Tag: Gentry Pacific Design Center

State Ethics Commission Bungled Investigation

`Ano`ai kakou… On July 17, 2012, I asked the State Ethics Commission’s Executive Director to investigate whether a trustee’s vote to approve OHA’s purchase of a property being financed by Bank of Hawaii, for which she also serves as a Director on their board, was a violation of HRS §84-14 – Conflicts of interests, which states that no employee may take any official action directly affecting a business in which the employee has a substantial financial interest. This includes elected state board members, such as OHA trustees.

Despite my numerous attempts to follow-up, nothing happened for ten months. Then, on April 13, 2013, the trustee being investigated announced that she received letter from the Commission stating she did nothing wrong. I never received a response to my original complaint.

Just when I thought this was all going to be brushed under the rug, the Auditor of the State of Hawaii came out with her September 2013 Report No. 13-07 (to see a copy of the report visit the Auditor’s Website at: http://files.hawaii.gov/auditor/Reports/2013/13-07.pdf) and harshly criticized the trustees’ vote to authorize the purchase of the Gentry building.

On pages 20-21 of Report No. 13-07, the State Auditor wrote:

“Trustees’ vote in favor of Gentry acquisition violated OHA investment policy

The Office of Hawaiian Affairs’ Native Hawaiian Trust Fund Investment Policy provides that if a trustee has a personal involvement with any direct investment transaction, or even any perceived conflict of interest, the trustee must disclose the involvement immediately and be recused from both discussions and votes on the transaction.

Contrary to this policy, we found that the board’s decision to purchase the Gentry Pacific Design Center building, a $21.4 million property in Iwilei, hinged on the vote of a trustee who is also a member of the board of directors of the bank that offered the best financing for that acquisition.”

The Auditor concluded that:

“… the trustee’s actions may damage OHA’s reputation and undermine the agency’s credibility with beneficiaries and the public.”

The action also had serious consequences for OHA operations. We were surprised to learn on April 12, 2013 that the loan we got from Bank of Hawaii was not a “secured” loan and that it had to be backed by OHA Trust dollars. OHA’s Hawaii Direct Investment Policy requires that any “recourse” in connection with a loan be counted towards the $25 million maximum allocation. As a result, we can’t make any more investments in Hawaii until the acquisition of OHA’s corporate headquarters is complete.

While I will not comment on the competency of the State Ethics Commission’s investigative staff members, it boggles my mind that after a ten month investigation, they couldn’t find anything wrong with the trustees’ vote to purchase the Gentry building.

I believe the State Ethics Commission’s mishandling of the investigation sends the wrong message to other elected officials who think they can blatantly flout Hawaii’s conflict of interest laws. It also gives the negative perception that the Commission is simply there to protect the status quo instead of aggressively assuring clean ethics in the State of Hawaii.

Trustees misled on loan to purchase Gentry Building

`Ano`ai kakou…  On April 15, 2010, OHA established the “Hawaii Direct Investment Policy” (HDIP).  This allows OHA to spend the lesser of $25 million or 10% of the current value of the Trust Fund for investments in Hawaii.

This policy was created to allow OHA to purchase an office building that would serve as our corporate headquarters.  The policy also allows OHA to:  (1) Make equity investments in Hawaii-based companies, (2) Invest in lending programs for Native Hawaiians, and (3) Invest in other Hawaii real estate.

On April 12, 2013, OHA Trustees were surprised to learn that the loan we got from Bank of Hawaii was not a secured loan and that it had to be backed by Trust dollars.  OHA’s Hawaii Direct Investment Policy requires that any “recourse” in connection with a loan be counted towards the $25 million maximum allocation.  As a result, we can’t make any more investments in Hawaii until the acquisition of OHA’s corporate headquarters is complete.

