commercial real estate

Some Hawaii conveyance tax bills up 200%

Sellers of multimillion-dollar real estate in Hawaii are adjusting to the new reality of paying a conveyance tax that’s two to three times higher than it was just two months ago.

In its quest to find more money, the Legislature took a three-tiered tax on real estate transactions that stopped at 35 cents per $100 for purchases of $1 million or more and created a seven-tiered system that tops out at $1.25 per $100 of $10 million purchases and above.

That means the seller of a six-bedroom home on Kailua Beach that closed for $7.1 million last week paid a conveyance tax bill of $78,100 — more than three times what the tax would have been before July 1, when the new rates took effect.

Because the house was purchased as a vacation home, the sale was taxed at a rate of $1.10 per $100.

The law doesn’t say who has to pay the tax; sellers of property in Hawaii traditionally pay it at closing.

“What makes it more ridiculous is the rate is dependent on the buyer’s status not the seller’s status,” said Realtor Anne Oliver, who represented the seller in the sale. “It’s just illogical.”

So far, there have been fewer than a dozen residential sales on Oahu affected by the tax increase, which changed for all sales to owner-occupants $2 million and above, and for sales to investors and second-home buyers of $1 million and above.

“Many agents are trying to put the burden on the buyer, particularly because of the status of the buyer affecting what the conveyance tax is, but it does not appear to be working very well at the moment,” said Oliver, a vice president at Coldwell Banker Pacific Properties.

Commercial property is also affected by the new rates and is taxed at the same rates for owner-occupants. Sellers of commercial property in the multimillion-dollar range will see their proceeds cut because of taxes that have doubled or tripled.

For example, if Alexander & Baldwin was to sell the Mililani Shopping Center for its current asking price, $55 million, the company would have to pay the state $550,000 in conveyance tax under the new rate, more than three times the $165,000 it would have had to pay before July 1.

“Our experience so far has been with a couple of clients right at closing, when they got their statements, they were quite surprised,” said Mark Bratton, vice president of Colliers Monroe Friedlander.

Both clients were sellers, he said.

“They had been counting on a certain net proceeds, and that’s enough to move the needle,” Bratton said. “People pick that line item out of the closing statements.”

Hawaii’s conveyance tax used to be 10 cents per $100 for all property sales. In 2005, the Legislature created three tiers of conveyance tax for properties under $600,000, for $600,000 to $1 million, and properties selling for more than $1 million.

The law, dubbed the Legacy Land Act, also allocated 10 percent of the tax proceeds to the Land Conservation Fund, 25 percent to the Natural Area Reserve Fund administered by the Department of Land and Natural Resources’ Division of Forestry and Wildlife and 30 percent to the state’s Rental Housing Trust Fund. The remainder, 35 percent, went into the state’s general fund.

This year, lawmakers took it a step further, creating four more tiers for properties selling for $2 million and up, and reducing the amount of money going to the Rental Housing Trust Fund and the Natural Area Reserve Fund by 5 percentage points each until June 30, 2012, so that 45 percent of the money collected will go to the general fund.

During the fiscal year that ended June 30, the state Bureau of Conveyances collected nearly $23.8 million in conveyance taxes; $8.3 million of that went into the general fund. The number has been dropping each year since the 2006 fiscal year, when conveyance taxes totalled $56.6 million, according to data from the bureau.

That amount is likely to drop even more during the current fiscal year that started July 1. Conveyance tax collections in July totalled just under $1.2 million, about $1 million less than July 2008. Money for the three earmarked funds in July was half of what each received in July 2008, but the amount that went to the general fund, $525,384, was about 30 percent less that what the state collected last year.

During hearings on the bill, dozens of pages of testimony were submitted by affordable housing and environmental groups opposing any cuts or eliminations to the earmarked funds.

The proposed cuts grew smaller, and the tax rates grew larger as the bill moved through the process and into conference committee, said Lowell Kalapa, president of the Tax Foundation of Hawaii.

