Who Owns O‘ahu?
Mystery buyers, high fliers and all those LLCs—we take a look at who’s claiming stakes on O‘ahu.
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Who Owns Those Pretty Shells On The Beach?
Photo: Cameron Brooks
Anyone can see who owns what by going online at realproperty.com and clicking on the “online records search” link. But the database is not searchable or sortable by name, only by number. So the average person can look but can’t see.
This opacity of information introduces mystery and anxiety into the question of who owns O‘ahu and especially, who has been buying up our island lately. That someone could be me. Or it could be you.
Or, it could be someone unknown. For instance, whoever owns seventwokalaheo LLC, a $12 million beachfront Kailua property, one of many held on that beautiful bay held by corporate shells or trusts. Of the nearly 50 beachfront properties between Kalama Beach Park and Kailua Beach Park, at least 34 are wholly or partially held in trust, and another seven are LLCs.
The limited partnership, along with the trust, is an Island tradition, of course—one about which we have mixed feelings. Think the Castles and Campbells and Damons. Trusts and LLCs can be used to help families retain ownership of a property over successive generations. Some of those broad, green lawns with graceful plantation-style homes survive thanks to LLCs, trusts or condominium shells.
Trusts also dominate Waikīkī hotels with tourism profits fueling the state’s No. 1 private industry, as well as for the leasehold owners, primarily Kamehameha Schools, the Queen Emma Land Trust and the Queen Lili‘uokalani Trust. Those profits go to run Native Hawaiian community’s schools and The Queen’s Medical Center.
But the same legal minds and entities that preserved the ali‘i estates can also hide or obscure ownership. And that’s the rub. One man’s way of handing down a place to his grandchildren (or funding a clinic or neighborhood center) is another man’s tentacle of international capital, reaching into your neighborhood and cherry-picking a home that could be yours or your children’s.
The legal shell game is part of what’s turning Kailua into ground zero for the unregulated luxury vacation-rental market. Sure, we know the argument: Family members can make money on their place and use it to pay record-setting mortgages and ever-increasing property taxes. But often the house becomes a cash machine and the owner become less neighborly, as in absentee.
Basically, legal shells invite strangers without community ties to step into our lives and treat us as stage props in their tropical holiday or, in the worst-case scenarios, as hotel valets. For every North Shore party house with beer-drenched carpeting, there’s a neighbor with raccoon-mask eyes who will bend your ear about how they’re moving out because of the noise and hassle. Ditto the neighbors of the CEO whose compensation lawyers advised him to put his Kāhala property under his company name, then run it like a timeshare or luxury hotel. If this company is a REIT—a real estate investment trust—it won’t pay any taxes in Hawai‘i.
This corporatization of O‘ahu is happening fast, as you’ll see from our chart on the opposite page. It’s perfectly legal, of course; so was the securitized derivative market that triggered the crash and subsequent Great Recession. But once a piece of beachfront is snatched up and placed in a trust or corporate shell, one of those LLCs and LTDs, it becomes shareholder-owned and its status goes murky. That Kailua or Kāhala or North Shore money-machine house might better be owned by Marriott or the Holiday Inn, because at least then it would be regulated.
And, as the chart shows, in the case of Kāhala, the shelling of O‘ahu is already into the second ring of houses a block back from the beach, which raises the question about how far it will spread.
SOURCE: TITLE GUARANTY; REAL PROPERTY ASSESMENT DIVISION
LLC-Owned Properties in Kāhala: There are 33 LLCs from Black Point to Kealaolu Ave.; only three list the street address for tax mailings, indicating a resident owner. Along the beachfront there are, in addition, over 30 properties held in trust.
The Faceless Corporations
There Goes the Neighborhood
Kailua Beach and the North Shore grab the headlines, but some of the real whale-watching goes on in the development and industrial side. When the Estate of Samuel Mills Damon and the Estate of James Campbell were winding down in the early 2000s, both sold properties to a Newton, Massachusetts, REIT called HRPT. With Damon’s 220 acres in Māpunapuna, Kalihi and Sand Island ($480 million) and 200 acres of Campbell Industrial Park ($115 million), HRPT founder/CEO Barry Portnoy and his partner/son Adam became the largest industrial landowners in Hawai‘i, according to a 2005 Hawai‘i Business article.
