October – December 2010 Quarterly Newsletter

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Over the past three months we have added nearly six hundred absentee owners to the distribution list for our quarterly newsletter. For those of you that are receiving your first newsletter . . . welcome aboard! The last page of the newsletter provides background information concerning both the company and the four family members.

As expected, year 2010 showed considerable improvement in the Oahu Housing Market when compared to last year (2009). However, before we uncork the champagne, it’s useful to look at the past several years, which reveal that 2008 and 2009 were relatively poor years compared to 2006 and 2007. Closed sale of houses over the past five years were: 4,991 (06); 3,611 (07); 2,738 (08); 2,690 (09); and 3,051 (10). The median sales prices of houses were $630,000 (06); $649,000 (07); $620,500 (08); $575,00 (09); and $592,750 (10). The median or midway sales price is routinely used in price comparisons rather than the arithmetic average (mean), as the median is not biased by unusually high or low sales prices. Closed sales of condos (high rises & townhouses) were: 6,234 (06); 6,184 (07); 4,080 (08); 2,690 (09); and 3,051 (10). The median sale prices of condos were: $310,000 (06); $325,000 (07); $325,000 (08); ($305,000 (09); and $305,000 (10). http://tinyurl.com/4vfxtc5 is a link to a 1/11/11 newspaper article that provides information on various areas of Oahu.

The University of Hawaii Research Organization recently forecast that Oahu’s median home prices should rise between 4% and 5% in both 2011 and 2012. Two factors that may impact upon these projections are an increasing number of foreclosures and rising mortgage rates. The following numbers reflect annual foreclosure filings in Hawaii over the past five years: 955 (06); 1,381 (07); 2,077 (08); 3,101) 09); and 3,954 (10). As for mortgage rates, we’ve gotten off the phenomenally low rates that existed a couple of months ago. The rates are still marvelously low but certainly likely to increase over the next couple of years.

Looking Back at 2010

by the Honolulu Star-Advertiser 12/31/10 (with some editing)

1. Elections: Neil Abercrombie, a fiery liberal, was elected the state’s seventh governor in surprisingly easy victories over former Honolulu Mayor Mufi Hannemann in the Democratic primary in September and Lt. Gov. James “Duke” Aiona, a Republican, in the November general election. The 72-year-old Buffalo, N.Y.-born Abercrombie made the transition to chief executive after four decades as a legislator in the state House and Senate, the Honolulu City Council and Congress.

Former Honolulu Prosecutor Peter Carlisle won the special election to replace Hannemann as Honolulu Mayor. State Senate President Colleen Hanabusa beat U.S. Rep. Charles Djou, R-Hawaii, to reclaim the 1st Congressional District for Democrats after Djou won a special election in May to serve out the remainder of Abercrombie’s term in Congress.

Following the elections, the Democrats held the Governorship, all four Congressional seats, the Honolulu mayoral seat, 24 out of 25 state senate seats, and 43 out of 51 state house seats

2. UH sports/Mountain West: A collective sigh of relief could be heard from Manoa to the Mainland after the Mountain West and Big West conferences offered the University of Hawaii a home for its teams. In 2012 the football team will be a part of the MWC in football with most of the other sports joining the Big West. It won’t be cheap. Travel subsidies paid by UH could top $1 million per year, but it sure beats the alternative of remaining in the crumbling Western Athletic Conference.

UH officials deserve plenty of kudos for being proactive in seeking out alternatives. Had Hawaii remained in the WAC, it is likely that having a Division I athletic program might have been history by the end of the decade.

3. The Honolulu Star-Advertiser: The consolidation of Honolulu’s two largest daily newspapers this year catapulted the combined product, the Honolulu Star-Advertiser, into the nation’s No. 2 spot for market penetration. By that industry measure, the Star-Advertiser is second only to the Times Leader of Wilkes-Barre, Pa.

The Star-Advertiser, the largest daily in the state with an average daily circulation of 128,000 (135,000 on Sunday), published its first issue June 7. The consolidation came as a result of Gannett Co.’s decision to end nearly four decades of newspaper ownership in Hawaii and sell The Honolulu Advertiser to Canadian-based Black Press, owner of longtime rival the Honolulu Star-Bulletin.

The two papers had competed for more than a century; however, the last decade had been especially contentious as they, like newspapers around the country, lost advertising share. Some 453 jobs were lost in the consolidation.