Kalapa said the tax will effectively chase off future investments in Hawaii real estate and effectively drive up prices as sellers seek to recoup the tax from the buyer. Conveyance tax on even a small, family-owned commercial building would be double or triple what it used to be, he noted.

“It’s true stupidity, absolutely,” he said. “They’re talking about creating jobs, [but] who would want to come to Hawaii?”

Source: PBN

commercial real estate

Lenders foreclose on Makena Hotel

A foreclosure complaint was filed this week against Makena Hotel LLC, the owner of the Maui Prince Hotel, but resort operators yesterday told employees and guests they plan to continue normal operations.

“We were informed by the lenders this afternoon that a foreclosure complaint was filed against Makena Hotel LLC, the owner of the Maui Prince Hotel, yesterday morning,” said Donn Takahashi, president, Prince Resorts Hawaii. Prince Resorts operates the Maui Prince Hotel and the Makena North golf course.

Many Hawai’i hotels have been suffering financially as a result of more than a year of declines in visitor arrivals.

Takahashi said the legal action in Maui courts is the beginning of a lengthy process to restructure and reorganize the ownership of the Resort, which Makena Hotel LLC acquired in 2007.

“Our primary concern is our employees and our guests,” Takahashi said. “We plan to have immediate discussions with the lenders to understand their plans for the resort moving forward.”

He said the company has about 380 employees, including full-time, part-time, and casual workers.

Takahashi added, “the foreclosure action is a legal process that we have no control over and we are hopeful that it will not interfere with how we are currently operating the hotel and golf course.”

He said the resort will continue to accept reservations “until the owner or the lenders advise us otherwise.”

In 2007, the Japan-based Seibu Group sold the Makena Resort and the upscale Maui Prince Hotel for $575 million to Honua LLC, an entity ultimately owned by Morgan Stanley Real Estate Fund and Dowling Company Inc. of Maui.

The 1,800-acre property includes the 310-room Prince, one 18-hole golf courses, another in development and 1,300 acres of undeveloped land.

In June 2007, title to the Maui Prince Hotel was conveyed to Makena Hotel LLC, as Honua LLC’s designee, which then retained Maui Prince Hotel LLC to manage the hotel through March 31, 2008, while the new owners were finalizing plans for the resort.

Source: HNA

commercial real estate

Developer owes money to Hawaii hotel’s high bidder

The connection between Unity House and developer Brian Anderson goes deeper than its high bid this week of $8.5 million at a foreclosure auction for The Lotus at Diamond Head hotel.

Anderson owes the nonprofit organization several million dollars from a 5-year-old loan, and Unity House was in talks earlier this year to buy the former W Honolulu hotel from Anderson as a means to settle the debt.

“We initially got onto this because Brian owed us money,” said Unity House Chairman Jim Boersema. “We considered a number of options and one of them was the W hotel.”

The money owed is more than $4.5 million, according to documents from a lawsuit Unity House filed in June 2008 that is still pending in 1st Circuit Court.

Unity House was unable to work out a final agreement between Anderson and First Hawaiian Bank and Central Pacific Bank, which held mortgages on the property totaling more than $10 million.

After the first foreclosure auction, scheduled for June, was delayed, Unity House took another look at attempting to acquire the hotel.

“We basically decided a few weeks ago,” Boersema said. “We’ve liked the property; we think in the long run it’s going to be a good investment.”

Anderson’s company, Anekona W, purchased the hotel, which sits on leased and fee-simple land on Kalakaua Avenue’s Gold Coast, from Colony CSR Investors LP on Aug. 17, 2004, nearly five years to the day before Tuesday’s auction.

First Hawaiian Bank filed for foreclosure on the property in October, saying it was owed more than $4.9 million in principal, fees and interest from a $5 million loan. Central Pacific Bank also is owed about $5 million on a second mortgage. The sale to Unity House must be confirmed at a hearing in about 30 days, at which time other parties could still outbid the nonprofit.

