Landlocked

You will be surprised to learn to whom Hawaii belongs.

November, 2001

“In Hawaii, land has always been a political battleground and prize. Those who have held land have generally occupied the high ground in politics. If those out of political power have managed to come into power, they have usually set about using their new position to get hold of land.”

George Cooper and Gavan Daws, Land and Power in Hawaii, 1985

The words from a massive study of who owned Hawaii more than 15 years ago hold true today. And the words “land” and “power” are still synonymous with “wealth.” Consider the state’s largest private landowner by far — the Kamehameha Schools (No. 1). Today the private, non-profit charitable trust’s holdings encompass more than 366,000 acres on five islands for a tax-assessed value of $4.5 billion (because much of the land is zoned for conservation and agriculture or is leased out long-term, Kamehameha School’s 2000 annual report values its land holdings at $1.8 billion).

According to county assessors, the total value for the entire state of Hawaii is $137.3 billion, an average of $33,900 per acre (4,054,000 acres) for the 2000-2001 tax year. The alii trusts in the top 20 wealthiest landowners, comprised of Kamehameha Schools, Queen’s Health Systems (No. 2) and Queen Liliuokalani Trust (No. 4), together control lands valued at $6.5 billion or nearly 5 percent of the state’s total assessed value.

As noted earlier in the methodology used to compile these listings (page 15), the alii trusts are among a group of large landowners that lease the majority of their properties, leading to what can be construed “inflated” value using tax assessments. Some of the landowners in this story have expressed concern with this method of valuation. Notes Queen Emma Foundation Vice President and Treasurer Michael Walsh, “There are some issues there, especially when the great majority of our leases go out to 2045 or 2060 or thereabouts. To assign the full value of the buildings to us may be misleading.” Hawaii Business uses the total tax assessed value of property and buildings on properties because it is the only all-encompassing measure readily available through public records. Landowners were encouraged to provide Hawaii Business with other valuations. Some declined to do so.

Alii Areas Are High-Value

Kamehameha Schools’ lands belong to the trust of Bernice Pauahi Bishop. She inherited about 378,500 acres of Kamehameha crown land upon the death of her cousin Ruth Keelikolani. That land combined with the personal holdings of Pauahi and her husband Charles Reed Bishop grew to about 431,000 acres. According to Kamehameha Schools, “The income produced from this land has been the financial foundation for maintenance of the Kamehameha Schools for over 100 years.”

The vast majority of the land — more than 98 percent — is zoned for conservation and agriculture. The remaining little more than 1 percent encompassing strategic commercial properties — such as the Royal Hawaiian Shopping Center and Windward Mall and land under the Sheraton Waikiki, Royal Hawaiian Hotel, Kahala Mandarin, and Pearlridge Center — generates 98 percent of the trust’s land revenue.

Kamehameha Schools reported $936 million in total revenues last year, up 11.6 percent from $839 million in 1999. Chief Executive Officer Hamilton McCubbin writes, “The lands of the Kamehameha family are part of the foundation of the Hawaiian people. We do not and must not view these lands as a commodity for trade or sale without significant and thoughtful regard for their role in the history and traditions of our stakeholders. Sales, trades and purchases have occurred in the past and they will occur in the future, but all transactions involving KS lands continue to be highly scrutinized.”

In 1859, Queen Emma and King Kamehameha IV founded The Queen’s Hospital, which later became the Queen’s Medical Center. Today, Queen’s Health Systems, founded in 1985, is Hawaii’s largest diversified health care company, consisting of 15 wholly or majority-owned subsidiaries. It also holds minor interests in several other companies. Last year Queen’s posted $451 million in gross revenues, a 6.4 percent gain over $424 million in 1999. Of that figure, roughly $35 million was generated by its land interests.

Queen’s land holdings, mainly under the Queen Emma Foundation, are partially comprised of the Queens Medical Center and Physicians Office Buildings and the land they are on, plus acres of Waikiki hotel land and Halawa Industrial Park land mostly occupied by long-term lessees.

“Most of the property we don’t actively control right now. We do own the International Market Place and the Waikiki Town Center property, so those we self-manage, but the rest of the properties are really under long-term ground leases and most will not be coming back to us for a substantial time frame. So essentially we’re acting as stewards for the land,” says Michael Walsh, vice president and treasurer of the Queen Emma Foundation.

