Waikoloa watershed

In the early 1990s the hotel industry in Hawaii was hurting. The Gulf War had dealt a blow to tourism revenues, and short-term returns had made Hawaii unpopular with most investors, especially mainland American investors. Most US firms had sat out the Japanese-dominated investment boom of the late 1980s, and the result was that many of the underperforming Hawaiian hotels were owned by Japanese companies. As these Japanese owners became restless, Colony Capital entered the market.

Colony partnered with Hong Kong-based PanGlobal Partners in the purchase of the Hyatt Waikoloa from Mitsubishi Bank for $55 million, 15 percent of its original construction cost, and renamed it the Hilton Waikoloa Village. The purchase was seen as the first indication that Japanese lenders were willing to sell their underperforming assets at deep discounts. The hotel's new owners poured in more than $45 million to refurbish all guestrooms and the property's extensive recreational amenities. Soon after the deal, the company bought two more hotels: In 1995, it purchased the 539-room former Ritz-Carlton Mauna Lani (now the Orchid) on the Big Island from Japan's Dai-Ichi Kangyo Bank for $75 million and later it acquired the Colony Surf Hotel in Waikiki from First Hawaiian Bank for $10 million. Emboldened by Colony's confidence, many mainland investors soon followed, picking up Hawaiian hotels from distressed Japanese owners at a fraction of their construction costs.

The resurgence in the tourism industry in Hawaii beginning in 1995 allowed Colony to monetize their hotel investments. For example, in 2002 the private equity real estate firm sold the Orchid to Fairmont Hotels for approximately $140 million, almost double what it paid for the property seven years earlier. When Colony acquired Fairmont earlier this year, however, it did not regain control of the Orchid. Reflecting the strength of the hospitality (and Hawaiian) market, Fairmont had sold the hotel to Westbrook Partners for $250 million in 2005.