The hotel was worth between $10.2 million, according to an appraisal ordered by Central Pacific Bank, and $16 million, the figure in an appraisal ordered by Unity House, which assumed the conversion of the 51 rooms into condominium hotel units.

Unity House had loaned Anderson $2.5 million in 2004, with an interest rate of 30 percent, due in March 2006, according to court documents.

In March 2008, the two sides had reached a settlement agreement, but the lawsuit said that Anderson, identified in the original complaint as John Doe, and his wife, Joan, had “failed and refused to pay the principal and all the accumulated interest” to Unity House.

In November 2008, the two sides reached a settlement compromise in which Anderson would turn over six condominium units on the 25th floor of the Ilikai by March 31 in lieu of paying back the loan. If the condos were not conveyed by that date, then Unity House would seek a judgement against the Andersons for $4.5 million plus 10 percent interest, according to court documents.

But the Ilikai itself was in foreclosure, and in May, New York lender iStar Financial took back the 203 residential units and the 16 commercial units after bidding $51 million at a confirmation hearing for the foreclosure auction. Anderson also lost the Kauai Beach Resort to iStar Financial through foreclosure a couple of weeks later.

Unity House did not receive title to the Ilikai units, and in June, the Andersons were named in the lawsuit, replacing the unnamed John Does.

Last week, the Andersons were named in an unrelated lawsuit filed by Pacific Rim Bank alleging they, one of their sons and a company called Lanihau Properties LLC owe nearly $1.6 million in principal, interest and fees from a $2 million line of credit opened on Aug. 25, 2006.

Anderson said Tuesday he had not seen the lawsuit and could not comment on it. He did not immediately return a call Wednesday seeking comment on the Unity House bid and lawsuit.

Anderson’s company, Anekona W, filed for Chapter 11 bankruptcy in June in an effort to prevent the Waikiki hotel from being sold at a foreclosure auction that same month. In July, he retained a broker to market the property for $14 million, but the Chapter 11 case was dismissed a week and a half later after the U.S. Trustee argued that the two mortgages on the property would leave little for other creditors.

Earlier this month, Anderson hired a new bankruptcy attorney and, less than two hours before the auction’s scheduled time on Tuesday, attempted to have the Chapter 11 case reinstated and the auction halted, claiming there was a buyer interested in purchasing the notes from the two banks

After a brief deliberation, U.S. Bankruptcy Judge Robert Faris declined to grant Anderson’s motions, saying that the time between the foreclosure auction and the confirmation hearing would give an interested buyer plenty of time to step in and purchase the hotel.

Unity House, which was founded in 1951 by Arthur Rutledge, has approximately 10,000 beneficiaries, mostly members and retirees of the UNITE H.E.R.E. Local 5 hotel and restaurant workers union and the Hawaii Teamsters, Local 996.

The Lotus at Diamond Head, which is managed by Castle Resorts & Hotels, is a non-union operation.

Boersema said the hotel likely would continue to be managed by Castle, but it’s unclear whether the hotel’s employees would become organized under Local 5 if Unity House prevails at the confirmation hearing.

“We have to actually obtain title to it and then look at all the various options for that property,” he said.

Source: PBN

commercial real estate

Bay View Golf Park Facing Foreclosure

Central Pacific Bank is pursuing foreclosure against a local partnership that bought Bay View Golf Park three years ago, though the owners of the Kane’ohe golf course hope they can resolve the loan default and retain the property.

The financial trouble has hurt plans by owner KBay LLC to redevelop half of the 18-hole course with a mix of 300 affordable and market-priced homes, a bowling alley, batting range, lodge and community center. But the golf course, driving range, restaurant and miniature golf facilities remain open.

Greg Hong, one of KBay’s principals, said he couldn’t comment about the mortgage troubles or development plan because the owners are trying to work with Central Pacific to avoid foreclosure.

The bank filed its foreclosure suit last month against KBay and its principals Hong, Michael Nekoba and Thomas Enomoto.

