Seven years ago, [i]Environment Hawai’i[/i] reported on the state’s lease of an acre of privately owned vacant land at Ma’alaea Harbor, on Maui’s southern coast. The lease, with real estate agent Don Williams, locked the state into 30 years of rent that allowed Williams a minimum 8 percent return on the value of his property, subject to escalating biannual reappraisals.
And my, how those appraisals have escalated. From an initial agreed-upon valuation of $1.8 million in 1994, Williams now calculates the state’s rent based upon a $4 million appraisal done at his behest in 2002 – and even this is, according to Williams, a gift to the state: he claims the property is actually worth $6.3 million. And even as mortgage rates reached historical lows in 2002, the state, under lease terms, was paying Williams rent that gave him an 8.75 percent return on his appraised value.
Recently, the poor state of public facilities at Ma’alaea Harbor has been described in news stories. The harbor is used as a staging area for snorkel and sport-fishing tours, yet there is just one working toilet for men, two for women. Most boats using the harbor, managed by the state Division of Boating and Ocean Recreation, have to pump their bilge at sea, since the harbor has no suitable sewage pump-out station. Moorings are ancient. The parking spaces available to the public are rarely enough; some commercial tour operators have to lease parking space for their customers from the nearby Ma’alaea Triangle shopping center.
Harbor users have complained that the money they pay to use the facilities is not being spent at Ma’alaea. The fact is, plenty of the revenue in the Boating Special Fund is being spent at the harbor, but much of it – more than a third of a million a year – is being flushed away on the Williams lease, leaving the state with nothing to show for its money. And unless the state manages to purchase the land or buy its way out of the lease somehow, the state can look forward to paying out at least that much (and probably much more) for the next 20 yeas, the term remaining on the lease.
The lease dates back to 1994, when DOBOR, with the blessing of the Board of Land and Natural Resources, argued that the state should acquire the parcel so that a fish wholesaler could use it. (For details, see the November 1994 issue of [i]Environment Hawai’i[/i], which may be viewed at [url]www.environment-hawaii.org[/url].) That plan didn’t work out, leaving the state stuck with a lease of land for which it has no use.
By 1997, at least some state officials involved in the lease were suffering buyer’s remorse. David Parsons, the former head of DOBOR who pushed hard to win Land Board approval of the lease, had become desperate to see the state freed of its claims. Thinking that the state might have land Williams would be willing to accept in exchange for the Ma’alaea parcel, Parsons wrote a memo to then-Land Division administrator Dean Uchida. Referring to the Ma’alaea lot, he wrote, “There are no improvements on the property and no future plans for development…. Because of unforeseen circumstances and the binding terms of the lease, it is imperative that we find a way to obtain this property and relieve us of the obligations of this one-sided lease.”
Parsons, at least, seemed to have been looking for a way out. Since his retirement, no one has tried to put a finger in the dike to stanch the flood of dollars draining away. To take but one example, when the most recent rental reopening occurred in September 2002, the state had the right to contest it, based on its own appraisal of the property in August of that year that determined the fair-market value of the land to be $2.1 million. Under terms of the lease, if the difference between the state appraisal and that done for Williams is more than 10 percent, the state can ask for a third appraiser to “be selected and a majority decision will be made” on what value to use as the basis for rent. For whatever reason, this was not done in 2000 or 2002, even though in 2002, the state’s appraised value was just over half the value assigned by the appraisal done for Williams.
That inaction alone has cost the state tens of thousands of dollars. Assuming that in 2002 the state could have split the difference between the two appraisals, it could have arrived at a valuation of $3.05 million. It might still have to pay rent on the earlier valuation of $3.4 million, since under lease terms, the rent can never go downward even if property values sink. Still, it would have meant a rent savings of $53,000 a year, plus more than $2,000 a year in excise tax that the state pays on lease rent. Evidently, to the folks at the DLNR and DOBOR, a hundred thousand dollar savings is not worth the bother. And if one calculates the savings over the remaining life of the lease, the missed opportunity will cost the state about $1.2 million; remember that under lease terms, rent (as well as interest rates) can never migrate downward, and thus the state in 2002 locked itself into paying rent based on a land value no lower than $4 million for the next 22 years.
