November 21, 2013
A&B buys swath of Kailua town
A Hawaii public
company with major financial power and development experience is going to be the
new dominant owner of commercial property in Kailua, though the firm said it
won't be moving fast to redevelop what is still largely a bedroom community.
Alexander &
Baldwin Inc. is buying nearly all the Oahu real estate owned by Kaneohe Ranch
Co. and the Harold K.L. Castle Foundation -- roughly 650 acres -- in a $373
million deal announced Wednesday.
The sale is
scheduled to close by the end of the year and will provide $260 million to
Kaneohe Ranch and $113 million to the charitable foundation.
Most of the land
in the sale, 585 acres, is zoned for preservation and agriculture and has little
value. Some commercial property is in urban Honolulu and Kaneohe. The primary
value of the portfolio is 36 acres in Kailua town.
A&B said it
is acquiring 70 percent of the commercial-zoned land and 90 percent of the
retail property in Kailua.
"It is a portfolio
that cannot be replicated," Stan Kuriyama, A&B chairman and CEO, said on a
conference call with stock market analysts Wednesday. "An acquisition of this
scale and quality rarely occurs in Hawaii."
As the dominant
landlord for Kailua businesses, A&B will be in the position to benefit from
rising rents and redevelopment in an area becoming more of a regional retail
destination and tourist magnet.
A&B said it
sees redevelopment opportunity for Kailua's business district in the long term,
and that it plans to take the time to meet with community members to find out
what they want and need.
"Kailua is a
thriving and vibrant community, and we intend to partner with the community in
maintaining the livability, desirability and beauty of Kailua town," Chris
Benjamin, A&B president and chief operating officer, said in a statement.
"We take a long-term perspective on our community development efforts and strive
to work closely with communities to meet their changing needs."
A&B's stated
approach mirrors a similar one taken by Kaneohe Ranch in a major redevelopment
effort for parts of downtown Kailua that included establishing a Whole Foods
Market that opened last year and a Target store slated to open late next year.
Those changes were welcomed by many Kailua residents, though others opposed
bringing new national retailers into a community that grew up as a sleepy beach
town.
Some residents are
wary of a new round of development by a public company without the historical
ties to Kailua that Kaneohe Ranch had as a family business that turned ranch and
crop land into a residential community.
Donna Wong, a
Kailua Neighborhood Board member, said that while she hopes there will be no big
changes in Kailua town, she doesn't want to judge A&B because it hasn't yet
met with residents.
Edward Lewis, a
32-year Kailua resident, welcomes more improvements and new retailers to the
town area. "I'm not against smartening up the town," he said. "I think it's a
good thing."
Mitch D'Olier,
Kaneohe Ranch president and CEO who is also president of the foundation, said in
a statement that A&B will be good stewards of the property, its businesses
and tenants from what he knows of the company's "careful and sensitive"
approach.
"I don't believe
we could have found a better buyer than Alexander & Baldwin," he said.
"A&B is such a respected kamaaina business institution with a similar
history to that of the Castle family. They both grew from island roots with a
strong understanding of island culture and a true, long-term commitment to
improving Hawaii."
A&B said it
will look for redevelopment opportunities that maintain the community's
character. The company also is looking to capitalize on what it said is a
community that is underserved by retail while at the same time becoming more of
a regional shopping destination with new retailers such as Whole Foods.
Kailua has 13
square feet of retail store space per resident, about half the national average
of 24 square feet, A&B said.
The company also
noted that Kailua retailers average about $700 per square foot of store space,
double the average on Oahu or for national regional malls.
A&B said it
expects to increase its commercial property rent revenue in Kailua by improving
the mix of tenants, renovating existing buildings and redeveloping property.
A&B also
expects gains as rental rates on ground leases reset based on higher land
values. The company said 45 percent of ground leases in the portfolio will reset
rents in the next three or four years.
The deal furthers
A&B's strategy to acquire more Hawaii commercial real estate producing
rental income from tenants after spinning off former subsidiary Matson
Navigation Co. last year. A&B has been selling commercial real estate on
the mainland to finance Hawaii acquisitions that include Pearl Highlands Center
and Napili Plaza in Lahaina.
A&B plans to
finance the Kaneohe Ranch and Castle Foundation land purchase mostly by selling
mainland commercial properties, many of which are already under contract.
Kaneohe Ranch and
the foundation marketed their real estate portfolios through a broker earlier
this year after an unsolicited purchase inquiry. D'Olier said more than 10
purchase offers were received.
One portion of the
ranch portfolio, a collection of property on the mainland valued at $160
million, is not part of the sale to A&B.
D'Olier said
Kaneohe Ranch will undergo some restructuring but continue to manage the
mainland real estate and some Oahu property, including its head quarters at
Castle Junction. D'Olier said restructuring could involve some employees staying
with Kaneohe Ranch and some joining A&B.
Proceeds from the
sale for Kaneohe Ranch will be mainly distributed to descendants of Harold
Castle, who converted what was largely ranch land into a residential
community.
D'Olier is
expected to receive an estimated $13.2 million from the sale, according to a
summary of the transaction provided to Castle family members. D'Olier said the
figure is not accurate but would not provide another. Other company employees
would share $1.8 million, the summary said.
Proceeds to the
foundation will enhance its endowment and ability to award grants benefiting
education, marine ecosystems and other causes for Windward Oahu communities.
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