Real estate connection

PM Realty's Scott Kuklish says Hawaii's market is ripe for an infusion of capital

Scott Kuklish Title: PM Realty Group-Hawaii's senior vice president and director of the Pacific Region Age: 56 Time working in real estate: 31 years

THE real estate managed by PM Realty Group-Hawaii is big -- really big. The commercial and industrial properties in the company's Hawaii portfolio range between $5 million and $30 million, including properties such as the Pacific Guardian Center, at 737 Bishop St., and Alii Place, at 1099 Alakea St., and the recently renovated 677 Ala Moana office building.

Now, the company's Honolulu presence and focus are expanding with the addition of senior staff and a foray into property investment partnerships.

Scott Kuklish says Hawaii's real estate market is ripe for an infusion of capital from Japanese and mainland investors. He described PM Realty's Honolulu office -- one of the Houston-based company's 20 locations -- as "being a conduit for a relationship that we have from the mainland as well as Japan."

Question: What is investment sales and leasing?

Answer: Investment sales is the transactions related to the sale of either land, office buildings, retail shopping centers -- that pretty well covers it from a commercial standpoint. Typically what we are doing is representing either buyers or sellers. We have a strong institutional relationship where we have many buyers who are mainland-based who have an interest in Hawaii real estate. So we provide the conduit for those mainland buyers as well as local buyers to complete those transactions.

We are also establishing relationships with capital partners who we have historically managed property for. We are now creating investment partnership opportunities, and that is a new focus for PM Realty Group.

Q: What is it about the Hawaii market that is encouraging you to focus on office investment sales?

A: There will be an increase in the number of investment sales opportunities here in Hawaii, and we see the buyers being primarily mainland-oriented. We also anticipate that we will see a re-emergence of Japanese buyers in 2008. With the J-REIT (Japanese real estate investment trust) structure in Japan changing by the beginning of 2008, we are expecting to see more capital move back into Hawaii as well as into the mainland for investments. They have been highly regulated in Japan, and there have been some regulatory changes that will allow some capital to move out of Japan and into other markets, and that is slated to begin in 2008. ... Being a mainland-based company and having mainland-based relationships, we feel that there will be buyers who will look to Hawaii for opportunities. We see a significant upside in investment opportunities in Hawaii.

Also, we don't feel that rents have peaked in Hawaii, whereas they may have peaked in areas on the mainland. The other thing that helps fuel opportunities in Hawaii, and why rents will continue to move up, is that there are currently no major office buildings slated for development in downtown Honolulu.

Q: Are other companies doing this, and what advantages do you offer as a newcomer?

A: There are really two schools of thought here in the market -- you have the larger global companies -- and their whole focus is a global platform. The difference is they are not owners; they are service providers. We are really creating a boutique environment where we are partners with our clients. That means we are partners in service or we are partners with them in investment opportunities. Our orientation is to become more of a partner to our clients to the way that we will actually be investing our own dollars in these investment opportunities.

Q: What does this mean for PM Realty Group-Hawaii's growth?

A: Our growth is going to be more strategic and have more of an ownership focus. We will be developing what I consider to be a best-in-class platform that matches or mirrors what we have done on the office management and leasing side, and that we will be collectively hiring young executives as well as selectively looking for senior-level people who have experience and depth-of-knowledge familiarity with the market here in Hawaii who essentially can help support the engine going forward, if you will. Our growth as far as hiring will be at a very moderate pace, exercising some caution based on market conditions and looking at the right opportunities.

Q: What other services do you offer?

A: Developing a greater emphasis on the area of construction management as well as environmental analysis and consulting work for major organizations. Currently we provide those services to Kaiser Permanente as well as Chevron. We feel that those services will be of value and of benefit in assisting the development in our investment sales program -- taking services that we have been accustomed to providing and expanding them.

Q: Where is the buzz in commercial real estate right now and who is going to be buying and leasing these properties?

A: Hawaii is top of mind for institutional investors as well as value-added buyers. In the past couple of years we have seen properties that were typically held by local owners and local organizations that in the last two years have made decisions to sell. The buyers in most cases have come from the U.S. mainland.

Q: Are other PM Realty offices adding investment sales, or just Hawaii?

A: In 2002, PM Realty Group launched a medical development and acquisition group. In the last four years, it has amassed a portfolio of 2.5 million square feet of medical facilities, including health care and assisted living. It moved into mixed-use development, which includes retail, medical and residential. The group is actively looking to acquire sites in various cities throughout the country for development of either the medical or mixed-use type. Our focus in Hawaii has been on the office side and industrial.

Q: Medical buildings -- do you think those are underserved?

A: We definitely do. We cite examples over on Maui -- West Maui -- where there has been a concerted effort now for many years to expand health-care facilities. Like that particular community, there are many other areas in Hawaii that are also underserved. We see ourselves as being an investor and partner with either health-care companies or other capital partners in order to either acquire and renovate or develop facilities of this nature.

Q: What challenges are you facing with this shift?

A: We are really just optimistic about Hawaii. We are optimistic about the opportunities. What concerns us is the cost of labor, cost of living and cost of construction, as well as the bureaucratic process. If those things can somehow be fixed or improved or made more competitive, that would have a dramatic impact on Hawaii. There are many people who look at Hawaii from an investment standpoint on the commercial side and they become frustrated with the process. The dynamics associated with real estate and the benefits associated with investment real estate -- that's a very positive picture.