Expect the foundation to be coming out with plans over the next several years for those key Waikiki land holdings. Says Walsh: “We control the International Marketplace and Waikiki Town Center and if you’ve been there, it shows its age. And we recognize that in some point in time, those two properties have to be redeveloped totally. So right now we’re just in the process of looking at what alternatives are there.”

Hawaii’s last monarch, Queen Liliuokalani entrusted her estate to provide for orphan children of Hawaiian ancestry. This was later amended to include other destitute children. The most visible sign of the trust today is the Queen Liliuokalani Children’s Center.

The trust’s land and the buildings on the land had a total assessed value of $867 million. A trust spokesperson says the market value of the Queen Liliuokalani Trust holdings today is more like $306 million. Liliuokalani trustees are not visibly active land managers, in fact no real estate has been bought or sold since the trust’s creation, but other income is derived through management of other assets, such as stocks and bonds.

Secretive Harry Weinberg

The Harry & Jeanette Weinberg Foundation (No. 3) not only owns land outright in Hawaii, it owns part of another landowner: Alexander and Baldwin Inc. (NASDAQ:ALEX). The foundation, created upon the death of real estate tycoon Harry Weinberg in 1990, owns land and buildings in Waialae, Iwilei and the Luana Hills Golf Course. It has significant commercial real estate holdings on four islands.

Repeated calls to HRT (Weinberg once owned Honolulu Rapid Transit Ltd.) President Alvin Awaya, a Weinberg Foundation trustee, at the Hawaii office of the Harry and Jeanette Weinberg Foundation went unanswered.

The secretive nature of the foundation has been made much of by the Baltimore Sun in the foundation’s home state of Maryland. A 1991 article quoted an unnamed source as saying about the foundation, “It is so completely an aberration it is beyond belief.” But the foundation, considered one of the largest in the country, has been responsible for numerous good works in Hawaii and for the support of local nonprofit organizations.

Japanese Billionaires

In spite of the Japan real estate investment bubble talk, a number of Japanese owners still maintain significant land holdings, particularly in the resort areas.

Kyo-Ya Ltd. a subsidiary of Kokusai Kogyo Co. Ltd. (No. 6) owns and operates hotels, parking lots, retail stores, restaurants and insurance agencies. Kyo-Ya started in Hawaii in the 1950s when the late Kenji Osano opened a Waikiki restaurant. Osano was an early investor in the hospitality industry, well before the Japanese “bubble.” According to Land and Power in Hawaii, “Japanese multimillionaire Kenji Osano became by 1974 the largest single hotel owner in Waikiki, having acquired one-fourth of all the rooms.”

Today, Kyo-Ya owns 14 strategic acres of Oahu land, including some of the land under the Sheraton Waikiki, Sheraton Moana Surfrider, Sheraton Princess Kaiulani Hotel, and Kyo-Ya restaurant. It also owns land under the Waialae Country Club’s tennis courts and parking lot.

The majority of parent company Kokusai Kogyo Co. Ltd. is owned by family members of the four late Osano brothers — Kenji, Masakuni, Sakai, and Sadahiko. When Kenji Osano passed away, his brother Masakuni took over the helm and in 1999 made the Forbes list of the world’s richest people — Forbes said he was worth $1.3 billion. Today, the late Masakuni Osano’s nephew, Takamasa Osano, is Kokusai Kogyo’s president and majority shareholder.

Other Hawaii resort properties have a controversial billionaire Japanese owner in Yoshiaki Tsutsumi. Tsutsumi owns Seibu Railway Co., parent company of Prince Resorts Hawaii (No. 10). He has been criticized for personally profiting from improvements made to Nagano for the latest winter Olympics. Forbes says Tsutsumi’s 2001 net worth is about $2.8 billion, and posts the following entry on him on the Web: “His core holding company, Kokudo, controls the Seibu network of railways, Prince hotels and resorts, real estate, professional baseball and more. In 1990 he was the richest man in the world with a net worth of $16 billion. His empire continues to shrivel along with the Japanese real estate market.”

Prince Resorts Hawaii — under president and former Gov. George Ariyoshi — owns 270 acres on Oahu and more than 1,800 acres on the Big Island. Its holdings comprise the Hawaii Prince Hotel Waikiki and Golf Club, Maui Prince Hotel and Golf Course, Hapuna Beach Prince Hotel and Golf Course and Mauna Kea Beach Hotel and Golf Course for a total assessed value of $532 million.