According to the suit, KBay borrowed nearly $6.9 million in March 2006 that helped the group buy the property for $11 million. The loan, Central Pacific said, matured on March 15 and wasn’t paid off by KBay, which owes nearly $7.1 million, including unpaid interest.

The suit is part of a wave of foreclosure cases imperiling commercial property owners who couldn’t refinance their debt in the past year or so because of the financial crisis constraining global credit markets.

KBay’s purchase came near the height of Hawai’i's last real estate investment boom, and three years after another hui of local investors — The Shidler Group, J.D. Watumull and Joe Leoni — bought the distressed golf course for $3.4 million and restarted play there after paying a $1 million property tax delinquency.

KBay’s plan was to spruce up facilities and increase kama’aina play. But the initiative faltered as a series of upgrades, including opening a new restaurant, failed to reverse financial losses and resulted in temporary closures and layoffs.

In a move to salvage the investment, KBay late last year unveiled a proposal to redevelop nine holes for other uses.

The plan, which the developer said had some community support but drew none at a November Kane’ohe Neighborhood Board meeting, involved developing 150 affordable multi-family rental homes for seniors earning between 80 percent and 140 percent of O’ahu’s median income, and 149 market-priced homes.

Though Bay View land is primarily zoned for preservation, the developer sought to use a state law that allows exceptions to zoning controls for housing projects where at least half the units are affordable to moderate-income buyers.

Other parts of the development plan include a 40-lane bowling alley replacing Bay View’s miniature golf course, a multipurpose senior community center, walking trails and a 60-unit lodge for sports teams. Part of Bay View’s two-story driving range was slated for conversion to a baseball batting range.

A wedding chapel and pet mausoleum also were elements in the draft plan that KBay said was subject to change based on public input.

KBay previously said one major benefit to developing half the golf course would be creating a safe public access to an adjacent city sewage treatment plant being taken out of use, allowing the city to convert the property to a dog park or other recreational use.

Another benefit would be expanded access to Waikalua Loko Fishpond, which KBay owns and seeks to sell to the nonprofit Waikalua Loko Fishpond Preservation Society that manages the pond.

KBay had planned to publish an environmental impact statement to address traffic issues, water use, storm water runoff and flooding, but the mortgage troubles have hung up the project.

Source: HNA

commercial real estate

Alexander & Baldwin Selling Mililani Retail Center

Alexander & Baldwin Inc. hopes to cash in on upgrades it made to Mililani Shopping Center by selling the mall seven years after acquiring the property.

A&B is asking $55 million for the mall, compared with the roughly $30 million it paid in 2002.

The 180,300-square-foot center is 99 percent occupied with about 50 tenants, according to Colliers Monroe Friedlander, which is marketing the property for A&B.

Mililani Shopping Center was the first of three shopping malls in the Central O’ahu community when it opened in 1970, and is the second-largest mall in the area today.

Honolulu-based A&B said it has made substantial improvements to the center since buying the property from Japan’s Morita Co.

“Mililani Shopping Center is a major retail center in central Oahu, and offers an excellent opportunity for investors interested in expanding or initiating a Hawai’i-based portfolio,” said Norb Buelsing, president of A&B Properties Inc.

Tenants include Ross Dress for Less, 24-Hour Fitness, Blockbuster, GameStop, Starbucks, Jack In the Box, Goodyear Tires, and NAPA Auto Parts. Established local tenants include Foodland Super Market, Bank of Hawaii, First Hawaiian Bank, American Savings Bank, Wahiawa General Hospital, Hawaii USA Federal Credit Union and The Shack Restaurant.

Alexander & Baldwin, through A&B Properties, owns 20 retail, office and industrial sites in Hawai’i and 22 in eight other states. Its Hawai’i portfolio includes the Kunia Shopping Center, Kaneohe Bay Shopping Center and Pacific Guardian Tower on O’ahu, and the Kahului Shopping Center and Maui Mall on the Valley Isle.

