Compiling the Top
In an island state, ownership of an extremely limited amount of productive real estate has always been viewed as a foundation for economic, social and political influence. Historically, the primary measure for determining Hawaii’s largest and wealthiest landowners has been total acres owned. The latest 1999 State of Hawaii Data Book details such a survey of “Eight Large Landowners,” who, combined, own 24 percent of the state’s land area according to the survey. Bernice P. Bishop Estate Kamehameha Schools, Parker Ranch, Samuel M. Damon Estate and Castle & Cooke Inc., each with more than 100,000 acres, head the list.
Beyond land acreage, which could be massive in size but significantly less valuable than, say, a beachfront Waikiki hotel, would the rankings change if based on some measurement of value?
The concept for an inaugural survey of landowners based on “value” of Hawaii real estate holdings evolved in late fall 2000. Real estate valuation is a complex process, subject to varying opinions and methodologies.
Early on, it was determined that the only consistent, comprehensive and publicly available measure of value applicable to all Hawaii real estate, including government holdings, was the counties’ assessed value database. For real property tax purposes, assessors estimate 100 percent of market value in its entirety for every real estate parcel in the state, including those owned by the federal, state and county government.
Assessments are derived in a consistent manner and for a common point in time. It should be noted that, given the large number of properties involved, assessors apply a mass appraisal approach using standard methodology, cost and market valuation models, common reference data and statistical testing. Values and ownership records were updated and adjusted as events dictated during the survey period.
The researchers considered the pros and cons of utilizing the assessed value database. The prime limitation is that since assessments represent a proxy for fee simple values, there is no division of value between leased fee (lessor’s interest) and leasehold (lessee’s interest) interests, if any. This is significant in a market where long-term ground leases are prevalent. Thus, 100 percent of value is assigned to the owner of record.
This allocation tends to inflate ranking values associated with organizations that ground lease the majority of their properties (e.g., Kamehameha Schools, Queen’s Health Systems, Harry & Jeanette Weinberg Foundation, Liliuokalani Trust, Samuel M. Damon Estate and Castle Foundation and Trusts). Our research indicates that Queen’s Health Systems and Harry & Jeanette Weinberg Foundation, for example, ground lease approximately 82 percent and 80 percent of their holdings (based on assessed value), respectively.
Similarly, value differences are also evident by comparing the relative market values disclosed by two large lessors, Kamehameha Schools (41 percent of assessed value) and Liliuokalani Trust (35 percent of assessed value).
Although the obvious adjustment is to divide land and building values between lessor and lessee, consider the scenario where a ground lease expires in less than a year. In that case, there would be little or no value to the leasehold position. Conversely, little or no value was ascribed to those entities whose ownership consists primarily of leasehold interests, unless lessees or recent transactions substantiated such value.
Another constraint is that ownership is often held in different entity names, variation of names and in some cases database entries were simply misspelled. Best efforts were made to research corporate subsidiaries and refine the database information.
Nonetheless, taken as a whole, assessed values were viewed as the only all-encompassing measure of real estate value readily available that could be used as a ranking mechanism. It also should be noted that the figures represent total value before consideration of debt or other encumbrances on the properties.
Initial efforts focused on the larger kamaaina trusts and corporations, and significant single assets. Research efforts picked up steam in April 2000 when the year 2000 assessed value information from all four counties were downloaded into a database management program. This information represented assessed values as of Oct. 1, 1999. The database was searched and sorted to highlight the large landowners.
Over the subsequent months, information was confirmed through interviews with company representatives where possible, review of annual reports, SEC filings, State of Hawaii Department of Commerce and Consumer Affairs (DCCA) Business Registration records, assessment office maps and records, Bureau of Conveyances documents, collateral materials, books and a myriad of other periodicals and publications.
After nine months of gathering, refining and confirming data, the Top 20 list was finalized in September 2001. As the survey represents a snapshot in time, there is no question that new transactions, changing market conditions and other events will alter the rankings, especially in the lower quartile of the ranking.
Special thanks to Gary Kurokawa and John Ferrari for their invaluable assistance.
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