"Sold out."

That's the proclamation on a poster still hanging at a side entrance of the Ala Moana Hotel Condominium — a leftover reminder of the "condotel" development and buying frenzy that hit Hawai'i over the last few years.

But for anyone still interested in buying a unit in the high-rise hotel next to Ala Moana Center, rooms are available. Lots of rooms.

Condominium-hotel units produced in the recent boom are stacking up on the resale market this year, with a small but growing number offered at prices below what original buyers paid.

While it may be too early to predict whether a glut of condotel resale inventory is building, clearly there is some hangover from the recent condotel investment spree.

Often touted as a relatively inexpensive way to invest in the state's tourism industry and own a piece of paradise, condotels represent another segment of Hawai'i's once-soaring real estate market that has landed — though for condotels the landing looks somewhat harder than the generally soft letdown seen in home resales.

"This is a typical cycle," said local lodging industry analyst Joseph Toy, president of Hospitality Advisors LLC. "We were in a hyper-market (that) began to slow in mid-2006, and for many condotel buyers, they bought at the height of the market."

Since 2001, an estimated 3,500 or more Hawai'i hotel rooms have been converted to condotel use typically by developers that bought and renovated old hotels then resold them by the room.

Investors, many of them speculators who didn't understand the true expenses and income for owning a hotel room, largely fed the conversion boom.

Lots of buyers, both in-state and out-of-state residents, viewed the product as something they could rent out and occasionally use personally for themselves or visiting family and friends. For others, it was strictly for rental income. Few bought units in which to live. But many also bought units expecting to resell them for profit.

RESALES TOUGH

At the Ala Moana Hotel — the largest conversion project in the state — initial demand was overwhelming. About 3,000 people put down $10,000 deposits in June 2005 for a crack at buying one of 1,150 rooms from Miami-based developer Crescent Heights, which bought the hotel in 2004 for $85 million, or about $74,000 a room.

Following renovations, the project sold out last year at prices ranging from about $125,000 for a 246-square-foot studio to $910,000 for a 1,915-square-foot penthouse with two bedrooms and 2 1/2 bathrooms.

Last week, there were 100 Ala Moana Hotel units on the resale market for $162,000 to $1.2 million. Of the listings, 13 were offered below their previous purchase price, according to www.oahure.com, a listing database run by broker Bryn Kaufman of Realty Executives.

"The condo-hotel (resale) market is not doing well," said Realty Executives agent Wanida Kaufman.

The 100 Ala Moana Hotel units on average have spent 139 days listed for sale, and several agents who deal in condotels say it has been a struggle for many sellers to find buyers.

Other condotels with significant numbers of units on the resale market are Aloha Surf Hotel and the Palms at Waikiki, with about 35 listings each.

Brokers said some buyers may be pressured to sell as adjustable-rate mortgages reset to higher interest rates that could make it more difficult to make mortgage payments. And buyers have fewer financing options available following the recent subprime lending meltdown.

Meanwhile, Hawai'i hotel occupancy has been slipping since April 2006, and is down 5.4 percentage points to 76.4 percent this year through August over the same period last year, according to Hospitality Advisors and Smith Travel Research.

The average daily room rate, however, has been improving, and was about $203 this year through August, up from $190 in the same period last year.

Developers, brokers and even some not-so-happy unit owners say the condotel concept is good, but like with any real estate investment there are risks.

One local restaurant owner who invested in the Ala Moana Hotel said the idea of owning part of a hotel was exciting, and that the potential return seemed better than buying and renting out a residential condo.

But the owner, who asked that his name not be used to avoid jeopardizing the rental of his units, said his investment over two years has been break-even. "Personally, I feel a little disappointed," he said.

Another Ala Moana Hotel owner, a California investor who also asked not to be named, said he made money quickly reselling more than one unit, but lost money selling his last one. He considers his overall endeavor a wash, but said it was impossible to earn a profit as an owner because of management fees and increases in maintenance fees and property taxes.