Source: HNA

commercial real estate

HRPT says Government interference in commercial leases not constitutional

The largest private owner of industrial land in Hawai’i, HRPT Properties Trust, yesterday sued the state, alleging a one-month-old law intended to give its tenants more leverage in renegotiating rents is unconstitutional.

In the suit filed in federal court in Honolulu, HRPT said the law interferes with its rental contracts in violation of the U.S. Constitution, and if enforced would allow tenants to pay less rent than they do currently.

The law affects some of the more than 180 businesses that lease land from HRPT in Mapunapuna and Kalihi Kai on O’ahu.

Under the law, an unusual phrase in HRPT Hawai’i leases referring to “fair and reasonable” rent must be construed as being fair and reasonable to the lessor and the lessee.

The law also mandates that the type and intensity of use on the property be considered when determining what’s fair and reasonable.

“The (law) … mandates that HRPT’s contractual right to collect fair market rents is replaced by a rent renegotiation regime that is aimed at depressing rent rates,” the company said in its suit.

HRPT said earlier this week in a conference call with stock analysts that some tenants have begun using the law as a “hammer” in rent negotiations.

Most commercial land leases in Hawai’i tie rental rates to the fee- simple value of the land using a specified or prevailing rate of return, and rent is determined by an arbitration panel of appraisers if the landlord and tenant can’t agree on the amount.

Massachusetts-based HRPT said in the suit that arbitration, which is part of its leases, provides a fair and impartial means to resolve rental rate disagreements, and added that a “large majority” of rent negotiations over the past six years were concluded without arbitration.

The suit was filed against Gov. Linda Lingle, who let a bill passed by the Legislature in May become the rent law last month without her signature.

Lingle spokesman Russell Pang said the governor is reserving comment because of the litigation.

In an earlier message to the Senate explaining her reason for letting the bill become law, Lingle expressed mixed feelings about the measure.

“The ability to freely negotiate contracts without government intrusion is essential to a fair and open marketplace and a principle that I support,” she wrote. “However, this bill addresses a case where the free market between lessor and lessee is not functioning.”

The state attorney general testified that the bill might be found unconstitutional because it alters terms of a lease without a broad public purpose, though an expert retained by the tenant argued that the law is constitutional.

The public purpose stated in the bill is to help stabilize the economy by helping small businesses negotiate affordable rent on HRPT land.

HRPT leases were inherited from prior landowner Damon Estate when the firm bought 10 million square feet of land in Mapunapuna and Kalihi Kai plus a few other parcels from Damon in 2003 for $480 million.

Damon had maintained its lease language stating “rent shall be such fair and reasonable annual rent for the demised land” means fair market rent for the property. But arbitrators have long argued over the meaning of the phrase.

HRPT sought to raise rents to what it viewed as market rates as lease renegotiation periods came up for tenants after the boom in local real estate values from 2000 to 2007.

Many tenants bristled at the attempt to raise rents by as much as three times, and some formed a coalition that drafted a bill. The coalition, dubbed Citizens For Fair Valuation, was started by several companies, including Servco, Plywood Hawai’i and Grace Pacific.

Source: HNA

commercial real estate

California-based firm will acquire Queen Kapi’olani and Mililani Golf Club

A Los Angeles-based hotel and golf course company has agreed to buy the Queen Kapi’olani Hotel in Waikiki and the Mililani Golf Club from local developer Bert A. Kobayashi.

Terms of the sales, which are expected to be completed Oct. 15, were not disclosed.

Kobayashi, principal owner of the real estate development and consulting firm Kobayashi Development Group LLC, had acquired the two properties as part of a bigger purchase from troubled Japanese company Sports Shinko seven years ago.

The buyer is LA Koreana Inc., a hotel and golf course owner and operator with properties in Korea, Japan and the Mainland. The company also owns the ‘Ewa Beach Golf Club, according to Wayne Williams, a principal with Warnick and Co., a firm that manages assets for LA Koreana.

