Kamehameha Schools is seeking real estate investors to buy the leased fee in land under roughly 900 O'ahu homes in a push by the charitable trust to divest remnants of its formerly vast residential property holdings.

In the case of these 900 homes, the lessees, who often occupy the homes, declined to buy the lease from Kamehameha Schools. So Kamehameha Schools is looking for a third party to buy the lease.

The move follows similar sales of leased fees to several thousand residential land lessees over the past several years and, if successful, would complete a near-exit from residential property ownership by Hawai'i's largest private landowner.

But the new strategy to sell residential leased fees to investors would give leasehold homeowners new landlords who would take over negotiating future ground rent increases and ultimately assume ownership of the property and improvements when leases expire.

For instance, one leased fee on the market is for a two-bedroom condominium at Kapalama Uka in Kalihi for $107,300. A buyer would receive $2,370 a year in ground rent until December 2010, at which time the ground rent would be renegotiated for another 10 years. In 2020, the buyer would assume ownership of the condo itself.

Among what's been offered for sale so far are leased fee interests in condos priced from $59,400 to $261,900 with 12 to 47 years remaining on leases, and involve units in projects around O'ahu from Windward Acres in Kane'ohe to One Waterfront Tower in Kaka'ako to Kawaihae Crescent East in Hawai'i Kai.

Kamehameha Schools earlier this year hired local residential property broker Prudential Locations LLC to market and sell an initial batch of about 200 condo leased fees. If the program proves successful, more units can be added to Prudential's assignment.

"It was time to try another strategy," said trust spokesman Kekoa Paulsen. "For whatever reason, some people have decided not to buy fee-simple."

Paulsen said the trust has made a minimum of five attempts over a number of years to sell the leased fee to every lessee of property included in the sell-off plan. These lessees include both owner-occupants and owners who rent out their leasehold property to tenants.

HOW THE SALES WORK

Under the investor sale plan, Prudential will first contact lessees in another attempt to sell them their leased fees. The outreach by Prudential agents resulted in about 50 sales to lessees, said Scott Higashi, Prudential's executive vice president of sales. More sales to lessees are pending, he added.

If lessees decline to buy, then their leased fees are being made available to investors. A few investor purchases are pending, but none have closed yet, Higashi said.

Investor offerings only began recently, and involve giving a lessee a last right of refusal, or the ability to buy the leased fee at the sale price agreed to by an investor. Under the program, a homeowners' association where the property is located also can buy the leased fee at the investor purchase price if the lessee declines to buy.

Harry Reese, a military retiree who has owned a leasehold unit at Waiau Gardens Kai near Pearl Harbor since 1979, said he was surprised by the initiative.

Reese is wary that an investor might buy his leased fee and approach his next lease rent renegotiation in 2015 more aggressively than Kamehameha Schools has in the past.

"They've been pretty level," he said of Kamehameha Schools, which receives $4,132 a year in ground rent from Reese's unit. His lease will expire in 2030, but he isn't sure he can afford to buy his leased fee for the $134,400 asking price.

Reese said he couldn't afford to buy his leased fee in the past. According to property records, initial leased fee sales at Waiau Gardens Kai were made in 1994 for $99,000. From 2003 to 2006, homeowners bought their leased fees for $86,300. Last year, the price rose to $134,400.

In the past, some residential lessees of the trust formerly known as Bishop Estate criticized the landowner for keeping leased fee prices tied to peak property values in the early 1990s resulting from the Japanese investment bubble, even though property values declined 20 percent to 30 percent in the later half of the last decade.

In 2002, Kamehameha Schools repriced its leased fees based on updated appraisals as required by a Probate Court mandate, and began a new push to sell what at that time totaled close to 5,500 residential leased fees.

The repricing resulted in a wave of sales over the next several years. In the fiscal year ended June 30, 2005, Kamehameha Schools sold more than 800 residential leased fees for $87 million.

Today, the trust is down to under 1,000 residential leased fees, nearly all of them condos.

That tally is down from a historical figure of leased fees in about 15,000 single-family homes and nearly 13,000 condo units, mostly on O'ahu.

IN THE BEGINNING

Many sales began with single-family units in the 1980s, which began a transformation of the trust from a land-rich, cash-poor nonprofit primarily established to educate Native Hawaiian children to one of the nation's wealthiest charitable organizations.

In the fiscal year ended June 30, 2007, the trust reported assets of $9 billion and spent about $250 million on its educational programs.

Laws enabling leasehold homeowners to force lessors, such as Kamehameha Schools, to sell the fee to lessees prompted an initial voluntary sell-off that started in the 1980s. That was repeated for condos when a similar law was passed in 1991. The trust has continued to sell many leased fees even though the lease-to-fee condemnation law covering O'ahu condos was repealed in 2005.

There are a few exceptions to the sale program, including the waterfront Kahala Beach Apartments, residential units in the mixed-use Downtown Honolulu high-rise Executive Centre and about 40 single-family home lots in Punalu'u.

Kamehameha Schools wants to retain the land under those projects for future redevelopment potential.

Paulsen said 98 percent of the trust's residential property will be sold because there is little or no redevelopment opportunity and the trust doesn't want to assume whole ownership of homes when leases expire.

"We're not set up to be a property manager," he said.

Higashi of Prudential said having agents from an independent brokerage firm visit lessees has helped convince many that they should buy their leased fees.

"I think it's really made a difference," he said. "We think we'll help (Kamehameha Schools) get to the finish line."