Monday, March 16, 1998

Bishop land deal prompts inquiry

A brother-in-law of an
estate trustee denies benefiting
from 'favoritism'

By Rick Daysog


The state attorney general is looking into a Bishop Estate land deal involving a partnership connected with a brother-in-law of Bishop Estate trustee Richard Wong.

The state subpoenaed the estate and developer One Keahole Partners for financial records and appraisal documents relating to the Kalele Kai high-end condominium project in Hawaii Kai.

The subpoena is part of the state's investigation into allegations of financial mismanagement and breaches of fiduciary duties by trustees of the estimated $10 billion charitable trust.

At issue is whether the Hawaii Kai deal was conducted at arm's length and whether trustees personally benefited.

The transaction is one of several between the estate, Wong and companies affiliated with Jeff Stone, whose sister Mari is married to Wong.

Lawrence Goya, senior deputy attorney general, declined to discuss the state's inquiry into the Kalele Kai project and would not confirm or deny the issuance of the subpoenas.

But the subpoenas were disclosed in court recently by Bishop Estate attorney William McCorriston, who said the estate has delivered the Kalele Kai records to the state along with volumes of documents of other Bishop Estate investments subpoenaed by the state.

The estate has denied any wrongdoing in the Kalele Kai case. Kekoa Paulsen, an estate spokesman, said Wong recused himself from any discussions with the developers and did not discuss the transaction with Stone or his partners.

Stone said he was puzzled by the state's inquiry, noting that One Keahole Partners paid a record price for Hawaii Kai lease-to-fee conversions, benefiting the estate immensely.

Kalele Kai is a 229-unit condominium complex initially started in 1991 on leasehold land owned by the Bishop Estate. The project -- then spearheaded by California builder Peter Bedford -- stalled in 1993 after running into financial snags.

Two years later, One Keahole Partners assumed the leasehold interest and purchased the $76 million first mortgage to the property for an undisclosed, discounted price. One Keahole Partners later acquired the fee interest to the project from Bishop Estate for $21.9 million.

The conversion price -- valued at about $83 a square foot -- is the highest paid for a Hawaii Kai leasehold conversion and was more than double the $8.3 million appraisal by the project's lender, Bank of Hawaii, Stone said.

The fee interests for similar Hawaii Kai leasehold properties sold for $50 a square foot, real-estate analysts said.

"If there's any favoritism, I'd like to know who got it," said Stone.

Stone said his company, Pacific Northwest Ltd., is merely a minority partner in One Keahole Partners. National Housing Corp., a major mainland real estate development company headed by the Showe family of Columbus, Ohio, is the lead partner, he said.

Stone said he and Wong have been unfairly criticized for their family relationship since Wong had nothing to do with the deals.

Stone said he has also worked as a consultant for Mutual Housing Association of Hawaii Inc., a nonprofit headed by fellow Bishop Estate trustee Oswald Stender, but has never been criticized for that relationship.

Kalele Kai isn't the only Bishop Estate land transaction involving Stone. Stone said he served as commercial broker for an athletic club known as The Gym, which recently relocated to a 21,000-square-foot building on Bishop Estate land in Kakaako.

Stone said he earned a $30,000 commission from the athletic club for negotiating a 15-year lease for the building, at 768 South St. across from the estate's Kawaiahao Plaza headquarters.

Stone said he didn't receive preferential treatment in those lease talks, either. He said the annual lease rent for the Kakaako parcel is set at market rates and that his $30,000 commission is well below his typical fee.

(Real-estate sources said $30,000 is within the industry norm for negotiating a lease on a similar-sized property.)

Stone said he didn't discuss the Gym lease with trustees but negotiated directly with managers at the estate's Royal Hawaiian Shopping Center Inc. subsidiary.

The estate, meanwhile, said the South Street property had been vacant for several years but now is producing a steady income for the estate.

Stone and his companies also have played an active role in Wong's real-estate investments.

On May 17, 1996, Stone's company, Pacific Northwest, bought Wong and his wife Mari's condominium in the 1015 Wilder high-rise complex in Makiki for $613,800, according to state land records.

Pacific Northwest then sold the unit in July 1997 for $425,000 -- or a loss of $188,800.

On the same day that Pacific Northwest bought the Wongs' Makiki apartment, Stone's Pacific Northwest sold the Wongs a Kahala Avenue home for about $1.1 million.

Pacific Northwest initially acquired the Kahala home for $1.04 million on May 2, 1996, state land records show.

Stone said he had been the original listing broker for the Makiki high-rise when it was built in 1989, and has continued to represent condo owners when they buy and sell their units.

See also: Estate investment soars $19 million in one day

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