Oahu Luxury Real Estate Remains a Stable Investment in 2011

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1 Viewpoint: Analysis and Observations from Kahala Associates Oahu Luxury Real Estate Remains a Stable Investment in 2011 Executive Summary Oahu s luxury real estate market has unique attributes that has enabled it to withstand the recent recession and, over the past five years, retain home values when the rest of its comparable markets were experiencing a deep contraction. Currently, the Oahu luxury real estate market is slowly, but steadily improving. Unique Market Attributes Oahu is the 3 rd largest island in the U.S. Hawaiian Islands, and is situated 2,500 miles from the U.S. mainland and 3,800 miles from Tokyo, Japan. Poised at the crossroads of East and West, this idyllic island community maintains a dramatically distinct sense of place and a luxury real estate market that is the envy of its comparable peers in other national and international locations. Oahu s unique market attributes provide a set of conditions such that a bear market in the East can be buffeted by a bull market in the West, or vice versa. Other factors like a limited supply of inventory, steady demand and life in paradise add up to a market that rarely trends in step with any other. Indeed, while measurable loss of equity began in many comparable luxury markets in 2008 and continues today, luxury market values on Oahu have largely remained within a single digit percentage point of their 2005 values; the last market peak (see Table 2). Owning real estate that has retained its value or is appreciating during the current cycle is a luxury in itself. Happily, demand for luxury homes, which had been slowly declining each year since 2005, made a turnaround in 2010 (see Table 1 - % Changes in Number of Closed Sales). More luxury homes were purchased in 2010 than in 2009 across all luxury segments; an upward tick for this indicator for the first time in over five years. As if ocean views and tropical weather weren t enough of an attraction, a stable market which has held its value and which is now past its shallow 2009 recession provides Oahu with a very bright outlook in Kahala Associates: Viewpoint 1 January 2011

2 The Luxury Single Family Home Market For a deeper look at market activity, we track three important indicators across four distinct price segments: Market Indicators Closed Sales Median Sales Price Months of Inventory Market Segments Sales from $1 MM to $2 MM Sales from $2 MM to $3 MM Sales from $3 MM to $5 MM Sales over $5 million Table 1 - % Changes in Number of Closed Sales The 2010 turnaround in number of closed sales is a clear indicator of market turn around in 2010, a trend mirrored in the overall Oahu market as well. Kahala Associates: Viewpoint 2 January 2011

3 Table 2 - % Changes in Median Sales Price Only the $5 million + segment shows % changes broader than +/- 10%, more a reflection of the depth of that segment (see Table 3 Closed Sales Over $5 Million). Table 3 Closed Sales Over $5 Million (Detail) SalesPrice ClosedDate Neighborhood Region SoldTerms $22,000,000 09/15/10 Kahala Area Diamond Head Cash $17,500,000 07/26/10 Kahala Area Diamond Head Cash $7,800,000 05/20/10 Koko Kai Hawaii Kai Conventional $7,350,000 03/08/10 Beachside Kailua Conventional $7,000,000 09/10/10 Paiko Lagoon Diamond Head Cash $6,900,000 07/09/10 Beachside Kailua Cash $6,650,000 12/23/10 Black Point Diamond Head Conventional $5,850,000 09/08/10 Koko Kai Hawaii Kai Cash $5,350,000 11/24/10 Diamond Head Diamond Head Cash $5,000,000 02/23/10 Lanikai Kailua Cash Kahala Associates: Viewpoint 3 January 2011

4 Table 4 - % Changes in Months of Inventory 2010 months of inventory reductions across all luxury segments are another key indicator of increased demand. Months supply of inventory is an indicator of how long it will take for all of the homes on the market to be sold, based on how many homes are currently on the market and the rate homes have sold in the past. Table 5 Months of Inventory (Detail) 1 2 Million 2 3 Million 3 5 Million 5 Million Kahala Associates: Viewpoint 4 January 2011

5 The Luxury Condominium Market For the best snapshot of condominium market activity, we look at the same three indicators across two price segments: Market Segments Sales from $800,000 to 1 MM Sales over $1 million Table 6 - % Changes in Closed Sales Kahala Associates: Viewpoint 5 January 2011

