Hawaii Hotel Investment: Why Mainland Pro Formas Fall Short

Hotel acquisition models built for mainland U.S. markets often rely on assumptions that don't hold in Hawaii, according to Mike Perkins of The Bratton Team at Colliers International Hawaii. The most significant difference is expense escalation: while a typical mainland pro forma assumes a 3% annual increase, several Hawaii operating lines—labor, insurance, shipping, and deferred capital—grow at 6% to 7%. This divergence compounds quickly, leading to a 15% to 25% gap between projected and actual performance by year two. Perkins advises buyers to build this premium in from the outset rather than underwrite conservatively after the fact.

Shipping and logistics add another layer of cost. Inter-island shipping recently saw a 26% rate increase, and carriers still operated at a loss, signaling structural cost pressures. Hawaii imports over 90% of its food, so F&B cost of sales carries a freight component absent from mainland comparables. Lead times for goods are also longer—6 weeks on the mainland often becomes 10 to 14 weeks in Hawaii. Labor is the largest expense, shaped by a union framework with base wages around $30 per hour and limited flexibility to flex staffing down. The pool of experienced hospitality staff is finite, especially on the Neighbor Islands, so quality commands a premium. The entitlement process also runs long enough to materially affect carry costs and stabilization timelines.

Perkins focuses on three metrics when reviewing Hawaii hotel numbers: average daily rate, revenue per available room, and expenses as a percentage of RevPAR. The third is where the Hawaii premium appears. Owners tracking Hawaii market statistics have a reference point. To manage the premium, Perkins recommends working with locally established groups, sourcing from Asia as well as the mainland, and adopting pandemic-era efficiencies like housekeeping on request and cost-reducing technology. The market shows a K-shaped pattern: luxury properties have absorbed cost increases through rate, while mid and lower tiers compete harder and innovate faster. For first-time Hawaii hotel modelers, Perkins advises: don't be too aggressive, be realistic, and apply a premium over the comparable mainland asset. Buyers who do find the market more predictable than its reputation suggests. The Bratton Team is a Hawaii commercial real estate and investment sales group, exclusively contracted to Colliers International HI, LLC, led by Mark D. Bratton (R) CCIM and Mike Perkins (S).