Then the shells started moving. HRPT changed its name to CommonWealth, then created a shell called Select Income REIT (SIR) for its O‘ahu holdings, which now included the land under some Longs Drugs stores and Pali Safeway. Through another affiliate, Senior Housing Properties Trust, CommonWealth also paid $70 million for the First Insurance Center in Honolulu.
As a measure of how far we have moved from the plantation culture, with its expectations of hands-on, community-centric stewardship, consider this nugget from The New York Times about CommonWealth’s Adam Portnoy: His wife, Elika, is a runner-up Miss Bulgaria and expert marksman who played a belly dancer in the Christian Slater thriller, Assassin’s Bullet. Their yacht is called the Mutressa, which loosely translates to “gangster’s mistress.”
(Yes, I’m sure they’ll come to your baby lū‘au. Go ahead and slip an invitation under the gate, if you can get past the Dobermans.)
More to the point, CommonWealth/SIR controlled the fate of 200 Pearl Harbor businesses on 17 million square feet of land. Since acquiring Campbell Industrial Park, the company raised rents on expiring leases an average of 37 percent—which rose to 47 percent in 2013.
Amid long-time accusations of running the publicly traded businesses as a personal fiefdom, the Portnoys came under shareholder attack when, in March 2013, CommonWealth notified the Securities and Exchange Commission it would be selling its 22 million shares of Select Income REIT.
The shareholder revolt succeeded in toppling management. Another, bigger billionaire, Sam Zell, took over and changed the name to Equity CommonWealth (EQC), but spun off and sold Select Income REIT’s $708 million of shares anyway. That reduced EQC company holdings to the Diamond Head Self-Storage facility at 633 Ahua St.
As for that 400 acres of prime industrial O‘ahu real estate, it’s still with Select Income REIT, under a new management team. SIR is currently offering Parcel 19 of the Campbell Industrial Park and is entertaining inquiries about its 158,036 square feet. But if you go on the City and County of Honolulu Department of Real Property Assessment System, 91-222 Olai St. is subdivided into two halves owned by yet another shell: ALPHA BT LLC.
Thus, in our modern way, ownership is diluted among shareholders. That’s why, in more and more cases, “shareholders” are your new neighbors or your new landlords. Faceless, electronic ciphers traded daily on the stock exchange, you won’t be having them over for coffee anytime soon.
The Military Developers
The Military Housing Scenario
The U.S. military may have triggered a long-term housing shift by inviting two Mainland building firms, Hunt and Forest City, and Australia’s Actus Lend Lease, to handle the replacement of 16,000 substandard military housing units.
“The builders were brought in to do a one-to-one replacement,” says a real estate industry insider. “But they did such a good job people noticed.”
It turns out the three builders are also developers, and now have broken ground in the local market. The result is going to be formidable competition for local builders and developers. Hunt has won the Hawai‘i Public Housing Authority contract to redevelop the Mayor Wright houses. A 500-acre site will host as many as 1,100 Hunt homes in Kalaeloa, the old Barbers Point Naval Air Station. Forest City is doing 499 rentals in Kapolei.
Efficient, experienced builders improving our housing situation—what’s so bad about that? Nothing—unless there’s a significant military drawdown, which was proposed earlier this year and then shelved. “Let’s say 10,000 of those military units become available,” said a local real estate consultant who has worked military ties. In the case of housing on military land, “the first right to rent goes to active service members, then to retired military and so on down the service ladder.”
The end result, he said, could be subsidized military retiree communities occupying land and housing in perpetuity, while surrounding property values soar.
It Couldn’t Get Worse, Could It?
What could make our housing pressure worse? “The dominance of Asia illustrates a larger trend,” writes Richard Florida, director of the Martin Prosperity Institute, in The Atlantic’s CityLab. Noting the rise of Singapore and Hong Kong, he says, “the wealthy in Asia also now hold more money overall than those in North America: $5.9 trillion ... ” Politcal unrest and economic opportunities already have them looking here.
Forget the 1 percent—these investors are the 0.002 percent. To them, even a beachfront Kāhala house might look downright affordable.