Investing Back Home

Alexander & Baldwin snaps up Hawaii real estate

November, 2003

They might only rank as the 10th wealthiest landholder in the Islands but kamaaina combine Alexander & Baldwin Inc. (NASD:ALEX) might just be the most dynamic. Over the past five years, A&B has sunk $400 million into Hawaii deals, says A&B Properties Chief Executive Officer Stanley Kuriyama, who is clearly bullish on the Islands. “We are trying to grow the real estate business and our focus has been growing it in Hawaii. It’s our back yard. We feel comfortable investing here,” says Kuriyama.

With 90,000 acres on Maui, Kauai and Oahu, A&B has a storied history in Hawaii in real estate, sugar and shipping, via its Matson Navigation sudsidiary. But when the Hawaii real estate market was sliding in the 1990s, A&B made strong moves to diversify its income property portfolio with buys on the Mainland where the economy was booming. That seemed particularly important as A&B’s two other main business lines, in shipping and agriculture, remained stuck in the doldrums and were not able to provide much sales growth. The strategy worked and A&B was able to grow its property unit to a revenue producer that may exceed $200 million in 2003 from the $60 million it was generating during the early and mid-1990s.

As Hawaii’s economy slowly mended, A&B once again looked homeward for growth, this time with a twist. Under Kuriyama and A&B Chief Executive Officer W. Allen Doane, the Big Fiver has recently focused much of its buying energy on Oahu rather than its strongholds in the Neighbor Islands. That spree has included purchases of such marquee properties as 1100 Alakea, the Haseko Center and the Pacific Guardian Tower. All fit A&B’s profile of high-grade properties in good locations with a healthy slate of tenants.

“We are disciplined investors. We look at many properties before we decide to pursue something and we think about it very hard to make sure we are right,” says Kuriyama. That discipline has impressed industry insiders. “I think those moves certainly are good investments longer term. The market has been depressed for more than 10 years now and office and commercial markets tend to lag the residential market. I think they’re very savvy,” says Michael Sklarz, chief valuation officer of national real estate services firm FNIS and a member of the State Council on Revenues.

A case in point is the 100-unit Waikiki condominium project Lanikea, to be finished by 2005. Waikiki had gone for a decade without any new fee-simple condominium projects, so A&B figured there would be pent-up demand. They swooped in on the property in November 2001, in part because it already had zoning for a residential high-rise, as well as the crucial sewage easements. “We figured there was a niche for this market,” says Kuriyama. Good hunch. As of late September, A&B had sold 95 of the 100 units, mostly to locals who want an urban lifestyle.

A&B is hardly looking to become an Oahu-only investor. The company still holds 19 Mainland income properties. Of its five acquisitions during 2003, three were on the Mainland. As for its Neighbor Island projects, it still holds the biggest prospects for growth in the future. A&B has several large developments in the works on Kauai and Maui, including the Kukuiula Project, an upscale residential effort located on 1,000 acres near the resort area of Poipu, which will be the largest development the Garden Isle has seen in over a decade. “Our Outer Island holdings will always be the core focus of our development,” says Kuriyama.

With nearly 10,000 acres defined by A&B as potentially urban out of its Kauai and Maui holdings, certainly the room to run remains. And Kuriyama thinks Hawaii real estate – particularly commercial and resort residential – still has plenty of juice. “I think there is a lot of room still for growth and improvement in the market,” he says.

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Alex Salkever