Rich club, poor club

An arbitration panel will decide whether the Outrigger Canoe Club will have to pay more than $1 million a year to lease its Waikiki beachfront site from the Elks Lodge

Although the Outrigger Canoe Club is a tenant of the Elks Lodge, it pulls in 10 times more revenue than its landlord and next-door neighbor on Waikiki's gold coast.

Compare these 2004 total revenue figures obtained from the two organizations' tax records: $7.6 million for the Outrigger Canoe Club versus $729,529 for the Elks Lodge, more formally known as the Benevolent and Protective Order of Elks Honolulu Lodge No. 616.

The canoe club, in membership dues and initiation fees alone, took in nearly $4 million in 2004.

That's sufficient to cover the $1 million-plus in rent it potentially owes the Elks Lodge, which is a likely scenario in the wake of a judge's ruling in September.

Circuit Judge Randal K. Lee said the court found it inappropriate to impose its definition of a "club site" onto the lease negotiations, and that the amount of rent should be left up to appraisers.

The Outrigger Canoe Club has a 99-year lease on its 73,804-square-foot site at 2909 Kalakaua Ave. from the Elks club. Under that lease, signed in 1956, the current rent of $30,000 per year will expire Wednesday.

A panel of three arbitrators will determine what the new rent should be, based on 5 percent of the market value, which Honolulu county assessors placed at about $20.3 million.

Expert testimony will be presented for both sides.

The Elks have hired Suzanne Mellen, head of HVS International San Francisco, whose previous clients include the Kahala and Sheraton Moana Surfrider. The canoe club chose James Hallstrom of Honolulu-based Hallstrom Group Inc. Mellen and Hallstrom are to choose a third arbitrator.

A resolution to the rent dispute does not appear to be imminent by the end of the year, according to Rosemary Fazio, the Elks' attorney at Ashford & Wriston.

Outrigger Canoe Club president Barbara Stehouwer referred all comments to attorney Kenneth Kupchak of Damon Key Leong Kupchak Hastert. Kupchak did not return calls from the Star-Bulletin for this story.

Side by side

A side-by-side look at the two organizations turns up many contrasts.

The Elks' membership, at about 2,600, is significantly lower than the Outrigger Canoe Club's 4,800.

New members to the Elks pay an initiation fee of $650 and only about $280 in annual dues -- or $23 a month.

Next door at the canoe club, the adult initiation fees for regular memberships range anywhere between $1,500 to $13,000, depending on age. Dues are $118 per month.

Applicants ages 18 to 29 pay $1,500, but those over 40 pay the hefty $13,000 initiation fee. Memberships include spouses and children under 10.

Complete with a sauna, volleyball courts, fitness room, small beach, three dining facilities and a parking garage, it is a country club of sorts for professionals who have a tie to the ocean and watersports, as opposed to a golf course.

Its members have ranged from surfing legend Duke Kahanamoku to Sen. Fred Hemmings, whose late father Frederick Matthew Hemmings Sr. joined the club at the age of 12. Many club members extend several generations, among them the Brooks, the Baldwins and Watumulls.

Despite its fees, the club has an extensive list of people waiting to apply for membership.

"It's a special place," said Wendell Brooks III, a multigeneration member who has brought many guests there. "It's one of a kind, and they have programs that support young athletes."

The canoe club in 2004 spent more than $3 million supporting athletic and social activities. It also took in $3.2 million in membership dues and about $2.5 million in gross sales of food and beverage.

It also did well with locker and surfboard rentals, and parking fees, which rang in close to $225,000 in 2004.

The club's interest income, from a combination of money market and bank savings accounts, amounted to $9,716 in 2004. The logo shop also did well, bringing in close to $300,000.

Some call the Elks Lodge the "poor man's canoe club."

Not that it's doing poorly. Its facility, too, has a host of amenities, which include a sauna, gym, swimming pool, meeting rooms, a dance floor, bar, surface parking lot and an expansive deck overlooking the ocean.

Its officers have names such as "Exalted Ruler," "Leading Knight" and "Lecturing Knight," some of which get their own reserved parking spot. There is also a lodge secretary, chaplain and organist.

During the day, a number of retirees and Elks members from out of town can be seen enjoying a drink or two at the bar, while families enjoy the pool on the weekends. The club has live music several times a week, and a floor for ballroom dancing.

