| 2008 Guam Real Estate Market Analysis |
| Written by Mark Gruber, MAI, SRA,CCIM, President and Chief Appraiser for Micronesian Appraisal Associates |
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Guam Real Estate 2008 Military Relocation and Construction Real estate investors are closely watching the relocation of Marine Corps personnel and dependents from Okinawa. The most recent (Mar‐08) briefing provided an updated timeline for the relocation indicating a targeted completion date of 2014. While the Marines are the largest buildup, other service branches are also increasing. Current planning shows total military (active and dependent) population increasing by 170% (14,110 to 38,070). The relocation and construction program milestones correspond with an expenditure timeline with four consecutive years exceeding $2 billion beginning FY2011. That construction activity will require significant additional laborers, who will require accommodations. Visitor Industry The second driver of Guam’s economy is the visitor industry, with more than 8800 hotel rooms and 1.2 million annual visitors. As with every other category of real estate on Guam, there was significant price appreciation over the past several years in Guam’s hotel market. The Palace Hotel (403 rooms) sold for between $7 and $10 million in December 2001, then again on May 2006 for $17 million to a Ken Corporation subsidiary. The Hilton Guam Resort (687 rooms) was purchased by Da Vinci‐RP Hotel Investors in November 2004 for nearly $30 million. Da Vinci then spent a reported $15 million on renovations for the 100‐room Manahaga Spa Wing and Genji Restaurant, before selling the property in August 2007 to Ken Corporation for about $73 million. Lastly, Hotel Santa Fe (110 rooms) sold April 2006 by a division of Lehman Brothers to Ken Corporation for $2.54 million; Ken Corporation then resold (with little change in condition) in April 2007 for $5.75 million to local and Hawaii investors. Price appreciation in the visitor industry was driven by the anticipated military expansion, opportunities from rehabilitating tired properties, and long‐term speculation in new markets, most notably China. Over the last several years, most Tumon hotels invested significantly in renovation projects, improving the quality and facilities available to visitors. The most important change in the Guam hotel ownership landscape is the consolidation of over 2200 hotel rooms (25% of total inventory and nearly 40% of Tumon/Tamuning beachfront) under the ownership of Ken Corporation and its partners. Ken Corp. is now the largest private stakeholder in Guam’s visitor industry. This consolidation of ownership gives Ken Corp opportunity and incentive to improve Guam’s image and appeal as a destination to travelers. Ken Corp is currently undertaking numerous projects in this effort: supporting the growth of Gef Pago in Inarajan and other cultural attractions in southern Guam; the development of a 1950’s cartoon themed attraction at Alupat Island in Agana Bay, to be promoted beginning this summer by NHK (Japan Broadcasting Corporation) and Japan Travel Bureau, the largest travel agency in Japan; and the retention of Dentsu, Japan’s biggest PR company, to promote Guam. The most significant change is the maturation of Japan’s travel industry. Guam could once rely on increasing visitor arrivals from expansion of Japan’s outbound travel numbers; since 2004, visitors from Japan to Guam have been flat without natural disasters. Guam must now compete aggressively against other vacation markets in the region, such as Hawaii, Okinawa, Thailand, China, and Bali. Future growth in Guam’s visitor industry will come from private stakeholders with support from GovGuam. In March 2008, Guam hotel industry pioneer, Tanota Partners, broke ground on the ±$100 million, 225‐room luxury hotel, Bayview 5. Described as “nextgeneration, environmentally‐friendly”, this hotel is within Pleasure Island, Guam’s tourism center. Another proposed project is a unique attraction, a “330‐foot tall Sky Tower”, to be built in Pleasure Island by Baldyga International Inc. Other elements of Guam’s visitor industry have also made significant capital improvements within the past several years: tourist‐oriented retail, wedding businesses. DFS Galleria, Guam’s pioneer and leader in tourist retailing, invested +$30 million into its Pleasure Island Galleria flagship facility during 2005/6. In 2006, Louis Vuitton opened a 10,000 square‐foot “global store”. An exciting new market drawing the focus of Guam’s visitor industry is China. The first direct flight from mainland China to Guam arrived February 9, 2008, during Chinese New Year celebration, with 143 passengers aboard a Continental Micronesia charter. Inclusion of China in the Guam‐only Visa Waiver Program and designation of Guam with Approved Destination Status by China are the next milestones in developing China as a major