The new owners of the Damon Estate Portfolio will control 25 percent of Honolulu’s
The eventual sale of the Samuel Mills Damon Estate's 220-plus acres of commercial and industrial land could profoundly transform Oahu's real estate world. Or, the massive leased-fee land sale could have no impact at all.
"I'm just excited as heck about this," says Jamie Brown, real estate analyst for Hawaii Commercial Real Estate. "There is potentially a huge opportunity there. If the eventual owner starts selling off and subdividing parcels it will really open up opportunities for development and rehab of some old product. That could be a good thing for users, the owners and the economy in general."
Changes to the portfolio could come relatively soon, since the average remaining lease term for the portfolio is 23.75 years. Forty-eight percent of the parcels, including nearly all of the 81-acre Mapunapuna Industrial Park, have remaining lease terms of less than 20 years.
However, the eventual buyer could also do nothing at all, in which case the only thing that will change will be the address where the 183 tenants send their rent checks. It's a reasonable scenario, since the portfolio is currently 99.3 percent leased and near-term contractual rent steps and market rent resets assure the eventual owner of consistent income growth. According to the Eastdil Realty Co., the Mainland real estate firm arranging the sale, the portfolio will bring in $31.8 million in net operating income in 2004. By 2013, the holdings are expected to earn $39 million.
The lands are remnants of an ahupuaa (land division from the mountains to the sea) bequeathed to Samuel Mills Damon in the 1880s. A trust has managed the portfolio since Damon's death in 1924. Upon the death of the last Damon grandchild, the estate will be divided among its 22 beneficiaries. The two remaining grandchildren are in their 80s.
The deadline for bidding on the portfolio, which has a target value of $400 million, was Sept. 9. Later that month, the field was narrowed down to a handful of parties. Tim Johns, chief operations officer of the Damon Estate, declined to comment on the portfolio or the bidding process.
"The land is spectacularly located. But historically, it has not been the most desirable place for some tenants, because of the condition of improvements. It's sort of a diamond covered in grease," says Douglas Pothul, senior vice president of Honolulu real estate firm Colliers Monroe Friedlander. "We've met with the vast majority of the dozen or so buyers, and you have a wide range of plans and strategies. Everything from people who will continue to cash rent checks to buyers who will blow out the fee to anyone who will buy it."
Whoever ends up owning the real estate portfolio, which is comprised of 11 parcels ranging from a large warehouse in Waipahu to nearly all of centrally located Mapunapuna, will control approximately 25 percent of all industrial land in the Island's inventory. This is an opportune time to be a landlord, since Honolulu is now home to the tightest industrial vacancy rate in the country, at 2.6 percent.
Some tenants aren't taking the wait-and-see approach to learn who their new landlord will be. Barry Lundquist, executive vice president of Hardware Hawaii, a Mapunapuna Industrial Park tenant, says that some businesses in the area have begun talking about forming a sort of hui that together could negotiate a deal with the estate.
"The estate isn't interested in selling off little bits and chunks of its property," says Lundquist. "So one possibility is to get together and attract some kind of buyer, who would be willing to represent a group and buy a large portion of the land. Then that buyer could turn around and allow the individual businesses to buy their parts. I don't know if it is going to work out, but, one way or another, we are going to try and stay down here."
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