In the midst of the COVID-19 lock-down here in Honolulu, one condo project in Waikiki that seems to be feeling the pain more than others is the Ritz-Carlton Waikiki.

Ritz-Carlton Waikiki Tower 1

Tower 1 at the Ritz-Carlton Residences in Waikiki

There are currently 73 listings for sale in the building, with only 1 in escrow. Meanwhile, there have only been 7 sales in the past 6 months. Based upon that, the absorption rate is MUCH more sluggish than the overall Waikiki condo market, let alone the island of Oahu.

Here are several of the reasons why this "perfect storm" is taking place for units there outside of COVID-19:

Speculative Buyers Overpaid

Much of the inventory in the building was sold to 2nd homeowners overseas. The same problem took place at Trump Tower Waikiki (same developer). They marketed this project overseas and speculative Buyers thought they could lock in prices pre-construction and then sell for a profit when the building was complete.  Keep in mind - the prices paid both here and Trump Tower Waikiki were "above market" to begin with, which leaves little room on the upside. Trump Tower for many years after completion had a ton of inventory for many years - often upwards of 70+ units for sale at any given time. Today there are 59 there.

Low Cashflow Returns

Unlike most other "condotel" buildings in Waikiki, the management rates and overrides taken by the onsite management makes it really hard for the owners to make any money. Don't get me wrong - these are both nice buildings. It's just that the NOI is typically an anemic low single digit return. Since there's little room on short term appreciation and/or cashflow, I've always said these buildings are more of a "lifestyle" play.

If you're looking to own in a great location with well known brand names over the long haul, these could still be decent "long term" plays for 2nd home ownership in Waikiki. If that's something you're looking for, these next few months could be some great times to shop for a unit here as there's A LOT to choose from and very little selling.