new market for Guam. Residential Single Family Single‐family activity has been quite active over the past four years. Prices have shown steady increases; median prices have increased from $110,000 in 2002 to $215,000 in 2008 (annual compound increase of 11.8% per annum). The segmentation by size confirms that larger houses (1800 to 2300sf) had median prices increasing more rapidly. The overall increase in median price is the result of changing product type (more larger homes being bought), as well as actual price increases. Price changes are best illustrated by studying specific properties or subdivisions. These specific examples are representative of the activity during this time period Typical Tamuning Single Family Home Dec‐07: $ 560,000 Dec‐05: $ 450,000 Analysis: +31.8% over 2.01 years; 15.8% average annual rate Villa Carmen, Tamuning May‐06: $ 398,000 Feb‐07: $ 465,500 Analysis: +17.0% over 0.81 years; 21.0% average annual rate Tumon Holiday Manor, Tumon Aug‐02: $ 280,000 Feb‐08: $ 500,000 Analysis: +78.6% over 5.54 years; 14.2% average annual rate Las Palmas, Dededo May‐03: $ 110,000 Dec‐07: $ 165,000 Analysis: +50.0% over 4.59 years; 10.9% average annual rate This analysis confirms that single‐family properties bought and resold within the past two years have shown average annual price changes of +16% to +23%. Subdivisions After nearly ten years of no single‐family subdivision construction activity of substantial size (+30 units), two local developers began development planning in late‐2004. Villa Carmen, a 34‐unit executive quality project in central Tamuning and Paradise Estates, a 380‐unit mid‐level project in four phases in northern Dededo, were the first two projects to enter the market. Villa Carmen, with pricing in the $400K to $500K range, sold out in late‐2007. Development of Paradise Estates, by far the largest of the ongoing single‐family subdivisions, continues today. Paradise Estates broke ground in fall 2004. Each phase includes identical three and four bedroom model‐types; Phases 1 and 2 are sold out, with construction of Phase 2 nearly complete. Phase 3 is fully reserved with construction scheduled to begin in early 2009. Phase 4 began marketing April 2008 with construction not yet scheduled. Paradise Estates Pricing Summary: The developer initially planned to market all Phase 1 three‐bedroom models for 179,000 and four‐bedroom models for $199,000; however, market conditions improved by the time model houses were complete, resulting in an increase in prices. The Phase 4 three and four‐bedroom list prices represent a 41% and 45% increase, respectively, over the midpoint of the Phase 1 three and four bedroom closed prices. Phase 1 and 2 are occupied by a high percentage of military tenants. Recent rentals of three‐bedroom models are $2,000 to $2,700 per month and four‐bedrooms at $2,300 to $3,000, exclusive of utilities. Residential Condominium Condominium sales activity has increased significantly and constantly. There is much interest in Tumon/Tamuning (central, visitor district) properties. The interest in Tumon/Tamuning properties did lead to price increases greater than other locations. Price changes are clearly seen in specific projects; the following are established projects with sufficient unit count to have regular activity: Alupang Cove Condominium, Tamuning Median prices have fluctuated (different unit sizes), ranging from $60,000 (2001) to $190,000 (Jan 2008). Apusento Gardens Condominium, Chalan Pago Median price has fluctuated (wide range of unit types/sizes), ranging from $60,000 (2001) to $92,000 (Jan 2008). San Vitores Gardens Condominium, Tumon This project has also had steady increases in prices from 2001 ($100,000) to January 2008 ($170,000) Price increases are also seen in individual unit sale and resales: Hatusho Oka Towers, Tamning Jun‐04: $ 230,000 Jan‐08: $ 300,000 Analysis: +33.8% over 3.63 years; 9.3% average annual rate Pacific Towers Condominium, Tamuning Mar‐03: $ 40,000 Mar‐08: $ 75,000 Analysis: +87.5% over 5.0 years; 17.5% average annual rate There are several proposed condominium projects, all of which are located in the Tamuning and Tumon areas: • Two Lovers Towers: 700‐unit hotel/condominium on 22‐acre beachfront parcel acquired May‐07 for $21 million. • Emerald Ocean View Park: 260 units, three towers, scheduled to being construction during 2008 on 10‐acre cliffline parcel Jonestown. • Ino Corporation: 492 multi‐dwellings on ten‐acre parcel across Fiesta Resort, acquired Nov‐07 for $19.5 million. • Talo Vista Tower Condominium: 4‐acre beachfront parcel acquired Jan‐07 for $9 million. The announced plans for these projects are luxury units of $500,000 and above. The local market for this price range is very small (buyers for that price range prefer detached houses). These projects are targeting foreign buyers and financed by South Korean capital.
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