Tag: OHA Investments

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.

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.

Native Hawaiian Trust Fund Update

TRUSTEE ROWENA AKANA

August 2003 Ka Wai Ola Article

`Ano`ai kakou…  In October of 2002, the Board of Trustees adopted the “Manager-of-Managers” approach to oversee OHA’s Native Hawaiian Trust Fund.  Basically, this means that an investment advisor would be hired to build a portfolio of the best investment managers and would share fiduciary responsibilities with the Board, or so we thought.

On January 16, 2003 the Board hired Goldman Sachs & Company and Frank Russell Company to serve as OHA’s two Manager-of-Managers.  I abstained from the vote because I questioned the hiring of Goldman Sachs.  What followed after that meeting can only be described as irresponsible on the part of the board chairman.

A contract drawn up by Goldman was signed by the administrative staff, with the board chair’s approval.  It gives Goldman full control over the assets that they manage and removes the Board’s direct oversight.  Also, the burden of liabilities was shifted to OHA.

Our past contracts specifically stated that OHA, it’s Trustees and employees would be protected from all actions, suits, claims, damages, and expenses that arise out of the contractor’s errors, omissions or acts.  Goldman’s contract has no such language.  OHA’s protection was further eroded when the budget committee chair rejected the recommendation of our investment policy consultant, who strongly advised the Board to hire a firm to monitor Goldman and Frank Russell.

According to the latest performance report, Goldman has been outperformed by Frank Russell in March, April, and May of this year.  Goldman made a total of $15,651,672 versus Frank Russell who made a total of $16,236,725 for a difference of $585,053.

The budget chair has pushed hard for Goldman since October of 2002, when he abruptly placed Goldman on the Board agenda for consideration, even though they missed the submittal deadline.  He continued to support them despite questions from Trustees over why other investment managers who missed the deadline were not considered.  He also dismissed the reports of serious indiscretions involving Goldman that were reported in the national media.

On February 9, 2003, a CBS’s 60-Minutes exposé reported that hundreds of former shareholders of Montana Power were suing Goldman, claiming that they were misled into transforming their power company into a telecom company.  They claim that Goldman brought Montana Power, once worth billions, to the brink of bankruptcy.

The plaintiff’s attorney said, “There would be memos in which Goldman Sachs would just keep pushing, ‘This has to be done now… The market for this can only get worse… They were definitely the driver.’”  He also stated that Montana Power’s CEO needed Goldman to pull off the deal and that it was Goldman that made most of the presentations to Montana Power’s board.

Goldman’s contract with Montana Power also required that, “Any advice provided by Goldman Sachs…is exclusively for the information of the board of directors and senior management of the company.”  The lawsuit claims that this basically means, “Don’t tell the shareholders.”

Goldman pocketed close to $20 million on the deal.  However, Montana Power employees lost their jobs, retirees lost their life savings, and Montana’s relatively low electric bills went through the roof.  Businesses that depended on the cheaper electricity were forced to shut down.  Goldman Sachs did not offer any comments for the report.

I distributed taped copies of the program to all Trustees and also asked Goldman for an explanation.  Unfortunately, since the case is still in court, they were not able to give me any details.

Finally, instead of continuing to invest only in different types of stocks, OHA should consider alternative investments such as natural gas or business ventures.

For example, Sealaska is a Native Alaskan owned corporation with over 16,500 shareholders.  In addition to financial markets, their principal investments are in forest products, telecommunications, entertainment, plastics, and minerals development.  For the past 30 years Sealaska has diversified through many businesses and has become a leading exporter and one of the strongest economic and political forces in Alaska. 

In order to keep the Trust in perpetuity for our beneficiaries, OHA must invest in land and other tangible investments as other Native peoples have done.  Mālama pono!

Let Us Pray for Guidance, Perseverance and Tolerance

By Trustee Rowena Akana
December 2002

Source: Ka Wai Ola o OHA

Mele Kalikimaka me ka hou’oli makahiki hou to everyone, and a Big Mahalo to everyone who supported me in the November elections.

As we move forward in the new millennium with two new members on the OHA Board we look optimistically for change both in the leadership and in OHA’s direction for the future. At the writing of this article no one has been chosen for the chairmanship as yet. It is unfortunate that new members do not get to know other members of the board before they choose a chair. It has happened time and time again that while people promise anything to get the position, once they get it, nothing changes and the chair’s position becomes one of power and control.

Let me recap what has taken place in the last eight months. OHA lost the interim revenue bill at the Legislature, Act 304 was not revisited by the legislature; OHA lost almost $100 million in our investments, mostly because of inattention to business and a lack of concern by both the chairman of the board and the chairman of finance. While everyone lost money on the stock market this year, we were given many opportunities to bail out of some of our investments and reinvest in real estate and other more tangible investments. Instead, this leadership did nothing despite the urging of at least two trustees. At no time were any emergency meetings called to discuss OHA’s financial crises, nor were any meetings called to address the many legal challenges facing OHA.

The board never met to discuss any planning for the future, given the fact that we now were faced with no income and we were still funding operations and programs using our trust assets for the first time in OHA’s history.

Now, after all this, you would think that the past leadership would be ashamed to ask for the leadership again. But that is not the case. Here we go again. What is scary is it only takes five votes….four old guys and one new uninformed well meaning person who wants to make OHA look unified. After a few months, the honeymoon will be over when that new person realizes that he has been duped and the leadership is incapable of leading and they find themselves in “F” troop instead.

So, what is the answer? The answer is do not choose a leader right away. Have a committee-of-the-whole with a new chair for every meeting for three months and the person who can build consensus among the trustees will win the prize. We certainly must try something new, nothing so far has worked. Wish us luck with a new process because there must be some serious effort put into the tasks that lay ahead. Example: negotiations with the state on a ceded land settlement, interim revenue, addressing legal challenges, federal recognition and a transfer of entitlements.

“Through wisdom is a house built, and by understanding it is established and by knowledge shall the chambers be filled.” Proverbs 14:3-4

Have a great holiday season and God bless!