The local company’s sales slipped a bit in 2000 to $146 million from $148 million in 1999. Earlier this year, Real Estate Finance and Investment reported that the Seibu Railways was interested in selling its Hawaii hotel properties for about $200 million each.

Shinwa Golf Hawaii Co. Ltd (No. 15), on the other hand, saw a 19 percent increase in sales from $60 million in 1999 to $71.6 million in 2000. Shinwa Golf Hawaii is a wholly owned subsidiary of Kyoto-based Shinwa Golf Kabushiki Kaisha, a golf course operations company. Mitsuo Kokufu is the owner and founder of Shinwa Golf Kabushiki Kaisha. Shinwa Hawaii owns 1,600 acres on Maui and Kauai through subsidiaries such as the Wailea Resort Co., Wailea Golf Resort, Inc., and the Kauai Lagoons Resort Co.

Last on our list of the Top 20 landowners in Hawaii is Japanese real estate company Mitsui Fudosan Co. Ltd. (No. 20), through its Mitsui Fudosan America Inc. and subsidiary Halekulani Corp. The Hawaii company owns just six acres in fee simple including part of the Halekulani grounds in Waikiki and Amfac Center in downtown Honolulu, but the total value of the land and buildings is $205 million. Mitsui Fudosan Co. Ltd. had 51,704 shareholders as of March 2001. At press time, the Amfac Center was for sale. Mitsui Fudosan would move off the Top 20 list without that property.

Kamaaina Families

Kamaaina families own a good chunk of Hawaii. Some, like the Campbell and Damon Estates, are working against time to figure out the next incarnation of land ownership. Some, like Victoria Ward Ltd. and the Harold and Alice Castle Foundation have already morphed into new organizations.

Outrigger’s Kelley family is relatively new, but a force in Waikiki and the Pacific region. Hawaii’s most famous digital son and AOL-Time Warner Chairman Steve Case, is an absentee landlord, but his family ties to Hawaii’s land go back generations. The granddaddy non-alii estate (although some do include it within the alii classification since beneficiaries include members of the Kawananakoa family) is the James Campbell Estate (No. 5), probably best known for the development of the Kapolei “second city.” The estate’s 27,000 acres on Oahu and 28,700 acres on the Big Island and 9,700 acres on Maui have a market value of $705 million.

According to the will of James Campbell, the estate, which was created in 1900, is scheduled to terminate in 2007. But there’s been no decision as to what shape it will take by then. Campbell family members have formed an organization called Kulia Ka Ohana to educate family members. There are more than 100 potential beneficiaries of which about one-sixth derive income from the estate today.

Former candidate for the U.S. House of Representatives Quentin Kawananakoa is president of Kulia Ka Ohana. Kawananakoa is Campbell’s great-great grandson and receives 1.25 percent of the estate’s annual income and will be entitled to 1.25 percent of the estate’s assets in 2007. He says the majority of the 35 family members who meet on a regular basis see wisdom in keeping their assets pooled together after the termination of the estate. They are investigating the potential for some form of limited liability business entity.

Kawananakoa says, “I think our family shares a continued responsibility to Hawaii in partnership with its people and government to bring into use our properties for the overall benefit of our community. There’s a financial interest on a personal level, but there’s a desire to benefit everyone.”

Former Campbell Estate Trustee Fred Trotter, is a legal guardian for the estate of his mother, 91-year-old Muriel Sutherland, who is a 5 percent beneficiary of the Campbell Estate. Trotter says Sutherland’s 5 percent stake last year amounted to $2.2 million out of $44 million net income. He says he will be virtually “disinherited” when the estate terminates in 2007 as per stirpes distribution through family lines means his mother will inherit her share as the eldest living relative in their line.

But Trotter opposes continuing the estate in any form. “I’m not one of those who believes that my great grandfather wanted to perpetuate this. Everything has its time and I’m basically driven by the wishes of my children. I’m going to be 77 years old when this happens. What’s going to be my enjoyment of it? Nothing.” The estate had sales of $166 million in 2000.

