New owners consider management switch from Mandarin Oriental group
The Kahala Hilton may be returning.
The sale this week of the Kahala Mandarin Oriental Hawaii, one of the most luxurious properties in Hawaii, has raised the strong possibility that the new owners will change management companies and seek bids from upscale hoteliers.
This change of ownership may open doors for suitors including Hilton, which ran the lucrative property from 1964 to 1993, when it was sold to Japanese owners.
The change could mark the return of one of Hawaii's most storied names, Kahala Hilton, as it is still known to generations of affluent travelers. Opened in January 1964 by Conrad Hilton, the hotel has arguably hosted more presidents, royal families, performers, professional athletes and corporate executives than any other Hawaii resort.
The new owner, Kahala Hotel Investors LLC, an affiliate of locally based Trinity Investments LLC, said in a statement this week that it is "discussing terms of the current management agreement" with Mandarin Oriental.
"The new owners haven't made a decision on it yet," said Keith Vieira, vice president of Hawaii and French Polynesia for Starwood Hotels & Resorts. He added that Starwood wasn't interested in running the property.
The interest to both buy and manage the five-diamond Kahala Mandarin arises from the huge returns that luxury hotels have posted over the past two years. In the first nine months of this year, statewide luxury hotels generated $1.3 billion in room revenue during the first nine months, up 10.2 percent from 2004. During the same period, luxury hotels on Oahu reported a 20 percent increase in revenue per available room,
Among the potential bidders for a management contract would be luxury hotel chains such as Fairmont, Four Seasons and even Halekulani Corp., which say they are constantly scouting for properties to add to their Hawaii portfolio.
Fairmont Hotels & Resorts, which operates the Fairmont Kea Lani and Fairmont Orchid, was interested in buying the property. Since that failed, there's speculation that the chain may want to manage the resort, especially since the new buyer, Trinity, was a former owner of the Kea Lani on Maui.
Conrad Hilton, the hotel chain's luxury brand, is expanding its U.S. presence with plans to open two new hotels, in Las Vegas and Indianapolis. It opened Conrad Miami in 2004 and Conrad New York in 2001.
Four Seasons Hotels and Resorts, which took over the management of the two luxury hotels on Lanai this year, apparently was interested in the Kahala Mandarin.
The chain doesn't have a property on Oahu while it has one each on Maui and the Big Island. However, the price tag to upgrade Kahala to Four Seasons standards would have been too expensive. David Murdoch spent more than $65 million to upgrade Four Seasons at Manele Bay, a property many thought was already in top condition.
For now, Trinity says it is assessing the property and plans to upgrade its 364 rooms, which have not been renovated in 10 years.
"Our major step will be to update its rooms and suites, and bring them up to the hotel's reputation for elegance," said a statement issued on behalf of Jon Miho, a Honolulu attorney who is a partner in Kahala Hotel Investors.
Miho didn't return calls for further comment.
Local hotel executives say the new owners may put in the money for the refurbishment or ask the management company to pay for it.
The last renovation occurred in 1995 and the Mandarin Oriental paid the $75 million price tag and earned a 40 percent stake in the hotel. The company sold its stake and the termination rights of its management contract for $97 million as part of this current transaction.
The Kahala Mandarin Oriental, with 331 rooms and 33 suites, has had the reputation of catering to Japanese and Asian tourists. Recently, the hotel's percentage of American tourists has increased but a strong Mainland-oriented hotel chain could do much to boost those numbers.