Land Board Calls For Two Appraisals To Determine Rent for Maui Wind Farm
At its September 26 meeting, the state Board of Land and Natural Resources did something unusual. It directed its appraiser to prepare two appraisals for a proposed 20-year lease for the use of roughly 200 acres of Conservation District land on Maui now occupied by Kaheawa Wind Power, LLC.
The appraiser would have to determine annual fair market rent for the land both with the current improvements — a 30-megawatt wind farm consisting of 20 turbines and other supporting structures — and without them.
Normally, the Land Board doesn’t weigh in on how an appraisal to determine lease rent should be done.
The company’s previous 20-year lease for the property expired in January 2025. But before it expired, the company sought and received a one-year holdover of the lease from the Land Board that allowed the wind farm to continue operating through 2025. In the meantime, KWP would complete its environmental review process and obtain necessary approvals regarding the incidental take of threatened and endangered species.
The original lease states that upon expiration, the lessee shall pay to remove all improvements, “unless the lessor elects to assume ownership of improvements as provided herein.”
Section 4 of the holdover, however, contains a condition requiring the removal of improvements and the posting of a removal bond, but does not include language about the Land Board potentially assuming ownership upon expiration. It does state, “It is understood that, except as provided herein, should there be any conflict between the terms of [the expired lease] as aforesaid amended and the terms of this Section 4 of the holdover, the terms and conditions of this Section 4 shall control and specifically to the removal requirements and the [$15 million] removal bond requirement herein.”
To KWP, that meant that the appraisal for the new lease should not include the improvements, even though it planned to continue to use them if it were to secure a new lease.
In their report to the board, Andrew Tellio, appraisal and real estate specialist with the Department of Land and Natural Resources’ Land Division, and staff planner Lauren Yasaka counter, “Nowhere in the submittal [for the holdover] is it requested or contemplated that the board will waive its right to retain the improvements on KWP I at the termination of the holdover. Staff believes it was not the board’s intent to waive its right to assume ownership of the improvements in the lease when it required the removal bond provision in the holdover.”
They continued that KWP’s bid package in response to a request for proposals by Hawaiian Electric Company included anticipated lease rent in its cost/rate estimates. (In December 2023, according to KWP vice president David Purcell, Maui Electric selected KWP to continue to delivering renewable energy for another 20 years via a new power purchase agreement.)
“[I]t was understood by [Land Division] staff that if the appraised value of the land came back higher than what was contemplated in KWP’s bid package, then the increased costs may prohibit KWP from delivering the electricity at the rates KWP proposed in their bid package. It is important to note that KWP DID NOT consult with Land Division staff regarding potential rent nor appraisal scope prior to their Hawaiian Electric bid submission. Furthermore, staff does not believe this issue should be resolved by preventing the board from exercising its rights under [General Lease] 5731 (which KWP agreed to when it initially signed the lease), ultimately denying the department from receiving fair compensation for the use of public lands,” Tellio and Yasaka wrote.
They asked the Land Board to decide whether the appraiser should determine the value of the land with the improvements (option A), or value it as if it were unimproved (option B). They also asked the Land Board to approve the holding of two public hearings on Maui regarding the proposed lease.
“Typically, the appraisal comes after a lease is approved,” Tellio told the board. “We are taking this slightly out of order at the applicant’s request.”
KWP’s Purcell testified that if ownership of the improvements reverted to the state, it wouldn’t be possible for the company to secure financing to continue maintaining and operating the wind farm for the next 20 years.
Purcell added that the wind farm saves electricity customers on Maui about $7 million dollars a year compared to what they would pay if fossil fuels were used, but if the company’s rent is increased, it would have to pass that additional cost onto those customers.
In support of Kaheawa’s continued operation on Maui, he also took note of the “environment we’re operating in now, where there’s significant uncertainty for renewable energy projects.” Following the passage of the One Big Beautiful Bill this past summer, renewable energy projects face a very narrow path to qualify for longstanding renewable energy tax credits, he said.
DLNR director and Land Board chair Dawn Chang argued that the cost of KWP’s improvements has been amortized and paid for.
“We also have a public trust obligation. These are public lands. … This is going to set precedent. We have got a lot of wind farms, renewable energy projects, leases about to expire. How we treat Kaheawa here will dictate how we treat … all of our other leases. This is a critical decision for this board,” she continued.
Board member Kaiwi Yoon later added that Purcell’s request to have the appraisal based on unimproved land “is crazy to me. I don’t see logic in how you support that.”
