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The Honolulu Advertiser
Posted on: Thursday, November 20, 2003

Damon Estate, land buyer reach $500 million deal

By Andrew Gomes
Advertiser Staff Writer

A Massachusetts firm has agreed to pay nearly a half-billion dollars for assets of the Damon Estate, which would give the company control of a vast collection of commercial property on O'ahu ripe with redevelopment opportunity.

HRPT Properties Trust, a publicly traded firm that primarily invests in office property, reached a nonbinding agreement to pay an estimated $480 million to $500 million for about 200 acres largely concentrated in Mapunapuna and Kalihi Kai, according to a person familiar with the transaction.

The deal, one of the highest valued property sales in Hawai'i, could result in the revitalization of large, decaying commercial tracts of Honolulu, though what HRPT plans to do with the Damon property is uncertain.

The purchase agreement is expected to become binding and close next month, but could fall through over a variety of issues, including ground contamination liability.

A sale also would be subject to approval by Damon trustees and the roughly 20 beneficiaries of the trust, which earlier this year hired California-based real estate firm Eastdil to solicit offers for the estate's commercial property portfolio.

Tim Johns, Damon Estate chief operating officer, declined comment. Executives from HRPT did not return phone calls yesterday.

The person familiar with the deal, who asked not to be identified because of confidentiality agreements, said the estate selected HRPT's offer over bids from Los Angeles firm Douglas Emmett Realty, local investor The Shidler Group and Chicago-based investment group Walton Street Capital.

HRPT is a real estate investment trust whose stock is traded on the New York Stock Exchange. The company reported owning 212 office properties worth $3.1 billion at the end of last year, and buying 13 properties for $281 million this year through September.

In a financial report filed last week, HRPT said it has pending contracts and nonbinding letters of intent to purchase property in excess of $500 million.

If HRPT buys the Damon portfolio, it would be the largest acquisition for the company, which is based in Newton, Mass., a suburb of Boston.

In its offering, Eastdil said the Damon Estate has almost 200 tenants — mostly commercial, industrial and retail businesses — almost half of whom have leases expiring within 20 years.

Most of the property covers 150 acres in Mapunapuna and Kalihi Kai, but also includes the Salt Lake Shopping Center, the Safeway at the corner of Pali Highway and Vineyard Boulevard, and property in Waipahu.

Local real estate experts said HRPT could continue acting as a passive landlord like the Damon Estate, collecting rent that Eastdil projected will generate $32 million in net operating income next year and $36 million by 2009. Or a buyer could sell tenants the land under their leased property, redevelop parcels as tenant leases expire, sell off portions of the portfolio or some combination of those options.

A sale would largely eliminate remaining land holdings of the Damon trust, which in July sold 116,000 acres of Kahuku Ranch on the Big Island to The Nature Conservancy of Hawai'i and the National Park Service for $22 million.

The estate owns some Mainland property and other Hawai'i holdings, including a few thousand acres of conservation land on O'ahu, not included in the Eastdil offer.

Before the Kahuku Ranch sale, the Damon Estate was the state's fourth-largest private landowner.

The trust was created upon the death of Samuel Mills Damon in 1924. Damon, the son of a missionary, was a partner in Bishop & Co., forerunner to First Hawaiian Bank, and was given the Moanalua ahupua'a — a land division from the uplands to the sea — by Princess Bernice Pauahi Bishop.

Estate trustees have been exploring options to end the trust as required upon the death of Samuel Mills Damon's last living grandchild, Joan Haig, who is in her 80s.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.