Until 1999, the state had the option to purchase the land, but that expired without action. Shortly thereafter, DOBOR asked the Legislature to authorize it purchasing the land through issuance of bonds to be paid back with revenue from the Boating Special Fund. (The special fund receives more than $10 million a year from slip rentals, the marine fuel tax, vessel registration fees, 2 percent of gross sales from commercial tour boats, parking fees, and other income from small boat harbor facilities.) In 2000, the Legislature authorized up to $2.5 million for acquisition of the land and related costs, but in September 2002, when then-Land Board chair Gil Coloma-Agaran finally submitted a formal offer to Williams to buy the parcel for $2.1 million, Williams did not respond favorably.
In fact, more than a year earlier, Williams had written Coloma-Agaran expressing his displeasure with the Land Board’s approval of acquiring the land through condemnation if other means failed. “Gil, I’ve been living in Hawai’i part-time since 1974 … and it is my understanding that historically the State of Hawai’i avoids condemnation action,” Williams wrote. “Under the prevailing circumstances as they relate to this property and the lease, I believe such action would be a violation of my property rights. Even the intimation of such action is a threat to me, and I don’t appreciate it.”
“The state has a lease obligation to me until 2024, unless it wants to buy its way out of the lease,” he continued. “That is obviously an option. We may even be able to reach a price and I’ll sell the land, but not at $2,500,000. The property is worth $6,300,000 today… If the state agrees to pay the full asking price, I would consider giving the state credit for all rent (excluding [general excise] taxes) paid to date, but the sale would need to be consummated before the end of this year. The state would take the property ‘as-is,’ with respect to both condition and title.”
Plans a-plenty
It’s not that the state has not tried to do something with the land. In 1999, it gave a $22,000 contract to Bow Engineering to develop a long-range master plan for the property, with a boating baseyard, harbor agent office, restaurant, parking lot, and utilities. (Bow estimated it would cost $5.47 million to develop the lot in the manner DOBOR anticipated.) In the same year, it paid $24,300 to SSFM Engineers to “provide engineering services to … prepare plans and specifications for the construction of a temporary parking lot” on the site. (SSFM estimated it would cost roughly $190,000 to prepare the site as a parking lot.)
Some people haven’t waited for a proper paved lot before trying to use the state-leased land for parking. One day in 1998, the state had about 30 tourist rental cars towed from the lot after a harbor agent posted “no-parking” signs earlier in the day. To prevent a similar occurrence, the state placed boulders along the boundary of the land. These, however, weren’t placed close enough to the road to prevent some visitors from continuing to try to park in the area.
In June 2000, Williams, citing liability concerns, asked the state to move the boulders that line the property’s boundary “closer to the existing streets, so no room will be available for vehicles to park between the rocks and the street.” The state obliged. Since then, the lot has been of no practical use whatsoever to anyone.
In correspondence with DOBOR, Williams has suggested that the state build a parking structure on the site for use by harbor tenants and that it develop restaurant or commercial properties for sublease by third parties. But in a memo arguing for the legislative authorization to purchase the land more than four years ago, DOBOR’s Parsons wrote: “We have been unsuccessful in interesting the private sector in either the assignment of the lease or development of the parcel due to the onerous lease terms and the short time remaining on the lease for amortization of investment capital.”
According to Sonia Faust, a deputy attorney general, the state is now moving forward with condemnation proceedings to acquire the property. With Williams having retained as his local attorney former U.S. Attorney Daniel Bent, the condemnation lawsuit should make for interesting court theater.
— Patricia Tummons
Volume 14, Number 7 January 2004