Kamehameha Schools considers selling Hawaii lands under a new management plan. Will the Islands rumble?

November, 2005

Kirk Belsby, vice president for the Kamehameha Schools endowment, is not complaining when he explains what it takes for him to sell a piece of land, no matter how small.

“Any sale of a single square foot has to go through the trustees. I can rent the land, I can ground lease it all day long. But if I want to sell one square foot for one dollar that requires trustee approval,” Belsby says.

Those aren’t handcuffs; that’s a value system, he says.

“That is the seriousness with which we take our land stewardship,” Belsby says.

Kamehameha Schools towers over the rest of Hawaii’s wealthiest landowners, with more than 365,000 acres statewide. The assessed value this year for the land and buildings on it is $4.2 billion, an amount that some Ivy League colleges would envy. The next wealthiest land owner in Hawaii, the Harry & Jeanette Weinberg Foundation, has $1 billion and just 2,100 acres.

When it comes to land in Hawaii, Kamehameha sits on the commanding heights.

For some critics of Kamehameha, that has long been the problem: The trust just sits there, holding up growth and development in Hawaii. At the same time, some constituents believe that posture is a strength. For some supporters, even talking about selling former royal land is a sacrilege. To them, you can’t barter and trade Hawaiian heritage.

That’s why it’s monumental that after Belsby explains how important land stewardship is, he explains how the Kamehameha land value system has been retooled. A new approach has developed quietly and internally over the past two years, one that includes selling land if appropriate, after careful consideration: However, Belsby quickly adds, “I do not believe there will come a day when Kamehameha will be a wholesale seller of lands.”

Belsby says a small amount of land will be sold, if any, and it is likely Kamehameha will also buy replacement parcels as it moves to more actively develop land in partnerships. Belsby adds that the real difference in Kamehameha’s approach is that it is systematic, rigorous and disciplined in its land evaluations. About a year and a half ago, the Kamehameha trustees decided it was time for a strategic analysis of Kamehameha’s land portfolio, he says.

However, for the state’s largest landholder just to talk about the possibility of selling Hawaii land–particularly with this year’s 9th Circuit Court blows to Native Hawaiians–is a seismic pronouncement, with positive and negative reverberations likely to ripple through the business and Native Hawaiian communities.

In a white-hot Hawaii real estate market, the land giant appears to be awaking.

“There are many people here that object to selling a single acre. I understand that viewpoint,” Belsby says. “I think it is fair to say that Kamehameha Schools is looking at its portfolio very dynamically. But we want to maintain the same sort of presence that we have always enjoyed here. It may not always be the same footprint, but it certainly will be at least the same shoe size.”


Dee Jay Mailer, chief executive officer of Kamehameha Schools, says it is sometimes hard for Mainland groups to understand how alii trusts (trusts that own land, which formerly belonged to Hawaiian royalty or alii.) view their land. “Land has a special meaning to native people. Land is not just a commodity to exchange. To native people, land is part of the family. Land is taken care of like family.

“In the Western approach, land is owned with deeds and is traded,” Mailer continues. “Alii trusts live in both worlds.”

The land is heritage. It is also how alii trusts such as Kamehameha and others fund their programs, their primary focus. Balancing financial needs with land legacy is not an easy task. Mailer says the crux of Kamehameha’s new approach is assessing its land with a set of five values, one of which is economics. The other four incorporate the value of the land to Hawaiians. The trust will review the land’s cultural, community, educational and environmental value.

“There may be some land that is ripe for development but has more cultural value. So we may choose not to develop it or to develop it in a culturally appropriate way. At the same time, we may sell a piece of land that is not so culturally relevant, but has high economic value,” says Mailer.

Mailer adds that not all initiatives will involve traditional commercial buildings. Such things as restoring native habitat and developing living laboratories for students are also paramount, she says. There are also developments such as life sciences facilities in Kakaako that piggyback on the medical school, development largely aimed at enriching professional opportunities in Hawaii. The idea is to get the most “across Kamahameha’s five values” from every piece of land.

Time will reveal the true ramifications of Kamehameha’s policy shift. The assessment process is ongoing and it is unknown what new development might come to the many parcels Kamehameha holds or what might be sold off. The prevailing wisdom among real estate experts is that residential developments will likely be sold off, because of the contentious leasehold conversion issue. Commercial property is too economically valuable to let go.

Mike Hamasu, director of consulting research at Colliers Monroe Friedlander, says the changes will take time to manifest. “Kamehameha is a large entity and it doesn’t turn on a dime. They are incorporating a lot of strategies to provide direction for their portfolio. It’s a big shift, and change is difficult.”

Those watching the Kamehameha developments include other alii trusts that find themselves in the difficult position of balancing land preservation with funding their services.

The outcome “is of great interest to us as well,” says Mark Hastert, president and chief executive office of the Queen Emma Foundation, which is the land-management division of the No. 5 wealthiest landowner and alii trust, Queen’s Health Systems, with $990 million and 12,600 acres. “We have had some discussion with them, just to understand what they are going through and doing. We are watching it closely, looking at how they transition and how they get through this, to see if there are ways we possibly can restructure, depending on how it goes.”


When reviewing this year’s Top 20 Wealthiest Landowners, looks are deceiving.

