Is Maui still a paradise for investors?

At the end of last year West Maui started to reopen as it looked to recover from the deadliest US wildfire in more than 100 years. The worst natural disaster in Hawaii’s history claimed more than 2,700 structures worth about $5.6 billion, according to the governor. The most important – and somber – statistic of all is that 100 lives were lost in these blazes, which began Aug. 8 and continued for four days.

This trauma and devastation has put Maui in a tough spot. On the one hand, the island and its residents need time. Time to grieve, time to heal and time to rebuild. On the other hand, it’s no secret that tourism is the Hawaiian island’s main economic driver.

“Approximately 80 percent of Maui's economic vitality is contingent upon the visitor industry,” says Sean Dee, executive vice president and Chief Commercial Officer for Outrigger Hospitality Group, which owns two resorts on Maui, in addition to the Plantation Inn, which was destroyed in the fires.

Pre-disaster, the northwest coastal area of Lahaina alone generated more than $70 million in monthly revenue from accommodations, food services, retail sales and other categories, according to the University of Hawaii Economic Research Organization (UHERO). The organization further notes that Maui visitors spend a daily average of $270 while on the island. The closure of Maui’s western areas, including Lahaina, Napili, Kaanapali and Kapalua due to the fires, has resulted in a loss of more than $13 million per day.

“With 45,000 fewer visitors on the island and the dire needs of their Lahaina neighbors, many hotel rooms and short-term rental properties are now being used by displaced residents and emergency personnel,” states UHERO’s latest study, entitled “After the Maui Wildfires: the Road Ahead.” “However, the spending of these groups differs substantially from that of visitors, and establishments relying on tourist spending will continue to experience a dramatic decline in sales until visitors return in greater numbers.”

The short-term outlook

Emmy Hise, senior director of hospitality analytics for the CoStar Group, notes Maui is a mixed bag right now. Hotel occupancy fell to 53 percent in August, the lowest monthly level seen outside of the pandemic. September’s occupancy improved to 63 percent, and preliminary data from October indicates that number will keep climbing. The problem, Hise points out, is that these occupancy numbers were struggling before August.

“It's worth noting that even before the wildfires, year-over-year occupancy was already experiencing declines since March,” she says. “We saw this across many leisure, travel-oriented destinations nationally. This year, more U.S. citizens opted to take international vacations instead of domestic ones.”

On the plus side, Hise adds that Maui still has the highest average price paid for hotel rooms in the country. In June, the average daily room rate in Maui County, which includes West Maui, was $623 per night with a RevPAR of $419, according to the Hawaii Hotel Performance Report.

As such, the delicate balance between welcoming back visitors who are the lifeblood of Maui’s economy and honoring the loss experienced by the locals begins.

“When looking at the reopening of West Maui outside of Lahaina, we are seeing a gradual increase in visitors,” says Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association. “Businesses that were once shuttered are starting to open their doors and retail shops and restaurants are starting to see life again with patrons eager to support local operations.”

Hannemann adds that, for some locals, getting back to work can be a beneficial thing.

“We have to keep in mind that members of the local community still need and want to return to work to provide for their families and loved ones,” he continues. “For some, doing this helps them regain a sense of normalcy in their daily lives after having gone through the trauma caused by the fires.”

The Hawaii Tourism Authority Board of Directors approved a $2.6 million Maui Marketing Recovery Plan in September aimed at doing just that: creating a return to normalcy that includes welcoming guests back to non-impacted resorts while supplying the employment many residents rely upon.

Dee, for one, is happy to see these efforts.

“In the face of adversity, the collective effort to welcome guests back reflects a shared commitment to resilience, recovery and the enduring spirit of aloha,” he says. “To contribute to the economic resurgence, we are actively engaged in fostering hospitality careers and championing local partnerships. There is a promising shift occurring as we witness a steady rise in weekly visitor numbers, and we attribute this, in part, to clarity around visitor messaging that, with the exception of Lahaina, the island is open and welcoming to tourism.”

The long view

Many hotel operators, including Blackstone, Host Hotels & Resorts and Outrigger, were able to welcome guests back to their unaffected West Maui resorts in mid-October (other areas of Maui never closed). These openings were dependent upon both adequate staffing and whether the asset had rooms available for guests, as many housed displaced workers and residents.

As with every natural disaster, however, Maui will rebuild. It’s too soon to put a timeline on when that may occur in the hardest-hit areas like Lahaina, but history tells us it will happen. The question for hotel investors is whether the island’s fundamentals will continue to be a draw for not just them, but tourists.

Dee believes it will.

“Despite the tragic fires in Lahaina, the allure of Maui persists,” he says. “Maui remains a robust investment opportunity due to its sustained popularity among tourists with a high ADR and overall spend. The demand for unique and immersive travel experiences is an enduring trend, and Maui's cultural richness and pristine landscapes position it as a resilient and economically promising investment destination.”

Outrigger expressed its long-term confidence in Maui in July (pre-fire) when it purchased the Kaanapali Beach Hotel. The asset, which recently received a $75 million renovation, was rebranded as the Outrigger Kaanapali Beach Resort.

As with many real estate investments, Dee attributes much of Outrigger’s confidence in this resort to one factor – location, location, location.

“The Kaanapali Resort area is undeniably a sought-after destination,” he says. “It was recently ranked as the No. 1 beach in the U.S. by TripAdvisor. It has tremendous natural beauty and a rich cultural heritage. Outrigger’s investment in the 11-acre Maui resort underscores our confidence in this iconic destination.”

Hise is equally bullish on Maui’s long-term hospitality outlook.

“I think investors' interest in Maui won't be significantly impacted by the recent wildfires,” she says. “Hawaii is considered a high-barrier-to-entry market, meaning it's challenging to build new hotels…and there is minimal seasonality, meaning consistent year-round demand.”

Dee adds that some of Maui’s barriers to entry involve understanding the island’s inherent culture, which includes an appreciation for the land and its stewards.

“Understanding the local market dynamics, tourism trends and regulatory landscape is paramount,” he advises. “Engaging with local stakeholders, such as tourism boards and community leaders, can provide valuable insights into the specific demands and expectations of the Maui market. In addition to financial considerations, investors should also prioritize sustainability and cultural sensitivity in their ventures.”

This is a sentiment echoed by Hannemann, a Hawaiian native who has served as both a mayor and city council chairman on the islands, in addition to his current role.

“For investors thinking about starting a business in Maui, we ask that they be respectful of the host culture,” he says. “I most recently mentioned to a national publication that, ‘we want you to leave the place better than you found it.’ While this sentiment was geared toward visitors, I believe it applies to investors as well.”