Nine Brains, a Santa Monica-based investment firm, took a leasehold position with the right to acquire the fee at a stepped-up price. They invested approximately $10 million to upgrade the hotel to three-star status and absorb an adjacent parcel, bringing the room count to 150. The fee purchase closed in July 2026 at $23 million, six years after the process began. This structure has been applied to other transactions, offering sellers a better outcome—often 30 percent above an as-is sale—while buyers gain control and incentive to improve the asset.
The current market is quiet but not stressed. Conservative debt levels across Hawaii hotel ownership have prevented 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 narrow if debt costs decline describes a market waiting for a catalyst, not one in correction.