"I'm not bitter," he said. "The experience was great."

ECONOMIC FACTOR

Jim Butler, a hospitality industry attorney and condotel expert with the Los Angeles-based law firm Jeffer Mangels Butler & Marmaro LLP, said the condotel model isn't bad. But the economics of projects vary widely given factors such as unit price, location, occupancy, room rates and operating costs.

Butler said many investors bought into condotels without studying whether the economics made sense, because they expected to sell to someone else for a profit.

Some did, at the Ala Moana Hotel and other properties in Hawai'i.

For example, a $157,000 Ala Moana Hotel studio bought in October 2005 sold for $198,000 in April. Another one bought in December 2005 for $213,000 sold for $242,000 in April.

But last month, three of seven Ala Moana Hotel units resold for less than their original price, according to property records.

OWNERSHIP COSTS

Cara Emura, an agent with Prudential Locations, said prices under $200,000 attracted a lot of less-sophisticated investors to an unusual type of real estate product. "There are a lot of nuances about this product, and the cost of ownership is one of them. There are high costs of ownership."

At the Ala Moana Hotel, the monthly maintenance fee is $456 on a 246-square-foot studio. The monthly property tax is $163. And most owners contract with the on-site hotel operator, Outrigger Hotels & Resorts, to manage their units for a 50 percent cut of room revenue, a typical arrangement. An additional sum up to 10 percent of revenue may be deducted for travel agent commissions or other unit-related expenses.

"I think people got excited," Emura said. "I think they didn't do all their homework. That's not to say the condotel is a bad product, but if you go down that path, you should understand the product."

Butler the attorney said some national industry estimates are that as much as two-thirds of condotel buyers were flippers who had little concern about hotel unit operating income and expenses.

"There was a fever," he said. "People got into buying condo-hotels whether they made sense or not. When the speculators disappear, you get this downward spiral."

To be sure, ballooning inventory and sale price cuts on condotels in Hawai'i are so far limited, so it's hard to say how long or sharp any market pain could be.

Some Mainland condotel markets have been hit worse, causing the cancellation of planned development projects and inventory gluts.

In Hawai'i, Crescent Heights earlier this year quietly abandoned plans to build a 16-story condotel at Ko Olina Resort & Marina called The Nai'a at Ko Olina.

The company in early 2006 bought eight acres fronting Lagoon No. 3 next to the Marriott Ko Olina Beach Club time-share, and announced plans for the 400- to 500-unit project.

But in July, Crescent Heights sold the property back to the resort's master developer, Jeff Stone, for $51 million, which property records show was less than the $60 million Crescent Heights paid.

Crescent Heights officials in Miami did not return calls seeking comment about the sale. A Stone representative said the property will be used for future development opportunities.

SELLOUTS ELSEWHERE

Other developers, however are still reporting good results from sales of new projects, including the Baccarat Wailea Resort & Residences, a planned 193-unit luxury condotel project led by investment firm Starwood Capital Group.

Starwood Capital in August reported selling 60 of 100 units initially released for sale for a combined $300 million.

A year ago, developers of the Trump International Hotel & Tower Waikiki Beach Walk reported a one-day sellout of all 464 condotel units for roughly $700 million.

Trevor Benn, a broker handling sales for a partial condotel conversion of the Ilikai hotel, said an initial phase of 167 units sold out earlier this year mostly to West Coast buyers for roughly between $350,000 and $650,000. A second phase of 162 units are slated to be released for sale next year.

Benn, president and principal broker of Benn Pacific Group, also handled sales for the 48-unit Regency on Beachwalk where units sold out for $400,000 to $750,000, though one buyer who bought eight units at a discount is reselling some for $40,000 below initial prices.

"Has the pace slowed? Yes it slowed," Benn said. "The inventory levels are high."

Reach Andrew Gomes at agomes@honoluluadvertiser.com.