4. Tourism: Hawaii’s visitor industry began turning around in late 2009, but performance took off in mid-2010 and is expected to continue rising. Travelers responded as airlines added flights to Hawaii and hotels continued their deep discounting. For the first 11 months of 2010, arrivals rose 8.6 percent to 6.45 million visitors, and visitor spending rose 16 percent to $10.3 billion. Visitor spending rose by double digits each month after May. Hawaii tourism is expected to finish 2010 with just over 7 million visitors and expenditures of $11 billion. While those results are good, there is room for growth in 2011 given that arrivals are still 8 percent from their 2006 peak and spending is off by 14 percent from 2007’s peak.

5. “Hawaii Five-0”: Few shows on television have arrived with as much marketing buzz and fan anticipation than this fall’s CBS reboot of the classic crime drama “Hawaii Five-0.”

A glossy tropical postcard shot in HD, “Five-0” reinvented its core characters, gave them high-tech equipment and armed them with comedy to win the ratings war. By midseason “Five-0” was the No. 1 new show of the season.

6. State employee furloughs: Teacher furloughs on classroom instruction days, which became a national embarrassment, ended this school year after state lawmakers and Gov. Linda Lingle agreed to tap the state’s hurricane relief fund and local bankers put up a line of credit if it becomes necessary.

Gov. Neil Abercrombie, on his first day in office, chose to release all of the hurricane relief money set aside by lawmakers, not just the portion Lingle wanted, so the line of credit from bankers has not been used.

Teachers and many other state workers will continue to take furloughs through June to help with the state’s budget deficit, just not on classroom instruction days. Furlough Fridays have become the most visible symbol of the state’s response to the recession.

7. Civil Unions: Gov. Linda Lingle vetoed a bill in July that would have allowed same-sex and heterosexual couples the ability to enter into civil unions and receive the same rights as married couples under state law.

The Republican governor called the bill “marriage by another name.” She suggested that state lawmakers put a constitutional amendment on the 2012 ballot to let voters decide the issue. The veto came after an emotional debate over civil rights that spread over two sessions of the state Legislature. The state Senate passed the civil-unions bill with a veto-proof majority, but the state House did not, so no override session was called.

Gov. Neil Abercrombie has promised to sign a civil-unions bill into law if passed again by the Legislature.

8. “Lost”: For six years Hawaii was the backdrop of one of the most mysterious settings in television history: the island in ABC TV’s mega-hit “Lost.” The show had won legions of fans ever since the pilot aired in 2004 when an ill-fated flight from Sydney to Los Angeles crashed onto an island with menacing smoke monsters, evil residents and more convoluted plot turns than a maze.

When ABC screened the first episode of the final season at Sunset on the Beach in Waikiki in January, more than 12,000 fans attended.

9. Kahuku football: Saint Louis might be the state champions in prep football this year, but there are many who believe the real No. 1 team resides in the North Shore community of Kahuku. Acting on an anonymous tip, Kahuku’s administrators discovered a seldom-used player was ineligible academically, resulting in the Red Raiders forfeiting their season.

Kahuku defeated Saint Louis earlier in the year, with both teams anticipating a possible rematch in the state championship. The courts ultimately decided that Kahuku had to abide by Oahu Interscholastic Association bylaws that led to Kahuku forfeiting all its games. But the real loser was the entire state, deprived of another epic showdown between Saint Louis and Kahuku at Aloha Stadium.

Most – Visited Oahu Attractions

(Numbers in Parenthesis were Visitors in 2009)

1. Arizona Memorial: (1,282,328) – A 184-foot-long memorial spans the mid-portion of the sunken USS Arizona battleship destroyed during the Japanese attacks on Pearl Harbor on Dec. 7, 1941: www.nps.gov/valr/index.htm

2. Dole Plantation: (1,243, 518) – Home of the World’s Largest Maze. According to the 2008 Guinness Book of World Records, Pineapple Express Train Tour and the Plantation Garden Tour: www.dole-plantation.com

3. Hanauma Bay Nature Preserve: (819,152) – A sheltered bay with coral reef habitat, marine life, snorkeling, and a marine education center: www.hanaumabayhawaii.org

4. Diamond Head State Monument: (730,000) – An 0.8 mile historic trail (1.6 miles round trip) takes hikers to the summit of Leahi crater, which offers panoramic views of the South and Leeward coasts of Oahu: www.hawaiistateparks.org

5. Polynesian Cultural Center: (610,000) – A 42-acre park, showcasing the people and cultures of Polynesia in eight island villages and exhibits; features include an Alii Luau and the “Ha Breath of Life” evening show: www.polynesia.com

