The Hawaii hotel investment market has entered a period of stasis, according to a new analysis from The Bratton Team at Colliers International Hawaii. While availability has improved, a significant gap between buyer and seller expectations is preventing transactions from closing. The market is currently underwriting returns near seven percent, but sellers are holding out for around five percent, leaving a two-point spread that has stalled activity.
Mark D. Bratton, CCIM, of The Bratton Team at Colliers International Hawaii, notes that the buyer pool has shifted. Independent investors and family offices are active, drawn by the market's structural strength, while institutional capital, particularly publicly traded REITs, has pulled back due to national pressures. As Bratton explains, "As a stock investor, why not go buy Nvidia?" Equity holders in REITs weigh hotel positions against other investments, while owner-operators underwrite the business they understand.
The pricing gap is not irrational; it reflects the cost of debt. With borrowing costs around six and a half percent, a seven percent return provides a modest spread, while five percent produces negative leverage. Buyers are declining to invest in negative leverage, and most acquisitions are priced to a future position rather than day-one returns.
Equity requirements have risen well above conventional levels. While typical hotel financing assumes 20 to 30 percent down, Hawaii transactions often require 30 to 50 percent equity. At the higher end, lenders offer better terms, making a larger equity contribution a strategic advantage. Time is also a factor; deals in Hawaii move slowly, and supply is visible years in advance.
Hotels are a unique asset class, as Bratton describes: "I like to describe hotels as a business inside of a piece of real estate." Unlike apartments or offices, hotels are resold nightly and involve significant operational complexity. Labor structure is a key surprise for mainland buyers, with two major unions operating in Hawaii. About half of the state's hotels are non-union, but larger and legacy properties are more likely to be organized. Investors must decide early whether to underwrite union properties or avoid them entirely.
Another challenge is the scarcity of fee simple beachfront product. Much of Waikiki sits on leased land, and owners have historically leased rather than sold. Buyers seeking fee simple oceanfront ownership face a very small pool.
To bridge the gap, some transactions are structured to give buyers control before title. The recent sale of PACIFIC 19 Kona, formerly the Kona Seaside Hotel, is a prime example. Nine Brains, a Santa Monica-based firm, took a leasehold position with the right to acquire the fee at a stepped-up price. They invested about $10 million to reposition the hotel, and the fee purchase closed in July 2026 at $23 million, six years after the process began.
The market is quiet but not distressed. Debt levels are conservative, and owners are absorbing lower distributions rather than facing forced sales. The combination of visible supply, disciplined balance sheets, and a spread that could close if debt costs move suggests a market waiting on a catalyst.
