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The effects of recent wildfires on Maui’s commercial real estate market have been seen across the island.
August wildfires ravaged parts of the Valley Isle, including one that killed nearly 100 and destroyed much of Lahaina town.
In the immediate aftermath of the fires, many tourists left the island and canceled upcoming trips, and government officials initially discouraged visitors to Maui, as Nancy Zhao, an associate in Greenberg Glusker’s Real Estate Group and a board director for the Maui County Bar Association, pointed out in an email to Pacific Business News.
“As a result of the decline in tourism, there was a big drop in business for retail stores, restaurants and hotels in many parts of Maui,” she wrote in response to questions from PBN.
Although the fires caused the most damage to homes and businesses in the Lahaina area, “the significant decrease in tourism resulted in a steep decline across the entire island,” Zhao said. “For commercial property owners in Lahaina, the biggest concern is the loss of their buildings that have been burned down or otherwise completely destroyed and the resulting loss of business.”
PBN spoke with Zhao about the state of Maui’s commercial real estate market in the wake of the wildfires, challenges ahead and more.
What’s to come for the commercial real estate industry on Maui in the wake of the fires? In the wake of the fires, the commercial real estate industry across the entire island of Maui took a hit, particularly in the retail and hospitality sectors. As West Maui rebuilds, investors and developers may look for opportunities to purchase land there, especially from property owners who cannot keep up with their mortgage payments due to loss of business. Meanwhile, given the lack of available real property inventory in West Maui that currently can be leased or utilized for business operations, property values of commercial real estate in other parts of Maui may increase. However, sellers of Maui commercial real estate property may postpone listing their properties until the island stabilizes, and buyers may hold off on purchasing decisions, given concerns about future prospects of the impacted area and the long road to recovery.
From a legal perspective, what is the most immediate challenge for commercial property owners in the wake of the Maui fires? In that same vein, what are the biggest challenges they’ll face in the weeks, months and years ahead? Maui has already been suffering from high supply costs and shortages in construction labor, in part due to the pandemic. Commercial property owners now have to plan for the short and long term and need to deal with a myriad of questions regarding what is best for their business: Does it make sense to rebuild their Lahaina business and can they afford to do so? Do they have insurance, and if so, does it provide coverage due to losses caused by fires? If they choose to rebuild, can they obtain the necessary materials and labor in a reasonable timeline? How long will it take to obtain building permits and county approvals? Would it be easier for them to move their business to another part of Maui island, another Hawaiian island or the Mainland, where it might be easier to restart their business in an area that was not devastated by the fires? Should they incorporate their business in another state or file to do business in another state?
Prior to the fires, the process of obtaining the necessary building permits and entitlements to build in the County of Maui was already notoriously slow, and will now take even longer due to a likely influx of permit applications to rebuild Lahaina properties. It can take anywhere from weeks, months or even years for the County of Maui to issue building permits and approvals. Properties located close to the shoreline in special management areas face even greater development and use restrictions, given the need to preserve, protect and restore natural resources in the coastal zones. In the meantime, the government may create policies or administer programs that will directly impact commercial property owners. The local government will also likely revise building codes, ordinances and regulations to enhance fire resistance and safety. These changes and the need to comply with stricter codes may affect property development plans and renovation projects for commercial property owners.
In the coming weeks, commercial property owners will need to navigate the relief options that may be available to them and deal with insurance claims, to the extent they have appropriate insurance coverage. Commercial property owners will also need to deal with environmental issues in the aftermath of the fires, e.g., hazardous materials, contaminated soils and toxic air pollutants.
In the coming months, commercial property owners will need to deal with the challenge of hiring and maintaining employees in what is already a limited workforce on the island of Maui. Even if a property owner reconstructs the building for its business, restocks its inventory and hires employees, the business’ customer base will be insufficient if Maui tourism does not return to levels that are viable for the business to survive.
What do property owners need to weigh when deciding on propositions? Property owners will need to weigh various factors when deciding on propositions, including but not limited to the high costs of labor and materials, availability of insurance proceeds, time needed for insurance claims to be processed, costs of increasing insurance premiums, time needed to obtain County building permits and approvals, and availability of financial resources.
Can you talk about real estate insurance and what that might cover for property owners? Property owners with business property insurance for building coverage and contents coverage can obtain coverage for repairs or replacements for their business building and business personal property, up to the insurance limits. Property owners who have business interruption insurance and cannot operate normally due to physical damage to business property caused by the fires can obtain coverage for lost revenue and operating expenses, such as payroll and taxes, for a set period of time. Business interruption insurance may also cover relocation costs if the owner needs to move to a temporary location, as well as monthly mortgage payments. However, some businesses do not have adequate insurance coverage relating to fire damage, while some may not have any insurance at all.
As insurance companies deal with the claims resulting from the Maui fires, they will reassess the risk of insuring properties in fire-prone areas. As a result, property owners of all types of real estate — houses, condos, commercial properties — face the likelihood of higher insurance premiums in the future.
How can property owners avoid scams? What should they be doing to protect themselves at this stage in the recovery process? Property owners should be wary of unsolicited offers from people and organizations that offer to purchase their properties, especially from predatory solicitors attempting to buy properties below market value, often with cash offers. To protect themselves at this stage in the recovery process, property owners should report scams to Hawaii’s Department of Commerce and Consumer Affairs.
For assistance with navigating the insurance claims process, property owners should contact representatives at the various Maui disaster recovery centers that offer disaster assistance to those impacted by the fires. Property owners should also consult trusted lawyers to help protect them.
Organizations such as the Legal Aid Society of Hawaii and the Maui County Bar Association, as well as legal hotlines set up by the Hawaii State Bar Association, provide legal assistance and help prevent property owners from being taken advantage of during the recovery process.
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