There was the big sale of Campbell Estate land to HRPT Properties Trust, the REIT out of Newton, Mass. That pushed HRPT up 38 percent, to $739 million in assessed property. Campbell dropped 33 percent, to $756 million, down 33 percent.

Most other up and down movements were minor, related to reassessments–Castle & Cooke dropped 30 percent that way–or property improvements. The list looks static. But make no mistake, under the surface of that list, the real estate market in Hawaii is Pele hot.

Since HRPT broke onto the list last year with its purchase of the Damon Estate, the institutional money has found Hawaii.

“Prior to all this it was hard for these guys [real estate investment scouts] to go back with a straight face and say I have found this great investment in Hawaii, because the investment committee guys are going to say, ‘You can’t be serious. It was just a boondoggle to go on vacation for you,'” says Jamie Brown, president, Hawaii Commercial Real Estate.

“But now they can say ‘I am serious, because HRPT is here. CNL is here. Deutsche Bank put in the equity for the Aston Waikiki Beach Hotel.'”

Hamasu says nationwide the low cost of money combined with a trend toward real estate investment has flooded the market with institutional money. But those top-tier real estate properties were picked over in the last several years, Hamasu says. When institutional money started branching out to secondary markets, HRPT showed that Hawaii is a diamond in the rough. The economy here, both short-term and mid-term, is expected to be robust. Visitor numbers are sky-high, unemployment is low, the Japanese economy is strengthening, and Chinese investment appears around the corner.

“We had a quadrupling of real estate transactions. We went from $850 million in 2003 to $3.5 billion in 2004 and in 2005, it will be the same if not higher at the year’s end,” Hamasu says. “The planets are aligned for Hawaii.”


When the Japanese burst onto the scene in the late 1980s, there were stories about investors circling in light aircraft, picking properties to buy and paying more than the asking price.

The real estate market was hot then, too, and we all know how that worked out.

But Paul Brewbaker, chief economist with Bank of Hawaii, says this time around the investor profile is entirely different. During the Japan influx, many of the investors putting money into hotels or other kinds of real estate had made their millions in other industries. The Japanese, too, bought properties for the status.

“No one is buying trophy properties today,” Brewbaker. “These investors are more sophisticated. They study the investment and everything has to pencil out.”

The investors that are coming in are making their money off better management of properties. Construction costs are too high currently to spawn much new commercial or retail development. The investors are investing in better hotels or retail strips. Brewbaker adds that the underlying economic fundamentals are also stronger, as opposed to riding a blip in exchange rates.

The biggest concerns in the market today are that construction shortages will raise real estate costs too high for too long and short-circuit the growth; but these new, sophisticated investors should bring stability along with property improvements. As time goes on, they might even bring a couple of new names to the Top 20 list.


Robert Ozaki, president and chief operating officer of Queen Liliuokalani Trust (QLT), is well aware of the risks of having all your eggs in one real estate basket. Roughly 90 percent of the alii trust’s income is derived from Hawaii real estate and 70 percent comes from properties in Waikiki.

In a global marketplace, the trend is toward diversification, both in asset type and, when it comes to real estate investment, geographic diversification. Ozaki notes that Hurricane Katrina demonstrated the potential peril of having your investments concentrated in one waterfront area.

The need to diversify, which is underpinned by the need to fund trust programs for perpetuity, runs smack into the need to preserve heritage lands. Ozaki says the trust, which ranks No. 3 on the list, with $1 billion in land assets, does not plan to sell off large chunks of land, even in this current white-hot market: “We get a lot of phone calls to sell land. But we will always be a Hawaii real estate trust. That is our genealogy.”

Says Thomas Kaulukukui, chairman of QLT’s board of trustees, “We are aware of the importance of holding land, but we are equally aware of our responsibility to diversify the holdings, to develop them and maybe in some appropriate cases to liquidate them in favor of reinvesting the proceeds or exchanging land for other land that supports our mission.” However, Kaulukukui does acknowledge that selling might not be received well among all his constituents.

In interviews with the alii trusts, one self-evident truth seemed clear to all: As changes in the global market bring sophisticated investors to Hawaii, alii trusts must respond to the advent of the global market with sophistication.

Kaulukukui says the keyword for QLT going forward is flexibility. The plan is to generate more revenue from the properties and then reinvest that money elsewhere. QLT last year took a major step in that direction, partnering with San Francisco-based AMB Property Corp. (NYSE: AMB) to invest in Gateway City real estate on the Mainland.

As for the Queen Emma Foundation, Hastert says the future is also unlikely to involve any large land sales, though he, too, confirms some sales could happen where appropriate. From Queen Emma’s standpoint, the majority of its land will give a higher yield from leasing it to developers. Primarily residential properties are expected to be sold, Hastert says, to avoid future leasehold conversion battles.

Kamehameha’s Belsby says he understands with the recent disappearance of other old kamaaina trusts, such as the Damon Estate, and the slow reduction of the Campbell Estate, not to mention the Big Five, some fear that the large Hawaiian entities are dissolving. Kamehameha is here to stay, he says, but to operate in the global village of the 21st century, reevaluation and change are realities.

“Keep in mind, our mission is still to improve the health and well-being of the Native Hawaiian community through education. The endowment pays for education,” Belsby says. “We are looking for a balanced approach in our portfolio so all five values can be expressed. So we have taken a more rigorous and disciplined approach to reviewing our lands.

“We are certainly embarking upon a new direction.”

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