Williams said it was premature to say what, if any, repositioning plans LA Koreana has in mind for the two properties if the sales close as scheduled.

The buyer has an obligation to assume collective bargaining agreements at both the hotel and golf course, according to the seller.

In the case of the 314-room hotel, the buyer isn’t obligated to retain employees, according to a notice the seller filed with the state Department of Labor and Industrial Relations. But a spokesman for UNITE HERE Local 5, the union representing 56 workers at the hotel, said a buyer would have to retain unionized workers.

For the golf course, the seller said LA Koreana intends to keep all employees.

Source: HNA

commercial real estate

General Growth Properties hammered by rising vacancies

General Growth Properties posted a 2.1 percent drop in earnings, dragged down by the retail slump, rising vacancies and costs tied to its Chapter 11 reorganization efforts.

In its second-quarter earnings release, the Chicago-based real estate investment trust (Pink Sheets: GGWPQ) posted operating income of $615.8 million, down from $629.1 million last year.

Its funds from operations fell 74 percent to $58.1 million, or 18 cents per share, down from $221.6 million, or 69 cents per share. Funds from operations, which show how much money investment trusts generate from their properties, is the standard performance measure for real estate investment trusts.

The debt-laden mall owner attributed much of that decline to the sagging retail industry and its reorganization efforts. The company posted a $13.3 million drop in net operating income due to rising vacancy rates, $33.7 million in reorganization costs, and $27.9 million in additional restructuring costs including general and administrative expenses.

General Growth filed for Chapter 11 bankruptcy protection April 16. The company owns or manages about 200 malls in 44 states, some master-planned community developments and commercial office buildings. In addition to owning and managing the Ala Moana Center and the Ward Centers in Honolulu, General Growth also manages Windward Mall and Kapolei Commons on Oahu; King’s Shops at Waikoloa Beach Resort and Queens’ Marketplace on the Big Island; and Whaler’s Village and Queen Kaahumanu Center on Maui.

Source: PBN

commercial real estate

Pacific Office Properties sees $1.1M loss in Q2

Pacific Office Properties Trust, the largest office landlord in Honolulu, reported a net loss of $1.1 million in the second quarter, the company reported Wednesday.

It’s a slight improvement over last year, when the Los Angeles-based REIT posted a loss of $1.3 million. The company, which was formed in March 2008, has a portfolio that consists primarily of office buildings in Hawaii and the western U.S. that it acquired from The [CompanyWatch allows you to receive email alerts with stories related to your companies of interest. <p>You can watch up to ten companies at a time.</p>] Shidler Group of Honolulu.

Honolulu businessman Jay Shidler is chairman of Pacific Office Properties and the company is managed by an affiliate of The Shidler Group.

The company reported $18 million in revenue for the quarter ending June 30, compared to revenue of $18.2 million in the same period last year.

Rent revenue for the second quarter of 2009 included $10.6 million in rent paid by tenants of its 40 office buildings. Rent revenue is down from $11 million last year.

Operating expenses were $23.9 million for an operating loss of about $5.8 million, compared to $7.1 million a year ago.

Funds from operations for the second quartter were $1.8 million, or 10 cents per share, compared to $183,000, or 1 cent per share, during the same quarter last year.

Pacific Office Properties (Amex: PCE) said 60 percent of its holdings are in Honolulu — one of the healthiest office markets in the U.S., which accounted for 75 percent of its revenue in the quarter.

Source: PBN

commercial real estate

Kailua Kona Commercial Lot

Great location, spectacular views and easy access. Last original lot sale by developer of new commercial subdivision. Priced to sell at about $50psf net of roadway. Nearby lots listed above $80psf. Rare opportunity in center of Kailua-Kona, close to everything. Western boundary of property is the Pa Kuakini (Great Wall of Kuakini), which must be preserved and has a twenty-foot buffer zone which can not be built in. Site is accessed by private road from Hale Kapili. The private road is owned by this property and Lowes HIW. An existing agreement requires both owners to maintain the road.

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