Awakening the Giant

After decades of stagnation, DHHL is transforming itself into a major player

November, 2004

With 202,658 acres in total land holdings, the Department of Hawaiian Home Lands (DHHL) is a $1 billion trust, and could be ranked second only to Kamehameha Schools on Hawaii Business’ Wealthiest Landowners list. Unlike Kamehameha Schools, DHHL isn’t a self-sufficient landowner – yet. Instead of generating its own income and funding its own operations, the department has continuing ties to state government, receiving a tax exemption and $30 million annually from state settlement money, set to terminate in 2013. The end of the subsidy, along with an ambitious plan to award 6,000 leases over the next four years (only 7,350 have been awarded over the past 83 years), means that the department will have to think like a private-sector landowner and generate its own revenues, fast. Department director and Hawaiian Homes Commission chairman Micah Kane says, “We need to plan now to leverage those moneys [DHHL receives] today to be sure that we can sustain the level of development we hope to reach in 2013, forever.”

To do that, the department plans to maximize revenues from commercial properties, and create master-planned communities that will include both residential and income-generating commercial properties. “We really want to steer away from having our people live in a rural community and have to commute to downtown Honolulu or central Kahului or Wailuku or Kona, we want live-work-play-learn [communities]. And we’re a big enough player to have an impact on that,” says Kane. The master-planned-community approach is a distinct shift. “The view from the department has always been that commercial activities and residential activities are independent. And they’re not. What you’ll see in the next six to 12 months is those two efforts blend more together,” says Kane.

“It’s about time,” says Jim Pappas, chief executive officer of Honsador Lumber, a member of DHHL’s advisory committee, which also includes developers such as Dick Gushman, Stanford Carr and Jeff Stone. “They’ve always had tremendous assets, now they’re making the best of them,” says Pappas. Bob Armstrong, president of Armstrong Builders and a committee member, says, “DHHL is a major developer, rapidly becoming the largest, if it isn’t already … the activities that DHHL is involved in have an impact on the community, not just the Hawaiian community, but the community in general.”

Kane’s previous job as a staff member of the Building Industry Association gave him resources and contacts in the building development community. “He knows everybody,” says Armstrong. As the organization shifts from being a pocket developer to a master-planned-community developer, it will be involved in developing larger tracts of land near other private developers and other state lands.

The ultimate goal of self-sufficiency, says Kane, “is really autonomy in the sense of operation, decision-making. I think that’s right in line with the governor’s initiatives to have Hawaiians choose their own destiny.”

The department’s Land Management Division, which manages non-homestead lands, is projected to generate approximately $9.6 million from its current commercial leases over the next five years. By 2013, those same leases are projected to increase to $14 million annually. The department is assessing its inventory and identifying lands that can yield a higher income by obtaining requests for proposals for income opportunities. In addition to a Hart Street property, which is estimated to bring in $250,000 a year, and a 200-acre parcel in Honokaa that should generate $1 million a year for the next 65 years, the Hawaiian Homes Commission has targeted another 12 properties for income generation.

Another example will emerge at Village 8 in Kapolei, which will be breaking ground on 326 residential units in January 2005. Strategically located near lands owned by the University of Hawaii, the Department of Land and Natural Resources and the City and County of Honolulu is the DHHL’s 180-acre parcel, where the department plans to move its offices in 2006. Kane says the office could serve as an anchor for other services, from a mom-and-pop store to an Office of Hawaiian Affairs satellite office, to schools or preschools. In mid-September, the University of Hawaii released a request for proposal to utilize 200 of its 500 acres in Kapolei for commercial use, in exchange for building out phase one of the university. “We see us playing a role in some of that commercial activity in some way,” he says.

Aside from maximizing income from existing land and acquiring more, the department proposed a bill last session that would confirm its authority to enter into joint ventures or other types of business relationships. Kane says that, with the influx of investment money from the Mainland, “We’re really losing out on a lot of opportunity in the way we’re putting land out for commercial use. We could triple, quadruple our income. Obviously, that exposure jumps to a higher risk,” he says. He’ll have to convince the Legislature

that it’s worth it. Last session, the Legislature gutted the bill over concerns that it was too broad, and instead allowed the department to do a feasibility study and report its findings in 2005. Pappas says laws allowing these relationships need to be clarified: “[DHHL is] in limbo, so they don’t want to start something and proceed, only for it to end up like the Hokulia. [That is,] you don’t want to proceed, only to find out later that you’re operating in a gray area and leave yourself open to litigation.”

The department is working against time. “We have four years to prove to the public that we’re doing better than before, that we deserve another opportunity to continue on this path,” says Kane. “A&B can look at development 20 years from now. We’ve got to look in the four-year [political] window and still look 20 years on the horizon.”

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