6 Table 7 Condominium Highest Sales Top 10 (Detail) Building Name City Closed Date Sales Price Year Built Nauru Towers Honolulu 8/9/10 $4,750, Kalakaua Ave Apt Honolulu 2/18/10 $3,900, Trump Tower Waikiki Honolulu 6/3/10 $3,696, Hokua At 1288 Ala Moana Honolulu 2/26/10 $3,500, Diamond Head Apts Ltd Honolulu 5/6/10 $3,440, Kalakaua Honolulu 11/24/10 $3,300, Trump Tower Waikiki Honolulu 6/2/10 $3,288, Hokua At 1288 Ala Moana Honolulu 8/19/10 $3,200, Trump Tower Waikiki Honolulu 9/15/10 $3,075, Hokua At 1288 Ala Moana Honolulu 1/8/10 $2,950, Table 8 Condominium sales over $1 million (Summary by Building) # of Sales Building Name City Year Built 20 Hokua At 1288 Ala Moana Honolulu The Vanguard Lofts Honolulu The Watermark Honolulu Trump Tower Waikiki Honolulu Beach Villas at Ko Olina Kapolei Koolani Honolulu Hawaiki Tower Honolulu Nauru Towers Honolulu Courtyards At Punahou Honolulu Waikiki Beach Tower Honolulu Kalakaua Honolulu Coral Strand Ltd Honolulu Diamond Head Apts Ltd Honolulu Kalele Kai Honolulu La Pietra Honolulu Waikiki Landmark Honolulu Kalakaua Honolulu Kalakaua Honolulu Alakea Corporate Tower Honolulu Colony Surf Ltd Honolulu Ilikai Apt Bldg Honolulu Kainalu Honolulu Keola Lai Honolulu Lanikea At Waikiki Honolulu Ocean Villas At Turtle Bay Kahuku Oceanside Manor Honolulu Queens Court At Kapiolani Honolulu Regency At Kahala Honolulu Waikiki Shore Honolulu 1960 Kahala Associates: Viewpoint 6 January 2011

7 Table 9 % Change in Median Sales Price Table 10 % Changes in Months of Inventory Kahala Associates: Viewpoint 7 January 2011

8 Annual Update Single Family Condo Closed Sales 1-2 MM 2-3 MM 3-5 MM 5 MM + 800K - 1MM 1MM Median Sales Price (in millions) 2005 $1.30 $2.32 $3.50 $7.98 $0.86 $ $1.28 $2.46 $3.60 $6.10 $0.88 $ $1.24 $2.28 $3.67 $6.25 $0.87 $ $1.28 $2.35 $3.68 $7.15 $0.87 $ $1.25 $2.40 $3.64 $5.50 $0.85 $ $1.25 $2.45 $3.60 $6.90 $0.88 $1.52 Months of Inventory th Quarter Update Single Family Condo Closed Sales 1-2 MM 2-3 MM 3-5 MM 5 MM + 800K - 1MM 1MM+ Q Q Q Median Sales Price (in millions) Q $1.20 $2.33 $3.70 $5.00 $0.88 $1.29 Q $1.26 $2.40 $3.39 $5.50 $0.88 $1.55 Q $1.23 $2.45 $3.60 $6.00 $0.88 $1.39 Months of Inventory Q Q Q Kahala Associates: Viewpoint 8 January 2011

9 Summary In addition to its year-round tropical weather, Oahu s luxury real estate market has remained more stable than other comparable markets for three main reasons: Hawaii s limited geography / supply has helped it withstand recent housing market turmoil. There is simply only so much space to build new homes thus creating a limited supply. Oahu attracts a diversity of buyers including local buyers but also mainland U.S. and Asian investors attracted to Oahu s luxury homes primarily as second-property investments. Hawaii is uniquely positioned, geographically and politically, for buyers from China, Japan, South Korea and Thailand who are interested in luxury homes in Hawaii as an entry point to the United States for personal as well as financial reasons. Moving forward into the first quarter of 2011, Kahala Associates sees confidence building in the market and continues to experience an increased number of clients looking for opportunity in the Oahu luxury real estate market. That confidence comes from trust in the stability of Oahu real estate. Kahala Associates: Viewpoint 9 January 2011

10 The Largest Luxury Network Kahala Associates is a charter member of Luxury Portfolio International, the largest global network of premier locally branded companies dominated by many of the world's most powerful independent luxury brokerages. The Top Hawaii Luxury Home Specialists Kahala Associates is honored to have the highest number of Certified Luxury Home Marketing Specialists in Hawaii, documenting performance in the top 10% of the market. Based on information from the Multiple Listing Service of the HICentral MLS, Ltd. and 10K Research. Information is deemed reliable but not guaranteed. Kahala Associates - Hawaii Real Estate Licensee(s) 4211 Waialae Avenue, Suite 8090 Honolulu, Hawaii (808) info@kahalaassociates.com Kahala Associates: Viewpoint 10 January 2011