Friday, March 28, 2003

ERS likely to
take over 2 golf
courses in Kaanapali


By Tim Ruel

The pension fund for state employees will take ownership of two 18-hole resort golf courses in Kaanapali, Maui, from Amfac Hawaii as part of a settlement of a nearly 3-year-old lawsuit.

The property, the Royal Kaanapali Golf Courses, is worth a fraction of the $96 million Amfac allegedly owes the state, based on previous sales of Hawaii links.

The state Employees' Retirement System and Amfac reached a settlement agreement earlier this month after nearly a year of talks. The agreement, a public document, is scheduled to be heard next week at U.S. Bankruptcy Court in Chicago. If approved, the settlement documents will be filed in state Circuit Court in Honolulu, where further approval is required.

The state pension fund loaned Amfac $66 million in 1991, then sued Amfac in 2000 to foreclose on the golf courses, alleging Amfac had defaulted on the loan. The Employees' Retirement System says it is owed approximately $96 million by Amfac, including penalties, interest and various charges.

Amfac countersued last year, alleging the state had engaged in wrongful conduct and had been "fundamentally unfair," among other things. Amfac, saddled with more than $300 million in debt, then filed for Chapter 11 bankruptcy protection in Chicago.

Both sides have denied the various allegations, and the foreclosure has been pending in Circuit Court.

Under the settlement, the state will bid for the Royal Kaanapali Golf Courses at a public foreclosure auction, in which the state is expected to emerge the winning bidder.

Once the state has ownership of the roughly 305-acre golf courses, it has no other recourse for the $96 million debt.

All claims in the litigation will be dropped.

The settlement talks took nearly a year because the golf courses are surrounded by lands owned by Amfac, and issues such as easements and water rights had to be resolved, said Ted Pettit, attorney for Amfac.

The auction could take place as early as June, said Don Gelber, attorney for the state Employees' Retirement System.

A Chicago real estate investment consultant to the state's retirement system is reviewing the financial potential of the golf courses, and the state hasn't decided what to do with the property, said Richard Humphreys, a trustee of the pension fund.

The Royal Kaanapali Golf Courses have been operated for the past year by court-appointed receiver Joseph Toy, who declined comment.

The two Kaanapali golf courses generated $8.6 million in revenue in 2001, $10.4 million in 2000 and $10.3 million in 1999, according to the last annual report filed by Amfac with the U.S. Securities and Exchange Commission. More up-to-date information was not available.

As part of the settlement, Amfac's successor company, Kaanapali Land LLC, will pay $250,000 to the state.

Attorneys for the state and Amfac declined further comment on the settlement.

Amfac, a former Big 5 company that once owned nearly 60,000 acres in Hawaii, now has a much smaller presence here. Its main project in the islands is a residential development planned for several thousand acres in West Maui.

The state pension fund provides retirement, disability and survivor benefits for more than 90,000 city, county and state employees, retirees and their beneficiaries.

The fund mainly invests in stocks, bonds and other securities, but it also invested $709.3 million in real estate as of June 2002, about 9 percent of its $7.8 billion portfolio.

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