Under the current financing terms with Bank of Hawaii, OHA has to put up the following collateral:

(1) GENTRY MORTGAGE – 100% liability against the Native Hawaiian Trust Fund assets for a total of $21,370,000 required collateral; and

(2) GENTRY RETROFIT LOAN – An additional $6,758,000 loan to retrofit Gentry into an office building at a “75% rate.”  Calculation: $6,758,000 loan / 75% = $9,010,667 required collateral.

Therefore, the combined collateral required for the Gentry Mortgage ($21,370,000) and the Retrofit Loan ($9,010,667) is $30,380,667.  This is -$5,380,667 over our $25 million Hawaii Direct Investment Policy limit.  After doing the math, you have to ask the question, “Who is going to benefit from this sweet deal?”  Certainly not OHA!

The Trustees were misled by OHA’s financial department officers when they repeatedly emphasized that the loan was the best deal we could hope to get.  If it was such a great deal, why do we have to back the loan with our own Trust dollars?  It would have been better to have bought the building in cash.  Why did we even need Bank of Hawaii?

SQUARE PEG IN A ROUND HOLE

It never made sense for OHA to spend $21,370,000 to purchase the 80-year-old Design Center, with some existing tenants, and spend an additional $6,758,000 to convert parts of it into a temporary office spaces to house OHA’s headquarters.  Oh, and did I mention that the number of building vacancies are a clear indication that it is even wrong for businesses to move into?

Now add to that the fact that: (1) OHA’s can’t make any more investments using the Hawaii Direct Investment Policy unless we can renegotiate our loan terms with Bank of Hawaii and completed the relocation of our offices to Gentry; and (2) OHA has until February 2014, when our current lease expires, to move into a “design center” that wasn’t meant to be an office building.  What a complete boondoggle!

We could have saved ourselves all of this aggravation and move our headquarters to the AAFES building that OHA now owns in Kakaako, paying no rent, and spending this time drawing up plans for our new property instead of spending trust money trying to make an old building fit OHA’s needs.  Aloha Ke Akua.

Aloha, Trustee Donald Cataluna

It is with great trepidation that I bid a fond Aloha to my friend and fellow trustee Donald Cataluna, who has been a strong voice for his beneficiaries on the islands of Kauai and Niihau for many years.

Don is known for his passion for protecting native rights and his deep compassion for our beneficiaries in need.  He is credited with stopping NASA from constructing a massive building alongside their telescopes on sacred Mauna Kea and saving the Salt Ponds in Lihue as well as many other projects.

Don has been a true leader whose main focus has been to protect our trust assets while working tirelessly in our beneficiaries’ best interest.

I will miss him.

OHA Election

My congratulations go out to Dan Ahuna, our newly elected Trustee for the islands of Kauai and Niihau and to Maui Trustee Carmen “Hulu” Lindsey, Hawaii Island Trustee Robert K. Lindsey Jr., and Molokai & Lanai Trustee Colette Machado, on their re-election.  I look forward to working with all of them over the next two years to better the conditions of Native Hawaiians.

OHA’s “money pit” now at $28,128,000.00 and growing

When the Board of Trustees authorized the purchase of the Gentry Pacific Design Center this past summer for $21,370,000.00, I was one of several Trustees with serious concerns about the purchase.  There were just too many “unknowns” about the property and I personally felt very uncomfortable with the purchase.  For example:

  • The Gentry Pacific Design Center is 80-years-old and its electrical system is outdated;
  •  The enormous cost and resulting disruption of relocating OHA staff to the Design Center; and
  • The cost of changing the Design Center into an office building.

As I feared the costs associated with the Gentry Pacific Design Center, which is now referred to as the “Corporate Office Building” or “COB” are skyrocketing to nearly $30 million.