6. Honolulu Zoo: (560,000) – An exhibition of animals and tropical plants for public education and enjoyment: www.honoluluzoo.org

7. Bernice Pauahi Bishop Museum: (383,000) – The Hawaii State Museum of Natural and Cultural History offering cultural and science exhibits including a planetarium, cultural tours and daily activities: www.bishopmuseum.org

8. Wet ‘n’ Wild: (340,000) – 25 acre waterpark with attractions for all ages: water slides, wave pool, Man ‘n’ Massive thrill rides, restaurants, mini golf: www.wetnwildhawaii.com

9. Battleship Missouri Memorial: (327,219) – The USS Missouri was the last battleship built by the U.S.; it was the site of the Japanese surrender marking the end of World War II on Sept 2, 1945:
www.ussmissouri.org

10. Star of Honolulu Cruises & Events: (325,000) – Sunset dinner, cruises, whale watching, dolphin watching, weddings, private parties: www.starofhonolulu.com

11. Waikiki Aquarium: (297,530) – Public aquarium highlighting marine life of Hawaii and the south Pacific; part of the University of Hawaii: www.waquarium.org

12. Atlantis Submarines: (261,825) – Underwater submarine tour operating in Waikiki, Lahaina, and Kona: www.atlantisadventures.com

13. Sea Life Park: (249,999) – Maine mammal theme park featuring interactive programs with dolphins, sea lions and Hawaii rays: http://www.sealifeparkhawaii.com

14. Kualoa Ranch Hawaii Inc: (238,547) – Outdoor recreation featuring tours and activities suited for everyone; they are particularly known for their horseback tours: www.kualoa.com

15. Honolulu Academy of Arts: (226,775) – An art museum with an internationally renowned
encyclopedic collection of 70,000 works: www.honoluluacademy.org

16. USS Bowfin Submarine Museum: (229,371) – The USS Bowfin was an active submarine in World War II, serving in nine war patrols and the Korean conflict: www.bowfin.org

17. Waimea Valley: (220,000) – 1,874-acre ahupuaa (land division) home to 5,000 species of native plants and animals, waterfall, botanical gardens, cultural sites, educational programs, hikes and guided tours: www.waimeavalley.net

18. Pacific Aviation Museum: (170,295) – 25 aircraft and interactive exhibits in two battlefield hangers, on historic Ford Island: www.pacificaviationmuseum.org

Most – Visited Neighbor Islands Attractions

1. Hawaii Volcanoes National Park: (1,243,518) – Big Island Park extends from sea level to 13,677 feet, encompassing the summit and rift zones of two of the worlds most active volcanoes, Kilauea and Mauna Loa: www.nps.gov/havo

2. Haleakala National Park: (1,109,104) – 34,183 acre Maui park preserves and protects the Haleakala volcanic area, Kipahulu Valley, pools along Oheo Gulch, and rare and endangered species: www.nps.gov/hale

3. Puuhonua O Honaunau National Historic Park: (397,665) – 400-acre park on the Big Island preserves thesite of the Hawaiians’ place of refuge; archaeological sites include a temple, royal fishponds and village sites: www.nps.gov/puho

4. Kilauea Point National Wildlife Refuge: (387,967) – 203-acre wildlife refuge on Kauai used by thousands of migratory seabirds for nesting, feeding and resting; home to the Kilauea Lighthouse built in 1913: www.fws.gov/kilaueapoint

5. Maui Ocean Center: (316,585) – Aquarium features a large collection of living coral, a 54-foot acrylic tunnel inside a 750,000-gallon ocean exhibit, turtles, sharks, rays and tropical reef fish: www.mauioceancenter.com

6. Whalers Village Museum: (193,978) – An historic museum of Lahaina, Maui’s golden age of whaling with unique artifacts, displays and a self guided tour: www.whalersvillage.com

7. Panaewa Rainforest Zoo & Gardens: (172,737) – 12-acre tropical rainforest zoo and botanical garden on the Big Island; home to 98 animal species and over 200 animals including a Bengal tiger and binturongs (bearcats): www.hilozoo.com

A Mixed Plate of Talk Story

In addition to the quarterly newsletter, I send out a monthly E-Mail Update that consists of more timely articles than what is in the quarterly newsletter. To be put on the distribution list, send me an e-mail at team@stott.com Please include your first and last name so it is easier for us to find you in our database.

