What’s Worth the Most in the Islands?

How land in the most isolated island chain in the world came to be worth billions

November, 2006

$25,000 That was the price tag in 1912 for 50 acres tucked between downtown Honolulu and Waikiki. It sounds like a steal, even at the turn of the last century, but, when Walter F. Dillingham paid Bishop Estate that sum, he met with ridicule. Even Dillingham’s own board of directors was stunned.

The 50 acres was swampland.

“The only reason he could even buy the land [from Princess Bernice Pauahi Bishop] was because it was a swamp. [Bishop Estate] could only sell unproductive land,” says Sam Shenkus, the marketing director for Ala Moana from 1984 to 1992. “They kept having problems with the mosquitoes and ducks; so they sold it to Dillingham to get it off their hands.”

Almost 50 years before statehood, still firmly in the age of the plantation, no one foresaw any real potential value of that land—except Dillingham.

“Walter was a genius,” Shenkus says.

Fast-forward to 2006. Those 50 acres, now home to shopping-Mecca Ala Moana Center, comprise the most valuable property in the state of Hawaii. Its price tag today, based on the tax-assessed value of the land and buildings, is just under $700 million. Compared to Dillingham’s purchase price, you come up with a pretty comical number: A 2.8 million percent increase, of course that figure is not adjusted for inflation or any building improvements, but it makes a point.

Walter was a genius.

Hawaii is the most geographically isolated island chain in the world, but that has not prevented land here from reaching extraordinary prices. This year, in addition to our fifth annual list of the Hawaii’s wealthiest landowners, Hawaii Business lists the Top 5 most expensive properties on each major island. Here are the stories of some of the visionaries and power brokers behind those properties, who have helped make land in Hawaii so valuable.

The Gathering Place

As Walter Dillingham’s company, Hawaii Dredging and Construction Co., grew after purchasing those 50 acres, he landed large dredging projects throughout Oahu. As he excavated such places as Pearl Harbor and Ala Wai Canal, Dillingham started filling in the swamp with the dredged material. It didn’t happen overnight, but as statehood approached decades later, Lowell Dillingham, Walter’s son, envisioned the ultimate destiny for those 50 acres: Ala Moana Center.

Clearer than most, Lowell Dillingham saw the transition of Hawaii’s economy from a plantation-based to a tourism-based economy. He also saw the potential windfalls of statehood. Lowell Dillingham saw that 50 acres within that context of growth: They were perfectly located between a soon-to-be growing-Waikiki and downtown, and people would need a place to shop.

But even if people had believed in Dillingham’s vision for a massive mall built atop a swamp, which most didn’t, getting financing seemed near fantasy. “At the time, Mainland institutions were very reluctant to invest here,” says research consultant Marty Plotnick, of Creative Resources Inc. “Hawaii wasn’t poor, but it was in an economically low-class position.”

Plotnick says Dillingham’s coup de grace in getting financial backing for Ala Moana Center was securing Sears as an anchor store. To convince Sears to move from a profitable location on Young Street, Dillingham boldly offered to buy its building, says Plotnick. Sears signed on.

In 1957, Dillingham broke ground for Ala Moana Center and two years later opened a 680,000-square-foot, two-level mall, the largest mall in the country at the time. Noting the brilliance of the overall design, Stephanie Sofos, a Hawaii real estate analyst, says the mall was accessible by five major roads. Sofos says Dillingham also managed to get Ala Moana Center designated as a main bus station. Within a year, the center took off. Ala Moana has since been through multiple expansions and renovations.

Today, Ala Moana is one of the most profitable malls in the nation. More than 42 million people, both tourists and locals, visit the mall each year. Annual sales top $1 billion and revenue per square foot reaches the exclusive heights of over $1,000 per square foot. The owner and operator of Ala Moana today is the Mainland retail behemoth General Growth Properties. We asked Dwight Yoshimura, senior vice president and senior general manager for GGP Hawaii region, what the mall’s greatest strength was today. Yoshimura answered, without pause, “It’s the location. We are in the middle of Waikiki and downtown. That speaks for itself.”

Ala Moana Center is a large part of the reason General Growth is No. 4 on our Top 20 Wealthiest Landowners list, at $1.13 billion.

The Diamond and the Rough

Hockey-stick projections.

That’s what some insiders called the foundations for the exorbitant amounts Japanese were spending on developments during the height of the Japanese bubble. The meaning was that a typical growth pattern was like the short part of a hockey stick, slowing rising. But to support the amount of money poured into properties, the growth projection would have to suddenly and dramatically shoot up, like the long part of a hockey stick.

In other words, it was an unrealistic expectation.

In Hawaii, there is perhaps no better example of that unrealistic investment than the Grand Wailea Resort Hotel and Spa. “They went wild,” says F. Kevin Aucello, executive vice president and director of CB Richard Ellis Hawaii. “They built something far more luxurious than the market at the time could bear. Maybe they didn’t even have a projection.”

In the late ’80s, Japanese businessman Takeshi Sekiguchi set out to build a massive, nearly 800-room luxury resort, that would spare no cost and fear no amount of change orders. It was the height of the Japanese bubble and banks were eager to lend. Aucello estimates the building cost was an unsupportable $650 million.

Then the resort was hit by the double-whammy of the Japanese bubble bursting and the Gulf War. “They basically hit the market when the market went into the tank,” says Steve Parker, of Classic Maui Properties. “It was bad timing and overbuilding. That is the story of any bad real estate deal.”

Sekiguchi hung on until the late ’90s, when the banks pulled the plug. Credit Swisse First Boston bought the resort for $263 million in 1998, then resold it later that year to KSL Recreation for $375 million, Aucello says. KSL sold the property to CNL Hospitality in 2004 for an undisclosed amount. Aucello estimates it would have gone for about $500 million, still well under the 1991 building costs.