Dean Yamamoto, one of the attorneys representing KWP, disagreed with the DLNR’s characterization that the holdover language regarding removal of improvements was changed from the original lease language solely to add the bond requirement.
If that were the case, “it would have been one paragraph long. It wouldn’t have restated in its entirety the end of term requirements and obligations of the lessees, which is what it did,” he said.
He also pointed out how KWP’s improvements are different from other commercial improvements a landlord might take ownership of upon lease expiration. In those cases, the lessor is going to have something of value that it can pass on to another lessee.
“This is not an office building. This is not a hotel. This is not a warehouse. This is a bunch of complex machinery that require sophisticated operators to operate. … I would say the nature of this improvement is really, really unique,” he said, adding that solar power projects also fall into the same category. “If the state assumed ownership, there would really be no other lessee to get it unless it had a [power purchase agreement from the utility],” he said.
“I appreciate that. I do think similar arguments are made by many of our tenants,” Chang replied.
When it came time for the public to testify, Honolulu attorney David Kimo Frankel, who was there for another item on the agenda, spoke up.
He admitted, “I know very little about this issue.” However, he continued, “There’s a very easy solution. All you folks are doing is determining how the appraisal is going to go. You are not deciding, you cannot decide today, that you own the improvements. But you can assume you own them for the appraisal. They can continue to assume they own them and get their financing. The only issue is how much money you’re going to be charging them. This is a smokescreen issue they’re raising to not pay a lot of money. That’s all it is. They can continue to think and argue to their financiers that they own it.”
Former Land Board member Keone Downing weighed in as well. He echoed sentiments expressed earlier by Hawaiʻi island Land Board member Riley Smith, who believed that even though a new lease was being contemplated, the lessee has not changed, so the improvements should not revert to the state and the appraisal should be based on unimproved land. What’s more, the company is “doing good for Maui,” Downing said. Without the wind farm, “you go back to unimproved land with no person creating electricity for Maui,” he added.
Smith asked Land Division staff whether it was an option for the board to contract for two appraisals, options A and B. He noted that none of the Land Board members are appraisal experts, so the two appraisals would “give us data to make an informed decision.”
After an executive session, the Land Board ultimately voted to approve the two public hearings on Maui, and to require the appraiser to do both options A and B within the next eight weeks.
The public hearings have been tentatively scheduled for November 6 and December 4.
Board Approves Stipulated Judgment In 2019 Kahala Hotel Permit Case
Years after David Kimo Frankel challenged a 2018 Land Board decision to approve a revocable permit to Resorttrust Hawaiʻi, LLC that allowed it to preset and potentially rent out beach equipment on state land (Lot 41) fronting the Kahala Hotel & Resort, the board has finally agreed that it violated its public trust duties when it did so.
That’s what the Intermediate Court of Appeals found in January. And the Hawaiʻi Supreme Court rejected the Land Board’s application for a writ of certiorari.
So at the Land Board’s September 26 meeting, it unanimously approved a stipulated judgment in Frankel v. Board of Land and Natural Resources as to count 4 of his complaint, which alleged that the Land Board breached its trust duties when it approved the company’s permit for 2019.
The stipulated judgment notes that the ICA found that the 1st Circuit Court erred in granting summary judgment on count 4 to the Land Board, the DLNR, and Restorttrust and in denying Frankel’s motion for summary judgment on the same count.
The parties — which include Frankel, the Land Board and DLNR, and Resorttrust — stipulated that public trust principles apply to Lot 41, which is ceded land. “In rendering its decision regarding the use of Lot 41, the BLNR was required to (a) begin its analysis with the presumption in favor of public use when balancing between public and private purposes, (b) consider practicable alternatives, and (c) set forth its decision with clarity,” the judgment states.
The parties also stipulated that the Land Board breached its trust duties in approving the 2019 permit because it “did not start with the presumption in favor of public use, consider alternatives, or provide clarity in its decision,” and to grant Frankel judgment as to count 4.
“Because BLNR breached its trust duties … BLNR’s 2019 RP for Lot 41 was not authorized. The BLNR will comply with the ICA’s opinion. The BLNR must explicitly and clearly authorize the storage of equipment or presenting of chairs on Lot 41 if they are to occur. [Frankel] will not amend his complaint or file a new claim based on the validity of the 2019 RP,” the judgment stated.
Frankel testified that back in 2018, “things were pretty atrocious. … A number of us brought our concerns to this board and we were treated with disdain. The hotel took over the beach.”