On November 1, 2012, the Board of Trustees authorized nearly $7,000,000 in expenditures:

(1) Up to $663,000.00 in essential costs relating to:

  • Tenant Improvement Allowances – $400,000/year for up to 20,000 of the leasable square footage which will be leased or renewed through June 30, 2013; and
  • Immediate Due Diligence Projects – $263,000, including the replacement of a 23-year-old fire alarm system ($100,000)

(2) Up to $6,095,000.00 in design and construction and non-OHA tenant relocation costs relating to OHA’s relocation to COB; and

(3) “Secondary Repairs” – It should be noted that OHA still has to pay for repairs totaling an estimated $404,000 beginning in year three, mainly to repaint the building exterior ($110,000) and to replace the single-ply roofing membrane ($250,000).

As I have said before, it makes absolutely no sense that OHA is spending a great deal of money to purchase and renovate an 80-year-old Design Center full of existing tenants instead of using the $28,128,000 to build a brand new state-of-the-art office building on land we already own.

My preferred location for a new OHA Headquarters is on the Kakaako Makai settlement properties that we recently received from the State.  The Kakaako waterfront is an excellent place for economic development and a permanent home for OHA’s headquarters.

Is anyone listening?  If you are interested in why OHA would spend all this money on an old building that was not for sale, please call (594-1857) or write to Trustee Oswald Stender.

Have a safe and Merry Christmas and a Happy New Year!

Kakaako Makai properties sidelined by Gentry Pacific Design Center purchase

NOTE: This column that was censored from OHA’s August 2012 Ka Wai Ola Newspaper but later printed in the October 2012 issue.

`Ano`ai kakou…  As reported in the Pacific Business News (PBN) on July 11, 2012, the Gentry Pacific Design Center is being sold to the OHA.  The sale of the 185,787-square-foot center at 560 N. Nimitz Highway is scheduled to close in August.  The article did not disclose the sales price, but it reported that the building and its three parcels were assessed for about $28.8 million. [See “Office of Hawaiian Affairs to buy Gentry Pacific Design Center,” by Duane Shimogawa in the July 11, 2012 issue of Pacific Business News]

I am dismayed at the Trustees who authorized OHA to make this purchase.  Trustee Oswald Stender first brought the proposal before the board almost a year ago and it was quickly dropped because OHA had to move into the building for it to make financial sense.  None of the other Trustees wanted to move our headquarters there.  I thought the deal was dead, but it came back before the board on May 17, 2012.  The proposal failed again because Trustee Haunani Apoliona cited a conflict of interest because she was on the Board of Directors of the bank being considered to finance the purchase.  OHA’s Board Counsel agreed and recommended that she not vote.

Then, on June 7, 2012, the Board Counsel opined that Trustee Apoliona, miraculously, no longer had a conflict of interest because the Fiscal Committee Chairman took out any references to Trustee Apoliona’s bank within the proposal.  She was allowed to vote and together with Trustees Apo, Machado, Stender, and Waihee, authorized the CEO to make an offer to Gentry Pacific.

Trustees Hulu Lindsey, Robert Lindsey, and I voted against.  Trustee Cataluna abstained.  The four of us had serious concerns about the conditions under which OHA was required to make the purchase.  They include:

(1) The Trustees has less than one week to review the preliminary due diligence and never got to see the final due diligence report until after the purchase was made.

(2) The Gentry Center is 80-years-old and could have problematic lead paint and asbestos.

(3) There are several areas that need to be made ADA accessible.

(4) The electrical system needs to be updated.

(5) The cost and resulting disruption of relocating OHA to the Gentry Design Center.

(6) The cost of retrofitting the Gentry Design Center as an office building.

Given these unknowns, I personally felt very uncomfortable with the purchase.  During the community meetings regarding OHA’s Kakaako Makai settlement properties, we explained to the community that Kakaako would be a good place for economic development and a permanent home for OHA’s headquarters.

Now OHA is spending a great deal of money to renovate an 80-year-old building instead of using the same amount of money to build a brand new one.  It makes absolutely no sense.

Even though the purchase seems to be a done deal, at least four Trustees continue to have serious concerns about how the building was purchased.  I personally believe that purchasing the Gentry Design Center was not a fiscally prudent investment under trust law.