January – March 2008 Mixed Plates of Talk Story

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Former UH football coach June Jones has left for SMU and has been replaced with last year’s Defensive Coordinator, Greg McMackin, who was a unanimous choice of the Selection Committee and apparently the top choice as well of the UH players. McMackin was slated to go to SMU with Jones who subsequently supported his selection as the new UH coach. It was considered important to build on the run-and-shoot offensive legacy left by Jones who routinely called all the UH offensive plays. The team will continue to use essentially the same offence. Ron Lee, the former coach at St. Louis High School and the UH receivers coach under Jones, will be the offensive coordinator and will call the offensive plays. Lee is well versed in the run-an-shoot offense as he used it to win several state championships as well as honing it under Jones. A Selection Committee to pick a coach became necessary when Herman Frazier, the controversial UH Athletic Director, was fired immediately after June Jones announced he would be leaving. The new Athletic Director is Jim Donovan a former UH football player and graduate assistant coach who has had almost 20 years of experience in athletic administration including being the UH Assistant Athletic Director for several years and most recently, the Executive Director of the Sheraton Hawaii Bowl. The two newspapers as well as local sports radio have favorably endorsed both hires.

Honolulu is our 11th largest city in size, as the entire island of Oahu is considered to be the City and County of Honolulu. It now ranks as the safest out of the 20 largest U.S. cities. Hats off to an all out effort by police and support groups to combat a crystal methamphetamine (ice) epidemic by halting drug importation and increasing drug awareness and prevention. About seven years ago, we were considered the ice-using capital of the nation and ranked 1st out of the 20th largest cities in property crimes, many of them ice-related. We are now 20th in property crimes, a major contributor to the safest city designation . . . Hawaii is no longer at the top of the heap when it comes to millionaire households as a percentage of the population. Excluding real estate holdings, Hawaii now ranks 4th on the list at 6.69% after being in the No. 1 spot in both 2005 and 2006. Ahead of Hawaii are New Jersey (7.12%), Maryland (7.08%), and Connecticut (7.00%). At the other end of the spectrum are Mississippi (3.85%), Arkansas (3.91%) and West Virginia (4.00%) Hawaii’s high ranking is largely a result of wealthy individuals retiring to the state after making their fortune elsewhere . . . Tax assessments were mailed in mid-December and for the first time in six years, the total assessed value of residential property on Oahu declined. The average decrease island-wide was -–2.7%. The average assessed values in all the major areas of Oahu were down except for Town/Urban Honolulu at +3.6%. The average assessed values in some of the other areas were Windward Oahu –5.0%; East Oahu –4.0%; Waikiki –1.3% and Leeward/Central Oahu –2.8%. The current tax rate for improved residential is $3.29 per $1,000 of assessed value. Some 7,000 owners of real estate on Oahu appealed last year’s assessed values and as of the end of the year, only about half of those appeals had been resolved.

The historic, pink 529-room Royal Hawaiian Hotel will shut down on June 1st for $110 million of hotel renovations expected to take seven months. Opened in 1927, the hotel has had no major changes to its majestic architecture or distinctive rosy hue since it was opened. According to the owners, these will continue to remain unchanged. During WWII the hotel was leased to the Navy and used by the Submarine Force for R&R purposes. When submarines returned to Pearl Harbor from a war patrol, the entire crew moved into the Royal Hawaiian Hotel while a refit crew got the submarine ready for its next war patrol . . . “Margaritaville” singer Jimmy Buffett will open a new Waikiki restaurant in November on Kalakaua Ave. in the Ohana Waikiki Beachcomber to be known as Jimmy Buffett’s At the Beachcomber. The restaurant project will use space that was formerly home to the late Don Ho . . . Nordstrom opened its new store at Ala Moana Center in March . . . Primo beer is now available at grocery stores . . . Iroquois Point Beach is now open to the public from sunrise to sunset. The scenic beach in the private rental Iroquois Point Island Club community has been blacked off to the public since the former Navy housing complex was leased to private developers five years ago.

Leasehold Ownership of Condos: The remainder of the Talk Story section of the newsletter discusses leasehold ownership of condos where the fee has never been offered. Most ground leases on Oahu have a reversionary clause where the improvements (buildings) revert back to the lessor at the end of the lease. The ground leases expired on the first two such complexes in 2007. It was anticipated that the two of them would establish precedence; however, that didn’t occur, as each condo was handled in a different manner. Some background follows.

The U.S. Supreme Court provided judicial approval of the Hawaiian Land Reform Act in 1984 for the mandatory conversion of single-family houses from leasehold to fee simple ownership via eminent domain. After several court cases provided precedence, most of the subsequent conversions of single-family houses were handled via negotiations between groups of lessees and their applicable lessor. Today, there are only a few leasehold houses remaining on Oahu.

The Hawaii Land Reform Act deliberately omitted condos in view of concern that the different type of ownership of condos with their common elements would create problems in the judicial review process. In 1991, Honolulu passed City Ordinance 91-95 applicable to condos that basically mirrored the Hawaii Land Reform Act. In 1998, this law also received judicial approval from the U.S. Supreme Court.

The mandatory conversion of condos, though, created a different situation than the mandatory conversion of houses. With houses, large estates such as Bishop Estate and Campbell Estate owned most of the underlying land. With condos, many were relatively small buildings owned by Hawaiian families. The underlying land often had been in the family for years. Its potential loss created a huge emotional issue, as owning land has significant cultural ties to Hawaiians. Complicating matters further, the larger lessors began to offer the fee voluntarily to the lessees in most of their leasehold condos.

When a flaw was discovered in the condo law making it non-applicable to most leasehold condos, the City facing ongoing pressure from the Hawaiian community and with the fee having been offered voluntarily in most of the larger complexes decided to negate City Ordinance 91-95. They further decided not to start the legal process all over again. So, currently there is no law providing for the mandatory conversion of Oahu condos. The fee is available in most leasehold condos, but not all of them. There are a number of buildings where the fee has never been offered and may never be offered.

So, what happens when the ground lease on a condo expires where the fee has never been offered? Answer: no one knows. The first lessor (Kam Schools) facing community pressure changed their position and agreed last July to sell the fee to the lessees. The second lessor (Kaneohe Ranch) owned the land under the Kailuan, an 18-unit complex located in Kailua. The units were old, dilapidated and in need of upgrading. Moreover, the complex violated EPA regulations by continuing to use a cesspool for sewage. It would have been impractical to shift to city sewage without modernizing the complex.

The Kailuan ground lease expired 12/31/07, however, the lessees refused to vacate. Rather, they initiated a campaign to mobilize community support to preclude their eviction. While some of the lessees had owned for a lengthy period of time, 12 of the 18 lessees had purchased since 2000, most of them at huge discounted prices. These recent buyers were betting that the lessor would eventually offer the fee. Kaneohe Ranch, though, proceeded with a formal eviction process. The lessees then attempted to have the Hawaii Supreme Court intervene but the Court denied their petition. The lessees were forcibly evicted in mid-February.

There will now be a hiatus for a couple of years. The next expiration of a ground lease will be in 2010 involving six condos and 160 total units. Over the next decade, the ground leases on 35 more condos will expire representing about 1,500 units. If you own a condo unit where the ground lease will be expiring shortly, we suggest you contact us to discuss your options.

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