Besides the $30,000 a year it gets in lease rent, the Elks Lodge also has income from parking fees, locker rentals and room rentals, which amounted to about $94,000 total in 2004. That year, membership dues at the Elks brought in $676,949.

While the Elks club describes itself as an eleemosynary organization -- or charitable group doing service projects -- the Outrigger Canoe Club is a private club "founded to perpetuate traditional Hawaiian water sports."

The Elks Lodge lists itself as a 501(c)(8), or a fraternal beneficiary association, on its tax form; the canoe club is registered as a 501(c)(7), or social and recreation club.

Real estate

The Outrigger Canoe Club, designed by local architect Vladimir Ossipoff, sits on 1.7 acres of oceanfront land, zoned A-2 (medium density apartment), with a height limit of 25 feet.

If the club were developed into a condominium, along the lines of the neighboring Diamond Head Apartments or Coral Strand, units could fetch as much as $1 million apiece.

"It's one of the best places on this island," said Don Persons, president and principal broker of Gold Coast Real Estate Inc. and a member of both organizations.

A single-family home on an oceanfront lot in the same neighborhood recently closed for $11 million, he said.

The canoe club is doing some remodeling; The Elk's Lodge could use a facelift, but is maintaining its facilities.

The tug-of-war over the rent actually dates back 50 years to November 1956, when the lease was first signed.

Originally, the canoe club proposed rent of $15,000 for the first five years, while the Elks proposed $30,000 a year for the first five years. They agreed on $20,000 for the first five years.

The Elks planned to renegotiate the lease twice -- at the end of the 33rd and 66th year. The canoe club just wanted to renegotiate the lease at the end of the 50th year, which is what was agreed upon.

While the Elks said the appraisal value should be set at 5 percent of the actual market value at the time of renegotiation, the canoe club said it should be "based on the restrictive, specific use of the area, namely, as a private club and related uses."

When the panel of arbitrators sets the new lease, it will be retroactive to the Nov. 16 date, plus 10 percent interest, according to Fazio.

Needless to say, the value of that slice of oceanfront land has appreciated. When the Elks bought the property from the widow of James Castle in the 1920s, they paid $1 per square foot.

Elks Lodge Outrigger Canoe Club 1911 Founded 1908 About 2600 No. of members About 4800 501(c)(8) Registered as 501(c)(7) $729,529 Total 2004 revenue $7.6 million $1.4 million Net assets $21.4 million $676,949 Membership dues / initiation fees $4 million $55,033 Lockers $198,584 $24,022 Parking $24,187 Source: 2004 Form 990s for Honolulu Lodge 616, Outrigger Canoe Club

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Another suit: This one from former Elks members

While the Elks Lodge of Honolulu and canoe club are ironing out their new lease, a trio is battling the former in court, alleging tax fraud.

Two former Elks members, Bryant Carvalho and Arthur R. Kam, and one current member, Zenen Ozoa, filed suit in state Circuit Court in March against the Benevolent and Protective Order of Elks of the United States of America, along with Honolulu lodge officers and trustees, saying that they are owed membership benefits.

The trio says that the Elks are violating Hawaii state and federal law.

To qualify as a 501(c)(8), an organization must have an established system for the payment to its members, or their dependents, of life, sickness, accident or other benefits, according to the Internal Revenue Service.

Carvalho and Kam say they were unjustly expelled from the club for bringing this up more than a year ago

Benefits such as parking, the swimming pool and sauna do not count, according to Kam, also a former trustee. All three are watching the outcome of the lease negotiations closely.

"Who gets the windfall of the increased rent? Are the members going to get it as benefits or some guy in Chicago?" asked Kam, referring to the site of the Grand Lodge headquarters.

Ashford & Wriston attorney Kevin Herring, representing the Elks Lodge, said the suit was without merit. He said that the IRS has recognized the tax-exempt status of the Grand Lodge since 1971, and that there has been no change.

CORRECTION Sunday, November 12, 2006 » The Outrigger Canoe Club may have to pay more than $1 million a year in rent to the Elks Lodge. A sub-headline on Page D1 of today's paper incorrectly says Outrigger may have to pay $1 million a month. Please see the applicable Corrections Page for more information.