Estate continues freeze on home leasehold sales

By Frank Cho
Advertiser Staff Writer

Kamehameha Schools, the state's biggest private landowner, has extended a freeze on residential leasehold property sales through the end of the year while it considers lowering the leasehold interest prices on land under thousands of condominiums and single-family homes.

The billion-dollar nonprofit charitable trust, formerly Kamehameha Schools/Bishop Estate, imposed a four-month moratorium May 1 in order to re-evaluate the prices on its remaining 4,920 condominiums and 390 single-family homes that sit on leasehold land owned by the trust.

Critics had frequently complained that the estate was charging exorbitant prices for its lease-to-fee conversions. Residential real estate prices have plunged 25 percent or more over the past decade and many homeowners are demanding lower prices.

The estate had planned to lift the moratorium yesterday, but instead decided it needed more time to weigh the issue.

"We knew this was a significant undertaking when we started it, and after four months of evaluation it is clear that we will need more time to complete the project," said Hamilton McCubbin, the estate's chief executive officer.

"I would look for a report from our Endowment Group by the end of the year," McCubbin said.

Kamehameha Schools once owned the leasehold interest to 12,700 condos and 14,865 single-family homes more than a decade ago. It has sold the fee interest to all but 4,920 condos and 390 single-family homes as part of a larger strategy to exit the residential leasehold market.

The estate said it hopes to update its leasehold pricing to better reflect current market prices.

"We've been diligent in collecting and analyzing a huge amount of information. We want to make sure we are prepared to make the best recommendation possible to the CEO about where we think Kamehameha Schools needs to go with regard to its residential leased-fee properties. We hope to be able to do that by December," said Wendell Brooks, the estate's chief investment officer.

But homeowners hoping to get lower prices may be disappointed, said Peter Savio, a real estate broker who helped Kamehameha Schools sell about 8,000 leasehold properties in the 1990s.

"I know everybody would like them to reduce the prices, but I don't think they are going to go down the 50 percent or two-thirds that some people have speculated," Savio said.

Savio said that while land values have gone down over the past several years, leases have gotten equally shorter, increasing the value of the property to the landowner. And if in fact land values are way down, Savio said Kamehameha Schools may choose not to the sell the leasehold interest until the the market improves.

"And even if (the estate) were to reduce prices by 50 percent, I estimate that over half of the people living there would still not be able to buy the leasehold interest because they don't have any equity. So the lower prices become meaningless," Savio said.

Kamehameha Schools last studied its lease-to-fee price schedule in 1991 — at the height of Hawai'i's real estate market. Since then, a decade-long downturn in the economy has deflated land values significantly.

Joel Criz, a Honolulu real estate broker familiar with the leasehold market, said some homeowners who where hoping to buy the leasehold land at lower prices will have to wait a little longer.

"The first priority right now are people who have to renegotiate their leases. Those will probably see their rent remain high," Criz said.

Homeowners already involved in lease-to-fee conversions based on current prices will be allowed to close the sales, said Kekoa Paulsen, a spokesman for the estate. No new prices will be quoted until the moratorium is lifted, Paulsen said.

Kamehameha Schools was created in 1884 by the will of Princess Bernice Pauahi Bishop, the great-granddaughter of King Kamehameha I, to educate the children of Hawai'i. Revenue from more than 300,000 acres of Hawai'i land and other investments around the world is used to finance the Kamehameha Schools 600-acre Kapalama campus in Honolulu and other smaller campuses around the state.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com