Grand Wailea executives declined to comment for this story.

Aucello adds, that, even though the banks certainly lost out on the initial investment, Hawaii added a tremendous property. “It’s hard to imagine the Grand Wailea being built today,” he says.

Today, CNL ranks No. 19 on our Top 20 list, almost entirely due to the Grand Wailea. Its total tax-assessed value of $319 million is the highest on Maui.

Like a Fine Wine

The Grand Hyatt Kauai Resort and Spa opened in 1990. Like many other hotels built during that era, it would soon after be hit by the bursting of the Japanese bubble and the Gulf War.

But, unlike the others, it also had to weather Hurricane Iniki in 1992.

“This island was devastated,” says Myles Shibata, the former chief operations officer of the resort, now the president of Grove Farm Land Corp. “Ownership came out immediately to look at the island and made a fairly quick decision to keep all the employees on the payroll, continue their benefits and house them on the property if need be.”

Then, without waiting for their insurance to kick in, they started rebuilding, says Shibata. “They had the love for Kauai.”

The owner was a major, though family-run, development corporation out of Japan, Takenaka Corp., operating locally under the name Kawailoa Development. Shibata notes that the 400-year-old business originally built temples. The president is a 17th-generation president. So, Shibata says, Takenaka didn’t flinch at hardship.

“You have to understand this company comes with a 400-year history. So four or five years of difficulty is something, in the context of their history, that is a short period of time. They realized a property like this takes time to mature,” Shibata says.

Mature, it did. Katy Britzmann, the resort’s director of sales and marketing, says the resort has repeatedly won prestigious travel awards, and the Poipu Golf Course, which Takenaka also built, hosts the PGA Grand Slam every year.

Britzmann believes the resort has raised the profile of Kauai tourism in general. It certainly towers on the list of Kauai’s most valuable properties, at $161.7 million. The next most valuable property is the Princeville Resort, at $49.5 million in assessed value.

The Bold and the Bountiful

Perhaps the best thing that ever happened to Hualalai Resort on the Big Island was bankruptcy.

In 1989, Cosmos World owned the development rights for some 600 acres at Kaupulehu on the Kohala Coast and like most of that bubble crop of Japanese developers, the company was thinking big, literally. Cosmos World wanted to build a massive, six-story, luxury resort, plus golf courses. Two years later, with three floors in the ground, Cosmos went bankrupt.

When Tokyo-based Kajima Corp., the project’s general contractor, took over in 1992, it did something highly unusual for a project already marked with financial woes. “They made a very bold move to stop construction,” says Jeremy Sosner, vice president of marketing for Hualalai Resort. Kajima decided to tear down the hotel and start over.

With input from both extensive market research and local kapuna, Kajima decided to build a resort that had a real Hawaiian sense of place. The idea was that people traveling to Hawaii for a high-end experience would respond more to a unique setting that drew upon the history of the place. The decision was made to build a series of small cottages instead of a massive centralized resort. “More of a Hawaiian village, in an upscale, refined way,” says Sosner.

At the time, such a resort was not a proven business model. “It took a lot of courage,” says Sosner. Ten years later, Sosner says, it is safe to call it a huge success. Four Seasons Hualalai is the center of a wildly successful resort/residential community. Perhaps, the repeated recognition of the Four Seasons Hualalai as one of the best resorts in the world by leading travel magazines would be enough. But as part of the venture, Hualalai is also a real estate venture, where new cottages are built and sold at prices ranging from $4 million to $24 million, says Sosner.

“In 10 years, we have sold $1.1 billion worth of real estate,” Sosner says.

The land under the resort is owned by Kamehameha Schools, the No. 1 landowner in the state. This year, a joint venture of Michael Dell’s MSD Capital LP and Rockpoint Group LLC bought the resort and development rights for the master-planned community for an undisclosed amount.

The most expensive property on the Big Island, the Hawaiian Electric Industries power plant, is assessed at $506.8 million. This is an artificial assessment, because HEI could not get that amount on the market and has never challenged the assessment, likely because it does not pay taxes on the land. The Hualalai Four Seasons Resort comes in fifth on the Big Island’s properties list, but is arguably the most interesting top property on the Big Island. Plus, the assessed value of $86.5 million covers only the Four Seasons resort, not the rest of the planned development properties; nor does it factor in the highly valuable development rights granted by Kamehameha Schools. Real estate experts say the full package of the resort, the rest of the properties, such as the golf courses, and the development rights probably sold for more than $500 million this year.

Says Sosner of the success of the development: “It created prime real estate on essentially what was a lava flow.”

Top 5 Properties By Island
Description ‘06 Assessed value – land and building Acres
Ala Moana $699.6 mil 49
Hilton $356.8 mil 9
Sheraton Waikiki $343.7 mil 3
Royal Hawaiian Hotel $327.4 mil 10
Bishop Square $206.9 mil 3
Description ‘06 Assessed value – land and building Acres
Grand Wailea Resort $319 mil 26
Hyatt Regency Maui $199 mil 18
Westin Kaanapali $150.8 mil 14
Four Seasons Resort $146.5 mil 11
Sheraton Maui $144 mil 23
Description ‘06 Assessed value – land and building Acres
Grand Hyatt Kauai Resort and Spa $161.7 mil 27
Princeville Resort $49.5 mil 14
National Tropical Botanical Garden $38.1 mil 832
Sheraton Kauai $31.6 mil 8
Kukui Grove $31 mil 24
Description ‘06 Assessed value – land and building Acres
Power Plant $506.8 mil* 15
Hilton Waikoloa $204.8 mil 61
Fairmont Orchid $135.4 mil 25
Hapuna Beach Prince Hotel $89 mil 31
Four Seasons Hualalai $86.5 mil 39


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