Bishop’s leashold
policies criticized

But estate Realtor denies
prices are out of line

By Rob Perez
Star-Bulletin

The mostly elderly homeowners in a small Moiliili apartment cooperative recently got a bombshell.

The 20 owners, some in their 70s and 80s and living on fixed incomes, were told they collectively owed Bishop Estate $1 million.

The estate, one of the nation's wealthiest charitable institutions and owner of the land underneath the apartments, is seeking nearly $700,000 in back rent, $234,000 in late fees and $62,000 for rent due next month.

The tab works out to $50,000 per homeowner -- money, residents say, they don't have.

"Bishop Estate can either kick us out, or they can do whatever the hell they want," said Peg Sawyer, who at 52 is one of the youngest homeowners in the two-story complex. "I know I can't afford to pay that."

An estate representative said homeowners won't be kicked out.

Critics of Bishop Estate's leasehold policies cite the Coolidge case as an example of what they say are the trust's ruthless, hardball tactics in dealing with leasehold homeowners (those who own the homes but not the dirt underneath). More than 5,000 such homes are on Bishop land.

If the state decides to open a full-blown investigation of alleged mismanagement by Bishop Estate trustees, as is being considered, leasehold policies should be a central part of the focus, critics say.

Some already have written Gov. Ben Cayetano and Attorney General Margery Bronster urging such an approach.

Among leasehold condo owners and some real-estate professionals, the estate's take-it-or-leave-it pricing is widely blamed for plummeting home values, increased foreclosures and family disruptions.

"It has sucked away all the equity of a lot of people," said Kay F. Osman, principal broker of Del Osman Realty.

"These people are in the negative. They are crippled."

But the estate, the state's largest private landowner, says such blame is misplaced.

While leasehold home values have plunged, that's because Hawaii's leasehold system is working like it's designed to -- not because of anything Bishop Estate has done, said Realtor Peter Savio, who handles the trust's sale of residential leasehold land.

When leases come up for renegotiation, typically 25 or 30 years after they begin, ground rents will significantly increase to reflect current market values, and the leasehold values will decline to reflect the shorter time homeowners are entitled to use the property, Savio said.

"If Bishop Estate had not offered land for sale, leasehold values would have dropped further," Savio said. "It's not the cause -- it's the solution."

Since 1991, the estate has offered to sell the leased-fee interest -- basically the underlying land -- to more than 12,000 leasehold condo owners on Oahu. So far more than 7,000 have purchased, generating an estimated $600 million-plus for the estate.

But as the trust has raised prices in recent years, even as land values generally have fallen, it has seen fewer buyers. Many homeowners have complained that the prices were outrageously high and that the estate was using scare tactics to get people to buy -- charges Savio disputed.

The estate's pricing policy differs from some other landowners. It unilaterally sets a price and takes a no-negotiating, take-it-or-leave-it stance with homeowners.

When Campbell Estate, a for-profit trust that terminates in 2007, set prices for land under Makakilo condominiums in 1991, it negotiated with each condo association to arrive at mutually agreeable amounts.

"We were satisfied, and we believe (the homeowners) were satisfied," said Dave Rae, manager of community and government services for Campbell.

But Rae said it would be inappropriate to compare the business decisions of Campbell with Bishop Estate's. One is a for-profit, self-terminating organization, the other a perpetual, charitable entity, and these differences "may well lead to equally responsible yet quite different business decisions," he said.

Nick Ordway, a University of Hawaii business professor and real-estate expert, said he probably would make the same pricing decisions as Bishop Estate trustees if he were in their shoes.

As a perpetual trust, the estate needs to consider the value of land on a long-term basis, and a five-year downturn in the real-estate market shouldn't affect that long-term view, Ordway said.

The trustees' job is to preserve the value of trust assets for beneficiaries, and adopting a take-it-or-leave-it posture even in a down market fits that objective, Ordway said.

"It makes sense from an economist's viewpoint," he said. "It might not make sense from the perspective of what is kind to people, but . . . their job is not to please the general public."

One issue homeowners have asked Bronster to investigate specifically is whether Bishop trustees have shirked their fiduciary duty by keeping estate money invested in residential leasehold property.

For leases that haven't been renegotiated yet, the estate is getting returns of 1 percent or less from rental income, yet it could be earning far greater returns in other, higher-yielding investments, said Mike Pang, a Realtor who specializes in leasehold issues.

"They have lost millions and millions of dollars by refusing to deal with most of us," agreed Bob Voege, whose Hawaii Kai condo sits on Bishop land. Voege is president of the Hawaii Leaseholders Equity Coalition.

But Savio said the 1 percent returns don't factor in the long-term appreciation of the land. Including that, the returns are closer to 8 percent to 10 percent, he said.

Besides, Savio added, the decision to sell land shouldn't be made purely on the basis of short-term financial gains. Bishop Estate is strong financially precisely because it has held its lands for so long, he said.

To many leasehold homeowners, such arguments provide little consolation in the face of drastic drops in property values.

Christie Adams, a Hawaii Kai townhouse owner whose building is on Bishop land, said units in her complex that fetched prices in the mid-$300,000s at the peak of the market are now selling in the low $100,000s.

Prices started to plummet in the early 1990s once Bishop Estate announced its fee prices and news of soaring ground rents surfaced, she said. "It's like all of a sudden we had cancer. Properties became unmarketable."

Yukio Kashiwa, the 82-year-old president of the Coolidge cooperative, said Bishop Estate's manner of dealing with homeowners has changed in recent years.

When Kashiwa negotiated with the estate in decades past, he said, the trust was understanding and easy to deal with.

Today, he added, its representatives are uncompromising, insisting that key issues are non-negotiable.

"I can't understand why they're playing so hard-nosed," Kashiwa said.

But Savio said the estate has "bent over backwards" to try to work out a solution with Coolidge homeowners.

The problem is that the trustees, because of estate law and their fiduciary duties, can't charge less than the market rate for rent and can't forgive outstanding amounts, he said.

"They're doing what they can," Savio said. "But they have their hands tied a little bit."

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