Wednesday, May 9, 2001

Bankoh takes
over Aiea sugar
mill site

The deal takes care of a
$38 million loan by site
owner Crazy Shirts

By Tim Ruel

The Bank of Hawaii has taken over the site of the former Aiea Sugar Mill from Crazy Shirts, allowing the embattled retailer to walk away from a $38 million loan and a grand vision that didn't pan out.

The deal, recorded Monday with the state, spells an end to Crazy Shirts' real estate investments in Hawaii, and breathes more life into a company that had once considered filing bankruptcy.

"This is very much a cooperative venture with the bank," said Randy Yeager, chief executive of Crazy Shirts.

For the bank, the development represents a continuing cleanup of millions of dollars in troubled loans. A Bank of Hawaii spokeswoman declined comment, citing confidentiality of client matters.

Analysts said the move shows the bank's commitment to long-standing Hawaii businessman and philanthropist Rick Ralston, who founded Crazy Shirts in 1964 in Waikiki's International Market Place.

"It's like you've lost 100 pounds and now you're going to go out for the next dance," said retail analyst and real estate adviser Stephany Sofos.

She said Crazy Shirts should use the opportunity to expand the company even further, both in terms of opening new shops and expanding its online presence.

Ralston, who has preserved several historic properties in Hawaii, had a vision of turning the sugar mill into a manufacturing and retail sales outlet complete with sugar cane tours.

The mill began as the Honolulu Plantation Co. mill in 1898 and became a refinery when it was bought in 1947 by California & Hawaiian Sugar Co.

Crazy Shirts bought the 19.4-acre Aiea property from A&B Properties for $19 million in 1994, the same year the company got the $38 million loan from Bank of Hawaii. But Ralston soon learned Crazy Shirts would have to spend another $38 million to clean up the property from previous industrial activities.

Abandoning the vision, Ralston spent $3 million to raze the mill, then divided up the land and put the property back on the market in 1996, where it has remained since.

Meanwhile, Crazy Shirts underwent a major restructuring that was compounded by fundamental disagreements between Ralston and a new board of outside directors, who were appointed in 1999. The board stepped down after 18 months, replaced by a combination of company officers and local businessmen. Yeager, who had left his spot as president of Crazy Shirts in early 1999, returned as chief executive.

Under Yeager's direction, Crazy Shirts has refocused on the core business of retail through its stores and on the Web, with hopes of returning to profitability this year after three years of losses.

In March, the company sold its next-to-last piece of Hawaii real estate, the Crazy Shirts Building at 151 Kaiulani Ave. in Waikiki. Crazy Shirts bought the property for $2.5 million in 1995, and sold it to a member of the Fullard-Leo family for $2.25 million, but maintained the lease at the site for one of its retail stores.

Retail analyst Marty Plotnick praised the move by Bankoh to take back the property without a foreclosure lawsuit. Ralston had an honest vision that simply didn't pan out, he said.

"Why put a company out of business that is actually a successful company?" Plotnick asked rhetorically.

The move ties with Bankoh's recent announcement that it will sell $5 billion in assets outside Hawaii to focus on the local market, Plotnick said. Helping Ralston and Crazy Shirts shows a commitment to Hawaii businesses and residents, he said.

"It's the rehabilitation of the image of the Bank of Hawaii," Plotnick said.

The Crazy Shirts loan also represents a chain of the bank's loans soured by the downturn in the Asian economy in 1997.

Last year, Bank of Hawaii charged off $110.8 million in troubled loans, up from $103.3 million in 1999 and more than double 1996's $44.1 million. A charge off or write down means the bank is recording the loan or portion of the loan as a loss.

Already, the bank has identified more than $200 million in nonperforming assets and past due loans, an 18.7 percent increase from the $168.4 million in bad loans that the bank kept on its books in 1999.

It's not clear exactly how much the bank could receive from a sale of the Aiea parcels. The city continues to pursue the land for a community center, but is waiting for further development of the property before completing a purchase, Yeager said.

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