Outrigger's Beach Walk project starts 1 April 2005.
Prabha Natarajan
Pacific Business News
Outrigger Enterprises Inc. today began work on its $460 million Beach Walk project, the most sweeping transformation of a chunk of Waikiki in decades.
The last of the hotel guests have checked out, and shutters and plywood sheets have been placed on nearly 40 storefronts. Most of Lewers Street will be closed for the next year and a half, empty of tourists but bustling with hundreds of construction workers.
Waikiki will lose 1,233 hotel rooms or one in 20 of its current inventory. And Outrigger's budget Ohana chain will lose half its hotels to make way for new brand names and a retail/entertainment complex.
Despite these costs of conversion, Outrigger insists that redeveloping Lewers Street from a dingy, dark alley of concrete into a bright and vibrant hangout for tourists and locals is the right strategy.
"When these buildings come down, people will be stunned at the transformation," said David Carey, CEO of Outrigger Enterprises Inc. "Now you have a feeling of being closed into a canyon. When we open it up you can see the sky."
At the end of the first phase of the Outrigger Beach Walk, Waikiki will gain a 195-unit Fairfield time-share property, a 421-unit Embassy Suites twin-tower hotel and an entertainment and retail complex. The buildings will be set back farther and extensive landscaping will take the place of parking ramps, sidewalks and alleys.
Carey was enthusiastic and expansive during a recent walking tour of the 7.9-acre site bounded by Beach Walk, Lewers Street and Kalia and Saratoga roads.
He measured off lengths as he walked, explained which buildings would stay and which would go, and pointed to the future location of a Roy Yamaguchi restaurant.
The parcel's aging gray concrete is a piece of Waikiki history, some dating to the early 1950s as Roy Kelley began building his Outrigger hotel chain. There's Kelley's old office behind the building that housed Lewers Loft and the penthouses atop the Ohana Reef Towers and the Ohana Waikiki Village where Estelle Kelley maintained a roof-top lawn and garden.
These were the trendiest hotels at their prime, but now are sagging, dilapidated buildings. Outrigger did its best to upgrade the properties, but the Edgewater Lanais, the building in which the House of Hong was located, hasn't opened its rooms to guests in more than a decade. It was used variously as storage and office space.
"I saw some of these buildings come up," said Walden Fukuda, a bell captain at the Ohana Coral Seas who has been with the company for 28 years. "But honestly, we do need the upgrade. When I walk outside and look at them now, they look decrepit. We've got to keep up with the Joneses next door, otherwise our guests will go elsewhere."
Fukuda, who headed a team of 18 bellmen in charge of all six Ohana properties in the area, will take a severance package and retire today. His team will find other jobs within the hotel.
Fukuda is among the displaced Outrigger workers. The company hopes to relocate some of them to other properties, hire some for the construction site and retire others. Upon project completion, the hotel chain plans to bring back most of its employees, Carey said.
After redevelopment, privately held Outrigger faces the financial challenge of managing fewer properties at a time of near-record demand for rooms.
Its Ohana chain will lose 1,654 rooms in six hotels this year and another 211 rooms in two hotels next year. This leaves nine Ohana hotels, nearly half its current number, at the end of its two-phase development.
"We are moving to where our customer is: They want a higher-quality experience when they go on vacation," Carey said. "Our hospitality product needs a dramatic upgrade to meet that."
In an effort to expand beyond its value-conscious brand, Outrigger is bringing in Fairfield Resorts and Embassy Suites, deriving its income from managing the properties and leasing the land to its partners.
Outrigger had originally planned to replace the lost inventory with a new 900-room hotel that would be as tall as the Hilton Hawaiian Village's Kalia Tower, but financiers were unwilling to invest in a hotel. Hotels historically have had a slow rate of return.
So, with the help of brokerage firm Eastdil Realty, Outrigger has short-listed developers of an upscale resort condominium tower. Because the rooms are sold individually, investors make their money back faster.
Tourism officials worry that it's part of a troubling erosion of room count in Waikiki as owners convert hotels to time shares, "condotels" and residential units. With fewer traditional hotel rooms available, planners say it's more difficult to book big conventions and to handle the influx of tourists during peak season.
Another concern is the erosion of the number of rooms available in the economy bracket. Typically, high-school bands, long-staying Canadian and senior-citizen tourists favored these Ohana properties because they were clean, affordable and relatively close to the beach.
The 421-room Embassy Suites hotel, with a suite rate starting at $250, still will be a good deal in Waikiki for a family of four, Carey said.
And the hotel rooms will have bigger bathrooms -- the top demand from guests on their comment cards.
Impact on neighbors
During the nearly two years of construction, Outrigger's neighbors, The Imperial of Waikiki on Lewers Street and the Halekulani on the beach, are concerned about the impact on businesses.
Peter Shaindlin, chief operating officer of Halekulani Corp., said he has been involved in discussions with Outrigger for more than a year, participating in weekly meetings about the impact of a massive construction project only a few feet from the front door of his luxury hotel.
"We plan to work together to minimize disturbances or interruptions such as traffic flow or the sightliness of the area," said Shaindlin, who oversees the operations of the Halekulani and the nearby Waikiki Parc hotels.
But he said he expects there to be times when guests face hassles such as construction debris, noise, dust and trucks blocking the road.
"I am not sugarcoating the situation. There's going to be a lot of times when it will be challenging visually or practically in proceeding down the street," Shaindlin said. "Outrigger has pledged to us that at no time will the street be completely closed to traffic. As for the challenges with potential interruptions, we plan to take a proactive stance and minimize them by working together."
Despite his concerns, Shaindlin said he is optimistic about the project and believes it will be worth the trouble.
Outrigger says it has appointed a team to monitor traffic flow and ensure that other businesses aren't disrupted.
"We are most of the traffic on Lewers Street, nearly 80 percent," said Eric Masutomi, Outrigger's vice president of planning. "With no businesses here there'll be much less traffic.
And no tour buses blocking the road as they wait to drop off and pick up people outside the hotels.
"The redevelopment will have active elements of South Beach, cultural flavor of Hawaii and reputation of the French Quarter as the place to have fun," Carey said.
Reach Prabha Natarajan at 955-8041 or pnatarajan@bizjournals.com.