Hawaii’s population increased by 12.3% over the past decade, a gain of almost 150,000 since the 2000 census. With the recent census of nearly 1.4 million, Hawaii overtook both Maine and New Hampshire to become our 40th most populous state. It now has more residents than Maine; New Hampshire; Rhode Island; Montana; Delaware; South Dakota; Alaska; North Dakota; Vermont; and Wyoming, our least populous state . . . For the third year in a row, the Obama family vacationed over the holidays in a house on Kailua Beach about a mile from the house where Mary Lou and I have lived for over 30 years. The house the Obama family stays at is at the end of the sandy beach, which makes sense from a security viewpoint; however, the accumulation of seaweed when the tide is incoming makes it a very poor section of the beach, at times, for swimming.

Republican governor Linda Lingle, who left office in December after two four-year terms as governor, is considering her various options. She says that she is going to take six months off before deciding what to do. A likely possibility is a run against Democratic Senator Daniel Akaka in 2012 who has stated that he intends to campaign for a fifth six-year term. Lingle, 57, could be a formidable opponent for 86-year-old Akaka.

On Wednesday, January 12th a new ABC medical series began titled “Off the Map.” Oahu plays a South America jungle in the series that focuses on doctors who are battling their own “personal demons” and have chosen to hideout in remote jungle villages. The doctors soon learn that their patients may require a different type of medicine from what the doctors left behind and that they will have deal with the jungle elements, including jury-rigged medical equipment, if they want to save lives. Thirteen episodes have been ordered of the mid-season, replacement show. ABC hopes to be able to duplicate the success they had with “Gray’s Anatomy” another medical series that originally started as a mid-season replacement in 2005 in addition to their excellent, six-season, jungle-oriented-run on Oahu shooting “Lost.” One of our administrative assistants had a minor part in the “Off the Map” pilot.

Four UH men’s sports (baseball, basketball, football, and volleyball) made money during the last fiscal year while one women’s sport (volleyball) made money. However, the Rainbow Wahine volleyball team was the school’s best-per-dollar moneymaker, returning $2.02 in gross revenue for every dollar spent. Football was easily the top moneymaker with a gross of $11.6 million and a net of almost $3.9 million, while the Wahine were in second place at a gross of $2.2 million and a net of slightly over $1.1 million. Money losers were men’s golf, swimming & diving and tennis; and women’s basketball, track & cross-country, golf, sailing, soccer, softball, swimming & diving, tennis, water polo; and co-ed sailing.

Over the past year or two a number of colleges have shifted their football conference with money driving most of the decisions. UH was the senior member of the Western Athletic Conference (WAC) having been a member the conference for 32 years. The shifting of schools between conferences in order to be eligible for a better postseason bowl game made it almost mandatory for UH to do something to be able to retain a major football presence. In addition to wanting to play higher quality opponents, UH has a unique problem in view of their remote location. Not only is travel far more expensive, the time zones create the need for additional travel time. UH successfully negotiated with the Mountain West Conference for football and the Big West Conference for most of their other intercollegiate sports. The key factor in the UH negotiations were travel subsidies.

The Mountain West Conference members (football) are: Air Force; BYU (leaving next season to become an independent); Colorado State; New Mexico; San Diego State; TCU (leaving for the Big East in 2012); UNLV; Utah (leaving next season for the Pac-10); and Wyoming. Joining next season is Boise State. Joining in 2012 are Nevada, Fresno State; and Hawaii. UH already has rivalries in football with several of these schools; e.g., this year, UH played Nevada (W), Fresno State (W), UNLV (W) and Boise State (L). In my opinion, the shift to the Mountain West Conference for football and to the Big West Conference for other sports was easily the best option for UH.

UH, Boise State and Nevada all have one loss this year in WAC play. UH beat Nevada, which beat Boise State, which, beat UH. This resulted in a three-way tie for the WAC Championship. The WAC does not have a tiebreaker formula, so trophies will be awarded to each of the three co-champions.

The nine Big West Members are all located in a 439-mile stretch in California, which greatly eases both travel time and cost. The Big West Conference no longer sponsors football; however, several of the schools will provide meaningful competition in other sports such as baseball and women’s volleyball. In parenthesis are the schools’ signature sports: Cal Poly San Luis Obispo (women’s softball); Cal State Fullerton (16 baseball World Series appearances with 4 national championships); Cal State Northridge (men’s volleyball); Long Beach State (5 national championships in women’s volleyball; 4 baseball World Series appearances); UC Davis (women’s basketball); UC Irvine (4 consecutive NCAA appearances in baseball); UC Riverside (baseball and cross country); UC Santa Barbara (overall excellence); and Pacific (women’s soccer).