The offices of the Estate of Samuel Mills Damon (No. 11) are high on the 28th floor of the First Hawaiian Bank tower on Bishop Street. Not surprising, as Walter Dods, chairman of First Hawaiian’s parent BancWest Corp.(NYSE:BWE), is a Damon Estate Trustee, and until the buyout of BancWest by BNP Paribas, the Damon Estate was a major shareholder of BancWest Corp.

In 1996, Forbes put the Damon family on its list of 400 Richest Americans. The affairs of the $800 million dollar estate of Samuel Mills Damon, which was created in 1924, are now sealed under a court order. Prominent holdings of the Estate include the land under the Mapunapuna industrial and Moanalua industrial and commercial areas and the Sand Island industrial area. The more than 100,000-acre Kahuku Ranch on the Big Island is also part of the Damon Estate.

Approximately 20 heirs will benefit when the estate terminates. Damon Estate’s Chief Operating Officer Tim Johns says trustees have been working on a strategy for the past five years, ever since the Hawaii Supreme Court ruled that the trust would terminate with the death of Damon’s last grandchild. There are three octogenarian grandchildren alive today. Damon’s great grandson Michael Haig says, “The plan is very much in process and has not been set in stone and has not been submitted to the courts.”

The Damon Estate had sales of $53.3 million in 2000. Johns says about 70 percent of that gross income was derived through its real estate holdings.

Outrigger Enterprises Inc. (No. 14) is one of the younger landowners in the kamaaina crowd. It began when Roy and Estelle Kelley built the first “new” hotel in Waikiki in 1947. In 1967 Roy Kelley built the Outrigger Waikiki on land leased from the Queen Emma Estate.

Today, through subsidiary Outrigger Properties, Outrigger Enterprises Inc. owns two of eight beachfront hotels on Waikiki Beach, 19 acres of prime Waikiki land (10 acres fee simple and 9 acres leasehold) and almost one quarter of all hotel rooms in Waikiki.

Outrigger’s holdings are valued at $430 million. These include land on Maui (Outrigger Wailea Resort) and the Big Island (Outrigger Waikoloa Beach). Shareholders today include Roy and Estelle Kelley’s three children and 11 grandchildren. The brand-spanking new $45 million Ward Entertainment Center sits on land that belonged to matriarch Victoria Ward and is now held by 37 descendant or family-member shareholders of Victoria Ward Ltd. (No. 16). Victoria Ward and her husband once owned more than 100 acres of land in Honolulu that stretched from Thomas Square to the shore. The Wards had seven daughters and a home called “old Plantation” on property where the Blaisdell Concert Hall and Arena are today.

Victoria Ward’s great-great-grandson, Frank Ward Hustace III has written a book entitled Victoria Ward and Her Family. Hustace writes, “In 1930, acting on the advice of her financial advisors, Victoria authorized creation of Victoria Ward Ltd. to manage the family property. With an initial capital investment of $10,000, the family corporation has steadily grown in value and today comprises some of Honolulu’s most valuable commercial property.”

Today, Victoria Ward Ltd.’s 65 Oahu acres and 20 on Maui, including with the Ward Centre, Ward Warehouse and other commercial and retail centers are valued at $313 million. The owner, developer and manager of retail, office and industrial real estate had sales of $28.6 million last year.

In an interview, Hustace said, “The astute business decisions of my great great grandmother have rippled down seven generations.”

Probably the most recent kamaaina landowner of consequence is AOL-Timer Warner’s Stephen Case (No. 17). A Punahou School graduate and benefactor, Case has also placed a sizeable statewide footprint down through his 1999 purchase of a 41 percent minority interest in Maui Land and Pine (AMEX:MLP), and his more recent acquisition of Grove Farm and Lihue Plantation. Hawaii Business accorded Case a 41.4 percent share of the assessed value of MLP’s holdings, which gave him almost 12,000 acres on Maui and more than 40,000 Kauai acres for a total value of $300 million.

Windward rancher Harold Castle owned the majority of the ahapuaa of Kaneohe and Kailua in the early 1900s. Today, more than 1,000 Oahu acres belong to either the Harold K.L. Castle Foundation or indirectly, through partnerships, to trusts that were set up for the children of Harold and Alice Castle (No. 19). The total tax assessed value is $238 million. Kaneohe Ranch Co. Ltd. manages the land today.