In 2018, the Sierra Club, Hawaiʻi Chapter, sent a letter, with photos to then-DLNR director and Land Board chair Suzanne Case about apparent violations of the hotel’ revocable permit for Lot 41, which only allowed for maintenance and recreation.
In testifying to the the board last month, Frankel said, “Your staff went out there and didn’t see any violations. We have photographs. Even though Suzanne Case sent a letter [in 2017] to the hotel saying you can’t conduct weddings, on the day we went out there, there were two weddings being performed on the public trust land, which Suzanne Case already said no to. There was no consequence to that. These guys were operating a restaurant on the beach without permission. Instead of cracking down on them, this board authorized the hotel to continue to use beach land and exclude the public. That was wrong and the board’s refusal to deal with that led to this lawsuit.”
He said he hoped the Land Board read and understood the ICA’s decision and also recommended that the board start receiving briefings on litigation its involved in.
Other boards and commissions are regularly briefed on litigation, he said. “You rarely are. You need to be. … I don’t think most of you folks know the cases you lost this year. This is a big deal. The board needs to be briefed on them so the same mistakes don’t occur again and again. … I don’t even know if you understand the arguments being made on your behalf. Some of them are just ridiculous and it needs to stop,” he said.
In written testimony, Frankel also noted that if the Land Board approved the stipulated judgment, “soon thereafter, it will be filed with the court and then final judgment will be entered. At that point, I will be asking for the defendants in this case to pay my costs. Your attorney thinks that you will not have to pay these costs. She is wrong.
“Your attorney wanted to sign a stipulated judgment in Frankel v. BLNR without this board ever having met to discuss this litigation. Her position is inconsistent with Ching v. Case … and article XI section 2 of the state constitution. I refused to sign the proposed stipulated judgment until after this board met to discuss it. Before signing, please understand that this board and the department staff have repeatedly breached their trust duties when it comes to lot 41.”
After an executive session, the Land Board approved the judgment.
Still Presetting?
Before the vote, although it was not on the agenda, the board discussed allegations in Frankel’s written testimony that Resorttrust was continuing to preset chairs on not only Lot 41 but on the sandy beach, as well. This, despite legislation passed in 2023 banning the presetting of commercial beach equipment on beaches under the DLNR’s jurisdiction and Resorttrust deciding in 2024 to abandon presetting on the parcel. The company’s current permit only covers landscaping, irrigation, and lighting.
Resorttrust and hotel representatives stated that no presetting was occurring, and that the chairs that appeared to have been preset were actually used, at some point, by guests who either left and never came back or returned intermittently.
Frankel, however, argued that the hotel employees were setting out the chairs. “It’s not guests leaving them there,” he said. Referring to a photo taken in January, he said, “you can see the staff member laying out the chairs, both on the grass and the sand. … Then it happened again this past Saturday.”
Public Trust Analysis
As a result of the Intermediate Court of Appeals’ decision in Frankel’s lawsuit over Resorttrust Hawaiʻi’s 2019 revocable permit for Lot 41, a new “public trust analysis” section is now being included in the reports to the Land Board for the annual bulk renewals of revocable permits administered by the DLNR’s Land Division.
The Land Division submittals for the annual renewal of revocable permits on Kauaʻi (August 22), Oʻahu (September 12), and Hawaiʻi island (September 26) all included the analysis, which starts by echoing the ICA’s decision.
It states that dispositions of ceded lands must be consistent with the public trust and to make that determination, the Land Board must consider 1) presumption in favor of public use, 2) consideration of practicable alternatives, 3) clear articulation of the decision.
The section continues that a presumption of public use “would appear to require that the subject lands remain vacant. … As revocable permits are limited to month-to-month tenancies … the practicable alternative to a disposition that would favor public use would be to forego a disposition altogether, leaving the properties vacant. However, staff does not believe that would be reasonable or beneficial.”
It goes on to explain why certain lands under revocable permit for exclusive commercial, industrial, residential, eleemosynary, or telecommunication uses are not appropriate for public access and use, and why some agricultural and pasture lands need to be under revocable permits, at least for now.
It also describes how the revenue generated from these permits for ceded land “contribute to the betterment of native Hawaiians” because some of it goes to the Office of Hawaiian Affairs. Permit revenue also goes into the Special Land and Development Fund, which supports the DLNR’s management of the 1.3 million acres of public land it’s responsible for, it adds.
— Teresa Dawson
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