In September, a report from the Hospitality Services Group of Ernst & Young LLP named Hawaii the best performing hotel market in the US through the first half of the year. The report predicted that the hotel market in Hawaii will continue to outperform the nation as a whole into 2006.

"Hawaii is enjoying its strongest economy since the early 1990s, and is seeing significant increases in vacation travel to the islands," says Michael Fishbin, national director of E&Y's Hospitality Services Group. "With a projected increase in air travel to the islands next year and a rapidly expanding cruise industry, we see no signs of diminishing performance in the local hospitality market."

As well, the improvement is being assisted by a surging residential market. "This has spurred strong residential construction as well as the conversion of a significant number of hotel rooms to for-sale condominiums or timeshares," states the report. "This trend is particularly significant on Oahu, where, this year to date, more than 1,500 rooms are planned for conversion to residential, resulting in a probable net loss of supply in 2006."

Last month, Buchanan Street Partners of Newport Beach, CA, arranged financing for Hawaii-based Irongate Properties to acquire a little more than an acre of land one block off Waikiki Beach for a residential condominium development. Irongate reportedly paid $41.6 million for the 49,250-sf property. Irongate envisions a 390-unit condominium complex on the property, which is one of the last vacant, fully entitled pieces of land in Waikiki. The property is bound by Beach Walk, Saratoga Road and Kalia Road.

Over on Maui, the owners of the Royal Lahaina Resort plan to spend a few hundred million repositioning the 27-acre Kaanapali complex as a five-star destination. Owned free and clear by the Hogan family of Pleasant Holidays, the Royal Lahaina has heretofore been a moderately priced staple for those in the business of selling package vacations. Plans call for a low-density, low-rise development that would retain the existing 12-story hotel tower and add stacked for-sale villas in several three- and four-story buildings that will replace existing tennis courts. The number of units in the tower will be shrunk from 343 to 330, including 20 suites.