More than 500 homes built for use by the military at Barbers Point Naval Air Station may be sold as condominiums under a new conversion that is being studied. The homes were sold to San Francisco-based Carmel Partners five years ago and have been used as rentals. The base area, now known as Kalaeloa, has three housing areas under consideration: Orion Housing, Orion Park, and Makai Housing. The Makai homes were built in 1973 followed by the Orion and Orion Park homes in 1994. The homes are generally in good condition and feature more spacious layouts and yards than most town home projects in Hawaii. However, some elements don’t comply with current city building codes.

Hawaii hotels held their own against other island and international destinations for the first three quarters of the year according to a report issued in late October by Hotel Consultancy Hospitality Advisors, LLC. Oahu was the island destination with the greatest hotel demand. However, it is one thing to have hotel occupancy recover and completely different to have room rates climb back from their steep discounting. Hospitality Advisors estimate that it may take another four years to have Waikiki hotels recover from the recent tourism downturn.

Midweek, a Honolulu Weekly Newspaper, published a two page article 11/3/10 on the growing bed bug infestation on Oahu. The State Department of Health is being inundated with phone calls, as bed bugs have infested a Waikiki hotel and UH dorm rooms in addition to individual homes. Stott Property Management has already had to treat four of the properties we manage. Bed bugs usually travel to a new location by hitching a ride on clothes, luggage and furniture. They are resistant to most forms of over-the-counter treatments; therefore, pest control experts should be used. If your rental property is furnished, you might want to consider removing the furniture after your current tenant vacates. In most cases, furniture does not increase rental revenue after factoring in vacancy rates. If you have questions, contact my son-in-law, Tim Kelley, our property manager, at 254-1515 (locally) or toll-free at 1-800-922-6811 or via e-mail at tim@stott.com.

My wife, Mary Lou, and I started our real estate company in 1978. We do business as The Stott Team for real estate listings & sales and as Stott Property Management to handle the 400+ rental properties we manage on Oahu. I am a graduate of the United States Naval Academy and had command of two nuclear submarines stationed at Pearl Harbor. Following my retirement in 1975, I obtained an MBA degree from the University of Hawaii. Mary Lou has an undergraduate degree in Elementary Education from the University of Maryland and an MSW degree from the University of Hawaii. She has worked as an Elementary School Teacher in five states as well as a Clinical Social Worker in Hawaii. We have been married since 1956 and have three married children and seven grandchildren.

Our daughter, Tracey, began working part-time for us as soon as she was old enough to be licensed; she holds a Business degree from the University of Maryland. Her husband, Tim, was a Naval Officer on a nuclear submarine stationed at Pearl Harbor when the two of them met. Tim has an engineering degree from Tulane and an MBA degree from Chaminade University. Tim and Tracey have been married since 1993 and have two school-age children.

Our company has been relatively small as well as very large with multiple offices. Although, we are licensed to work on all islands we restrict our operations to the City & County of Honolulu (island of Oahu). All four family members work together along with nine assistants. Tracey is our listing agent; she consistently ranks among the top agents in the state. Tim supervises both our Property Management Division and our Buyer Agents. Tim and Tracey have been licensed in both Texas and Hawaii; they own eight rental properties in Texas, which provides Tim a unique background for supervising our Property Management Division .

In January 1993, my wife and I were scheduled to attend a real estate convention being held in Washington, D.C. At that time, we managed about twenty rental properties where the owners lived in the D.C. area, most of the owners being current or former military/civil service personnel that had held on to a former home they had purchased during a tour of duty in Hawaii. I did some research using tax office data and found that there were about 500 absentee owners of Oahu rental properties living in the greater DC area. We decided to go Washington, D.C. a few days early and make ourselves available to meet with them. We sent them a series of letters and for three days there was a seemingly endless stream of visitors to our Key Bridge Marriott meeting room. We thought most of the absentee owners would be interested in discussing property values, rental rates, 1031 exchanges, etc. and while there was considerable interest in such real estate topics, there was equal interest in discussing what’s been happening lately on Oahu . . . what kind of shenanigans has Mayor Frank Fasi been up to, how are the ‘Bows doing, what restaurants have opened/shut, how’s the traffic, etc. This experience gave rise to our quarterly newsletter.