Kolea vs. Hualalai – Why the Auction Results Were Different

Two weeks have passed since the Concierge Auction sale of an oceanfront home at Kolea and a penthouse Kolea villa. As I reported in my earlier post about the auction results, the home immediately was noted as “contingent” in the MLS with a $4 million price reduction.

Although I was assured the condo is indeed being sold with no minimum as advertised, the MLS still shows it as active. Last night, I ran into the rental manager for the home who said it continues to be shown to prospects. That is not surprising because at the price obtained at auction it would be subject to lender approval as a short sale. In other words, it may be some time before we know the end result of either auction.

As I commented in my earlier post, I have some thoughts on why Concierge Auction was apparently much more successful at selling Hualalai and Kukio properties than in the Kolea sales.

The Kolea Beach Club pool area is modest because most owners prefer to walk a few steps farther to the beach…

Waikoloa Beach Resort versus Hualalai Resort

If only we’d had a “Cher” to advertise as a Kolea owner! Back in the days when I was selling Kolea for the developer, we were in competition with similarly priced new luxury projects at Mauna Lani and Mauna Kea. Given Kolea’s beachfront location, we would sell against them by saying that the newer condos at Mauna Lani (Villages or Ka Milo) had no ocean views, and were far from the beach; the newer condos and homes at Mauna Kea (Wai’ula’ula and Kumulani) were the far mauka side of the highway. In turn, their sales agents sniffed that Waikoloa Beach Resort was “downscale” and “Disneyland.”

The real question for buyers in deciding which resort fits them is neither views nor distance from the beach, but lifestyle. Each of these resorts offers a slightly different package of amenities. Waikoloa Beach Resort is the most “a la carte,” having no amenities program for property owners tied in with the resorts, hotels, and golf courses. Mauna Lani Resort owners are invited to their (no-cost) Advantage Program and have access to the Beach Club amenities as well as charging privileges and discounts at the Resort.

Mauna Kea Resort owners have a choice of three levels of membership, with fees ranging from $5,100 to $16,850/year on top of homeowners association dues. Most Mauna Kea property owners purchase at least the social level which allows them to use the chairs and towels at the Mauna Kea and Hapuna Prince hotels’ famous beaches.

The auction publicity brought many prospective buyers to take a fresh look at Waikoloa Beach Resort. I’m working with several who chose not to participate in the auction, but confess to liking the energy of the resort and the fact that they can not only walk to the beach via Kolea’s private path, they can walk to restaurants, shopping, and the amenities of two hotels.

Owners of property at the Hualalai Resort, or Kukio are looking for an entirely different level of private amenities…and prepared to pay for them. Which brings me to…

Cost Structure of the Auction and Resort Property Ownership

The fine print in the Kolea auction brochure explained a fairly complicated structure of credits for a winning bidder who had placed an opening bid prior to the start of the auction at pre-determined levels, and a buyer’s premium of 10% of the winning bid paid to the Auction House at the close of the deal.

During the auction, bidders on both the house and the condo called for “time out” and it was clear that was because bidders had in mind a total price they were willing to pay, and needed to calculate what their bid could be to keep their total purchase price at or below that number.

For the Kolea condo, the minimum buyers premium of $175,000 was a significant amount in the minds of bidders. For the oceanfront residence, the questions I heard before the auction related to the seemingly high costs of ownership and maintenance.

In contrast, the buyer of any of the condos listed in the $2.5 million range at Hualalai Resort communities will be paying a $225,000 membership “deposit” and over $30,000 per year for the Amenity Program on top of homeowners association dues similar to the $2,000/month for a Kolea penthouse villa. The buyer at Hualalai or Kukio (with its even more expensive and exclusive amenity program) is by definition someone prepared to pay these amounts regardless of purchase price.

Purchase Price: Distressed Property Sales at Kolea

Hindsight is 20:20 and perhaps Concierge Auctions had no experience conducting sales in neighborhoods where the “comps” for the properties being auctioned included short sales and REO (foreclosures).

When prospective buyers walked into the oceanfront Kolea home and their eye immediately traveled through the house to the spectacular view, the auction house representative would walk them straight to the poolside lanai, open his arms wide to take in the view and exclaim, “THIS is what you are buying. It happens to come with a home attached,” and if that was true, why would a buyer spend more than the $4 million cost of the bank-owned house a few lots away?

Similarly, with a REO of the identical Kolea penthouse floorplan with a closer walk to the beach, being listed at only $1,390,000 only days before the auction of Kolea 2C, just how much more would a savvy investor pay at auction? It would be as if the Hualalai auction had been of a Hainoa Villa during the period when a foreclosure was listed for $995,000, and a short sale (still available!) at $1,295,000…but the villa being auctioned was listed at a $1 million premium.

The bottom line is whether the right lifestyle for you is to be found at Kolea or Hualalai, or at Ka Milo or Kauna’oa for that matter, there are values to be found. The bidders at the auction fell out early because they wanted to snatch something below even foreclosure prices. The happy new owners I have enjoying their Kohala Coast resort lifestyle today are the ones who realize the game is not to always get something below the last asking price, but to get something that will be a steal compared to next year’s asking price.