In the last few years, Castle-related interests have developed the Kailua Village Shops and renovated the Kailua Shopping Center. Says Kaneohe Ranch Vice President Molly Mosher-Cates: “Although various Castle interests own a large consolidated tract of commercial land, there is a major constraint to its redevelopment, and that is that the leases are not co-terminus. Existing commercial ground leases expire between 2003 and 2042. In addition, IRS regulations do not allow joint development of family trust land and foundation land.”

But Mosher-Cates says they do try to adhere to a vision that, “there will be in Kailua an array of goods and services, attractively presented, reasonably priced and easily accessible.”

Single Most Valuable Property

There’s a toss up for the single most valuable piece of property, one is a retail property, the other a resort. Ala Moana Center (including the Ala Moana Building and Ala Moana Pacific Center office buildings) is comprised of 63 acres and assessed at $755 million. It was acquired by General Growth Properties (NYSE:GGP) of Chicago in 1999 for $810 million. The Ala Moana Center Property ranks No. 7. At No. 8 is the Hilton Hawaiian Village’s 21 Waikiki acres, including the new Kalia Tower. Total assessed value: $749 million. The property is owned by Hilton Hotels Corp. (NYSE:HLT). The Hawaii company’s valuation excludes 61 acres of leasehold land on the Big Island, site of the Hilton Waikoloa Village.

Wall Street and Off-Shore Owners

The rest of our large Hawaii landowners are either publicly traded and/or have out of state ownership. Castle and Cooke Inc. (No. 9), one of the original Big Five sugar companies, is now in the hands of billionaire David Murdock, who took the company private last year.

Castle and Cooke’s prominent real estate holdings include Mililani Town Center, Mililani Technology Park, Dole Plantation, Dole Cannery, the Iwilei industrial area and 98 percent of the island of Lanai, including the Lodge at Koele and the Manele Bay Resort. The total assessed value of the company’s holdings is $584 million. The company, which does residential and resort development and operation and commercial real estate development, had $261 million in sales last year an almost 17 percent sales increase from $224 million in 1999.

Hawaii Electric Industries Inc. (AMEX:HE), with 2000 sales of $1.7 billion headed Hawaii Business’ list of the Top 250 companies this year and ranks No. 12 on the list of landowners. Besides power plants across the state, the company owns the American Savings Bank Financial Plaza of the Pacific Office Building. The total assessed value for its real estate holdings is $468 million.

Alexander and Baldwin Inc. (NASDAQ:ALEX), one of Hawaii’s most historic companies, is today a conglomerate with agriculture, shipping and real estate interests (No. 13). A&B-affiliated companies today own almost 91,000 acres in four counties for an assessed value of $454 million. The company’s 2000 annual report values its real estate, including mainland holdings, at $448 million.

Last year, Alexander and Baldwin posted sales of more than $1 billion. Of that, subsidiary A&B Properties Inc. contributed $108.4 million. Alexander and Baldwin President and Chief Executive Officer W. Allen Doane tells Hawaii Business that the company is placing a strong emphasis on real estate because there is opportunity and it’s a business that shareholders like. The 37 acres that comprise the Grand Wailea Resort on Maui belong to La Quinta Calif.-based KSL Recreation Corp. (No. 18). The company was founded in 1992 by Michael Shannon, Larry Lichliter and Kohlberg Kravis Roberts & Co. (KKR). KSL Recreation Corp. owns and operates a $1.2 billion portfolio of resorts, clubs and spas. The Grand Wailea Resort has an assessed value of $268 million.

Look Ahead, Land Ahoy

A look at the Top 20 Wealthiest Landowners using tax assessment values confirms certain long-held assumptions. Kamehameha Schools has been and is a dominant force. Former Campbell Estate trustee Fred Trotter notes: “Not that the Campbell Estate is important, but at one point it owned 13 percent of the land base (in acres) of this island. Between the Bishop Estate (now Kamehameha Schools) and us, we owned 26 percent of the land on this island.”

But, based on the tax assessed value of the land, ownership and the oligopoly argument are more diluted today. The Top 20 does own 38 percent of all privately owned land in acres, but own just 13 percent based on the tax assessed value.

Yet, there is tremendous latent value. What is leased today will revert to landowners some time tomorrow. Those at the very top should remain there.

 

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