Company headed
by Kamehameha V.P.
gets lucrative break

GRG Enterprise gainst rent waiver
on top of ‘sandwhich profits’
from harbor-front land

By Ian Lind

State transportation officials have waived $360,000 of deferred rent due from a company controlled by a top Kamehameha Schools official.

The company, GRG Enterprise Inc., will also keep hundreds of thousands of dollars in "sandwich profits" made by subleasing the harbor-front property.

The moves came as the state concluded negotiations over a rent increase for the remaining years of the company's lease, which expires in 2000.

GRG President Rockne C. Freitas, also vice president of Kamehameha Schools, said he is not familiar with specific terms of the new lease but intends to meet the company's obligations to the state.

The company leases two acres on the Ewa side of Kewalo Basin where it sells gas, diesel fuel and ice to fishing boats.

The company then subleases space to several other fishing-related businesses, including United Fishing Agency, which operates Honolulu's fish auction.

GRG has paid the state $39,924 annually since 1980, but recent financial statements show it took in a total of $898,407.55 in sublease rents over the past three years.

The state had previously believed the company took in only about $85,000 a year from subleases.

George Perry Jr., a former city waste-water employee who has been an associate of prominent Big Island businessman Larry Mehau, is vice president of GRG, according to business registration records. Former service station operator George Inamura, who has run the dockside fueling operation, is listed as secretary and treasurer.

Freitas is also a longtime friend of Mehau, whose firm, Hawaii Protective Association, took over security duties at Kamehameha Schools several years ago and was paid more than $31,000 a month during 1995-96, according to documents filed with the estate's most recent annual report.

What appraisals say

GRG's deferred rent began to accrue when the fixed-rent period of its lease ended in December 1990, and a renegotiated rent based on "fair market value" was to begin.

An appraisal done by the state at that time set the fair market rent at $164,104 per year, which Freitas rejected, records show.

Further negotiations were delayed by the state's intention to transfer the lease from its Harbors Division to the Hawaii Community Development Authority, the Kakaako planning agency.

While rent talks stalled, GRG continued to pay the existing rent, but Freitas was notified in April 1991 that he would eventually have to pay the new, higher rent retroactive to Dec. 6, 1990.

In April 1995, when lease negotiations were turned back to harbor administrators, HCDA director Michael Scarfone stressed in a memo to harbor officials: "The lessee, GRG Enterprise Inc., is well aware and has acknowledged on prior occasions that pursuant to the terms of the lease, it is liable for payment of rent increases retroactive to Dec. 6, 1990."

In subsequent talks, however, Freitas balked at paying the higher rent for the years before 1996, records show.

He also disputed the state's $164,104 appraisal, and countered by hiring his own appraiser, who proposed rent of $109,017. This was rejected by the state.

An in-house review of the conflicting appraisals by the Highways Division pegged the market rent even higher, at $216,240, and staff suggested the matter be set for arbitration, as the lease specifies.

The property is now assessed by the city for tax purposes at $4.2 million, which would suggest annual rent of $293,286 according to the state's formula, which calls for the state to get a 7 percent return on the market value of the land.

The key decision

But in July 1997, Transportation Director Kazu Hayashida directed that rent be set at $111,839 per year from the start of 1996, effectively waiving $360,000 of deferred rent for the years 1990-1995.

Hayashida has not returned repeated telephone calls seeking comment on the lease decision.

Harbors Division Administrator Thomas T. Fujikawa offered no explanation for the state's decision to drop claims for deferred rent but said sublease income had been considered.

"We've reviewed that. Their accountant submitted some figures to us. We looked at the amount they took in from subleases, and from gas and ice operations, we looked at their expenses, and we feel this is an amount they can pay," Fujikawa said.

Freitas said last week he has few details about the lease deal.

"I haven't had much time; we're fighting other battles up here," Freitas said, referring to public criticism and legal scrutiny that have hit Kamehameha Schools and Bishop Estate trustees.

Freitas was appointed to the Kamehameha post in mid-1995 and immediately put in charge of day-to-day operations of the school, once handled by Principal Michael Chun. The move has been cited as a key factor in claims of mismanagement at the schools.

Freitas is one of Bishop Estate's five highest-paid employees, apart from trustees, according to the estate's tax return.

During the 1995-96 fiscal year, Freitas was paid $135,772, plus a $5,700 expense allowance and $18,023 for deferred compensation or other employee benefits.

Freitas said the new $111,839 annual rent assessed by the state will be hard to meet.

"The business economy is tough, but I'm not going to cry about it," Freitas said. "I can't overemphasize that whatever our obligations are, we're going to do our best to meet them. My whole role is to live up to our obligations and stay as viable as we can (as a business) in the process."

Freitas defended the company's sandwich profit - the difference between the amount it paid the state and the income it took in from subleases - saying the company provides services that aren't seen by the public, such as maintaining the area, paving and reroofing. Freitas said, however, he could not recall specifically how the funds were used, saying that information was in the hands of the company's accountant.

Freitas said GRG Secretary/Treasurer Inamura is recovering from a stroke and, as a result, the fuel operations might cease at the end of the year.

Freitas said he hopes to stay in business when his current lease expires in 2000, either at the same location or elsewhere.

"I'm not really up on what the state plans to do with that area. If I can be a player, fine. If not, we'll look elsewhere. We haven't shut off any options."

Kula school for Hawaiians
to be completed in 2 years

By Gary T. Kubota

PUKALANI, Maui -- Bishop Estate plans to complete development of a permanent elementary and intermediate school in Kula for native Hawaiians by August 1999.

The $31 million Kamehameha Schools project, the first phase in its 'A'apueo campus, will occupy 15 of the 100 acres of land makai of Kula Highway near King Kekaulike High School.

Bishop Estate officials made the announcement last night during a parents' meeting at the temporary Pukalani campus.

A similar project, planned on the Big Island, has been delayed after the site was determined to be unsuitable because of unstable soil conditions, Bishop Estate officials said.

Trustees recently found a 150-acre site in Keaau, about 8.5 miles south of Hilo.

Bishop Estate trustee Lokelani Lindsey said development of the first phase at Keaau will probably be completed in the year 2000.

Bishop Estate, the largest private landowner in Hawaii, was established as a trust to educate Hawaiians.

Kamehameha Schools opened the first elementary schools on the Big Island and on Maui at temporary sites in September 1996.

Enrollment is currently about 104 students each from kindergarten through the fourth grade.

Officials say when the schools are developed from kindergarten to eighth grade, there will be 200 students enrolled on each of the neighbor island campuses.

While planners have provided enough space for a high school at each site, no decision has been made to expand the schools beyond the eighth grade.

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