By Jerry LaMartina

awaii evokes exotic images of palm trees and endless sunshine, blue skies and ocean surfing, sandy beaches and hula dancers—a picturesque paradise. But paradise is expensive. According to Forbes.com (forbes.com/advisor/mortgages/real-estate/median-home-prices-by-state/), Hawaii ranked second among all states for median home price at $750,000 as of September 2023. California ranked first at $787,000. The national median home price was $412,000. Hawaii’s cost of living in most other categories is higher than on the mainland (livinginhawaii.com/front-page/cost-of-living-in-hawaii-2024/).

Hawaii’s higher costs also extend to self-storage, both for developers and consumers, several industry experts say. Hawaii has 2.86 square feet of storage space per resident, compared to the national average of 5.4 square feet per capita, according to selfstorage.com (selfstorage.com/self-storage/hawaii). The state has an estimated 85 self-storage facilities containing just over 4 million square feet.

Building materials, and therefore self-storage projects, are more expensive because Hawaii is remote and materials must be shipped or flown in, says Jenny Rodrigues, a general manager at Ohana Self Storage in Honolulu and an independent contractor. Rodrigues has worked in self-storage in the state for about 24 years.

Sometimes shipping accounts for as much as half the total cost of materials, Rodrigues says. Following suit with the state’s high cost of living, self-storage rents are significantly higher than the market average. Lease-up is slow to break even. Many facilities are struggling. Some build new facilities then sell them five to 10 years later, but other facilities thrive.

For instance, Ohana Self Storage has had the same owners for 21 years. Rodrigues has boosted revenue by selling packing and moving supplies, drinks and candy, and by renting meeting space to tenants for 25 to 30 people and providing office space. The company also partnered with U-Haul to rent vehicles to tenants and get a commission on the rentals.

Carol Mixon, owner of Tucson, Ariz.-based SkilCheck Services, says she had storage in Hawaii in the 1980s that rented for $600 a month for a 10-by-10, comparable to the high-end facilities in New York or Los Angeles. Mixon started converting old buildings to self-storage because it was less expensive than building new facilities. She has built or been involved in the planning, development, or management of eight different facilities in Hawaii.

Gregory Kreizenbeck, principal and CEO of Phoenix-based HUCO Pacific Development Inc., agrees that self- storage costs more to develop in Hawaii than on the mainland and lease-up takes longer. A 100,000-square-foot facility takes probably three and a half to four years to lease up, double the amount of time required 10 years ago.

Most facilities built there in the past five to 10 years have been around 100,000 square feet, Kreizenbeck says. His facilities were about 120,000 square feet and leased up in about two and a half to three years.

Higher energy costs are a big factor in the overall cost to develop in Hawaii. Electricity costs about 35 cents to 37 cents per kilowatt-hour. That means cooling the facilities is very expensive. HUCO Pacific Development also dehumidified its facilities to about 50 percent to retard mold, mildew, mites, and corrosion. The company was “very environmentally conscious in design and construction,” says Kreizenbeck. It also covered the facilities’ rooftops with photovoltaic panels. This cut its energy costs from $22,000 to $7,500 a month.

“You have to have a great development team to get the most efficient and effective plan to minimize development costs yet provide a better mousetrap than your competition,” he says.

HUCO developed its self-storage with an area in the lobby with one or two conference rooms and cubicles for tenants. “We pioneered that,” Kreizenbeck says. Tenants included law firms, which stored files and had a file clerk at the facility five days a week, as did some title company tenants, pharmaceutical companies, and out-of-town law firms that rented its conference rooms because of a shortage of such space.

Hawaii’s micro-climates can affect development timelines, says Paul Brown, founder and partner of P.B. Brown, based in Palm Desert, Calif. He built a facility in Milani, Oahu, three years ago. It can rain 200 days a year there. In Kapolei, a 20- to 30-minute drive away, it hardly rains, so it’s much easier to build there.

“When you’re lining up a sequence on a construction project, you build a schedule,” Brown says. “All the sub- contractors have to buy off on that and execute on it. When it’s raining all the time, how do you schedule a job? You have to start in the dry season so you can do all your grading, underground utilities, and slat support and battle the weather the rest of the time.”

Procurement also poses problems, he says. Shipping in materials adds a three-week lead time.

“If you forget something, you can’t easily, quickly get it,” Brown says.

Construction costs in Hawaii are 50 percent to 75 percent higher than average in the United States. Rents are higher than the national average, too, which is a function of supply and demand. Brown has “lost a lot of money” on one of his facilities in Hawaii, but he has “done OK on the other three.”

Underwriting in Hawaii will always make sense “until you go to build and you’re faced with reality,” says Brown. Running 30 percent over budget is “very easy.” Entitlements can take an extra year or two, which increases interest costs. And land is very expensive there.

Understanding Hawaii’s culture is crucial to developers’ and facility owners’ ability to succeed there. Rodrigues described the culture as “family oriented.” Developers must build trust with customers. That trust can mean continued business even though nearby competitors offer lower prices. The culture also affects marketing requirements.

“A lot of times, doing business in Hawaii is stronger with word of mouth,” she says. “The developer can find the spot and build it, but they have to know how to market it to tenants.”

Kreizenbeck loves working in Hawaii. His first office there opened in 1985. He recently sold his last facility there. He started acquiring sites in 1998, focusing on Oahu, which has about 1.2 million of the state’s population of 1.5 million.

He emphasizes the need to “inculcate yourself into the culture,” including governmental planning departments. He recounts California developers who were “giving the plan reviewer hell because their plans hadn’t been looked at in six months.” The plan reviewer “had stacks of drawings on the table” and put the complaining developers’ plans “on the bottom of the stack.”

The population within a 3-mile radius of a self-storage facility should be 7 and a half to 8 square feet per person, Kreizenbeck says. In Hawaii, generally, and especially in Honolulu, that number is 3.5 people per square foot.

Finding competent labor in Hawaii is another a problem, Brown says. And having Hawaiian leadership of your development team is key to a successful project. It puts you in “a much stronger position,” because they will better understand the unique culture.