The Hawaii hotel investment market has shifted from a scarcity of available properties to a standoff over pricing, according to a new analysis by Colliers International Hawaii. While several hotels in Waikiki are now on the market, the gap between buyer and seller expectations—roughly two percentage points in capitalization rates—has brought transactions to a near halt.
For most of the past decade, the primary constraint on hotel acquisitions in Hawaii was availability. Few properties were for sale, and the buyer pool was deep enough that anything genuinely offered traded quickly. That scarcity has loosened, but it has been replaced by a pricing disagreement. Sellers are holding out for returns around five percent, while buyers are underwriting closer to seven percent. The result is not distress but stasis.
Mark D. Bratton, CCIM, who leads The Bratton Team at Colliers International Hawaii, explains the disconnect: “As a stock investor, why not go buy Nvidia?” He notes that publicly traded REITs have stepped back from the market—a national trend—as their share prices have fallen, limiting their ability to raise capital. Owner-operators, however, evaluate hotels differently because they are underwriting a business they understand, not just a portfolio line item.
Recent transactions illustrate the range of buyers active at the two ends of the spectrum. PACIFIC 19 Kona, formerly the Kona Seaside Hotel, was acquired by Nine Brains, a Santa Monica-based hospitality investment firm backed by individual investors and family offices. At the institutional end, Host Hotels purchased Turtle Bay Resort and repositioned it under the Ritz-Carlton flag. Both buyers altered the business plan substantially; they simply came from opposite ends of the capital market.
The pricing gap is not irrational; it reflects the cost of debt. With borrowing costs around 6.5 percent, a seven percent return provides a modest positive leverage spread, while a five percent return means negative leverage—buyers would lose money on their equity. As a result, most acquisitions are not underwritten on day-one leverage at all. Buyers are pricing to a future position they intend to create through operational improvements or repositioning.
Equity requirements have risen accordingly. Conventional hotel financing assumes 20 to 30 percent down, but Hawaii transactions are running well above that. The practical floor is 30 percent equity, with 30 to 50 percent being the common range. At 50 percent down, the terms on remaining debt improve materially, as lenders face less exposure. Buyers who can stretch on equity are often buying cheaper debt as well as a cleaner approval.
Time is another critical requirement. Supply is visible years in advance in a market this small, and deals move slowly. What is currently on the market tends to sit considerably longer than mainland buyers expect. Bratton describes the typical buyer’s posture at closing as accepting a price that feels full in exchange for a plan: a better operating model, a repositioning, or a path to positive leverage over two or three years.
Hotels also sit awkwardly inside the standard real estate framework. “I like to describe hotels as a business inside of a piece of real estate,” Bratton says. Apartments and office buildings are leased; a hotel is resold nightly, with staffing, food and beverage, and a full payroll attached. Operating experience is the variable that most often separates a plan that works from one that does not.
Labor structure is a specific surprise for mainland buyers. Two major unions operate in Hawaii hotels, with renegotiation cycles every three or four years. Slightly more than half of the state’s hotels are non-union, with larger and legacy properties more likely to be organized. Some buyers will underwrite union properties and price in the constraints; others will not consider them under any conditions. What is costly is discovering the answer after closing.
A recurring request in the Hawaii market is for fee simple beachfront hotel product, but it is close to unavailable. Much of Waikiki sits on leased land; families who assembled those positions generations ago leased them rather than sold them. A buyer seeking fee simple oceanfront ownership competes for a very small pool.
Where price expectations diverge, transactions that close often give the buyer control before title. PACIFIC 19 Kona is a clear example. A Hawaii family with a century and a half of history took the property back at the expiration of a ground lease in January 2020, with no interest in operating it. The seller required a 1031 exchange, but the pandemic made that impossible. The structure that resolved it gave Nine Brains a leasehold position with the right to acquire the fee at a stepped-up price. The buyer spent about $10 million moving the hotel from two-star to three-star, rebranding it, and absorbing an adjacent parcel to bring the room count to 150. The fee purchase closed in July 2026 at $23 million, six years after the process began.
Similar mechanisms have been applied to other assets, particularly those with deferred capital. For sellers, the trade is time for a materially better outcome—on the order of 30 percent above an as-is sale. The risk is smaller than it appears, since a buyer who has spent millions improving an asset they do not yet own has little incentive to walk.
The market’s current condition is unusually quiet without being unusually stressed. Debt levels across Hawaii hotel ownership are conservative, which is why a two-point pricing gap has produced a slowdown rather than a wave of forced sales. Owners are absorbing lower distributions rather than facing maturity problems. That combination—visible supply, disciplined balance sheets, and a spread that closes as soon as debt costs move—describes a market waiting on a catalyst rather than one working through a correction.
