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Friday, July 25, 2014         

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The dirty dozen

Genshiro Kawamoto puzzles real estate experts by asking more than he paid for Kahala properties he has devalued

By Andrew Gomes

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Japanese billionaire Genshiro Kawamoto aims to cash out roughly half his collection of million-dollar homes and land on Kahala Avenue.

And the real estate tycoon is looking to make a considerable profit -- about $46 million -- if buyers meet asking prices that he recently pumped up.

Kawamoto cornered much of the market along the most valuable stretch of residential real estate on Oahu by buying close to 20 homes on the roughly 1.5-mile-long street about five years ago.

In May he listed 13 properties, including six empty lots, one oceanfront house and six homes on the mauka side of the street, for sale.

One home sold last month for $2.25 million, just $125,000 short of the asking price.

Then, earlier this month, the enigmatic investor boosted prices for the other 12 properties by an average 28 percent.

Asking prices for all the homes total $111 million, up from $87 million when the homes initially went on the market three months earlier.

The sale effort and price increases are the latest moves in Kawamoto's hard-to-understand actions on the prestigious street where he has provided three homes rent-free to needy families and talked about using others to publicly display some of his art collection.

Kawamoto's escapade on the avenue also has involved busting down walls, filling in swimming pools, allowing vegetation to grow wild and demolishing entire houses. Some of these actions led to 53 city citations, though Kawamoto has resolved all but seven.

Some of the properties Kawamoto is trying to sell have been a thorn in the side of neighbors, some of whom have complained that Kawamoto's treatment of the homes degraded and devalued their neighborhood. All the homes for sale have been vacant since Kawamoto acquired them. Three homes he has provided rent-free to Hawaiian families since 2007 are not on the market.

What is surprising to some observers is that Kawamoto in many cases is trying to turn a tidy profit on property he significantly devalued.

"He's asking for more than he paid, and a lot of the homes are in way worse shape than when he bought them," said David Buck, broker-in-charge on Oahu for Hawaii Life Real Estate Services. "It'll be interesting to see what happens."

One home Kawamoto is selling is a 7,957-square-foot house built in 1988 on an acre of beachfront land at 4585 Kahala Ave. Kawamoto bought it in 2005 for $9.7 million when it was in "excellent" condition, according to property and listing records. Now it's on the market for $19.8 million and in need of "major repair," according to the listing.

Another Kawamoto acquisition is a formerly well-maintained 1,811-square-foot home built in 1931, featuring a large pool beside a tropical garden. Kawamoto bought it in 2004 for $1.6 million. Today the house at 4286 Kahala Ave. is being marketed for $2.5 million as a tear-down with a pool filled with weeds and largely dead vegetation.

To be sure, much of the value for any home in Hawaii is in the land, so it's questionable how much value has been lost by letting older homes go to waste.

One of Kawamoto's properties is a vacant 19,210-square-foot beachfront lot that he bought for $3.6 million in 2004. Kawamoto's asking price is $8.5 million, up from $6.7 million in May.

Another lot Kawamoto is trying to sell is a 35,428-square-foot beachfront parcel at 4439 Kahala Ave. that's listed for $17 million. Kawamoto paid $8 million for the property in 2003, and recently demolished the run-down mansion valued for city property tax purposes at $1.2 million.

If Kawamoto can sell all 12 properties at full price, proceeds would be about $46 million more than property records show he paid for the homes, mostly bought in 2004 and 2005 with cash.

Cedric Choi, managing director of Choi International, a local brokerage firm acting as Kawamoto's agent on six properties, said he believes the prices, which Kawamoto set, are around market value for Kahala Avenue.

Generally, Kawamoto bought most of his Kahala Avenue homes before Oahu housing prices peaked in 2007, so even if values have slid since then, it's possible they are worth more than when Kawamoto invested. Whether Kawamoto paid prices at, above or below market value also is a factor.

However, Choi said Kahala Avenue is such a small submarket with unique homes that any comparison to Oahu's broader market is not applicable. "It's a market unto itself," he said.

Sachi Braden, owner of Sachi Hawaii, a local brokerage firm representing Kawamoto on six Kahala Avenue properties, said she believes Kawamoto isn't toying with the market, and has a good sense of what other wealthy investors might be willing to pay for property in a small, coveted area.

"He knows the market very well," she said.

Kawamoto could not be reached for comment.

Braden and Choi said they don't know why Kawamoto raised his asking prices dramatically. "I don't think any of us know why he does what he does," Choi said.

Raising prices runs counter to the present general trend of sellers lowering prices.

According to property listings, there are six homes for sale on Kahala Avenue not owned by Kawamoto. Four of them have had their list price reduced between two and five times. The two without decreases involve one that was put on the market in June and another that was put back on the market in July after falling out of escrow.

The one home that Kawamoto sold, he sold for less than he paid. That sale was a 6,274-square-foot house built in 1960 that Kawamoto bought in 2008 for $2.4 million, according to property records. He sold it last month for $2.25 million.

Local real estate market researcher Ricky Cassiday has doubts about whether Kawamoto can sell his properties for close to what he's asking, but doesn't rule it out.

"Half of me wants to say it's absolutely crazy," Cassiday said about raising prices in a real estate market and economy that are struggling with improvement. "But the tactic has worked before. It's contra-cyclical."

What's more perplexing to Cassiday is that Kawamoto didn't take better care of his homes or rent them to people who would. Had he done that, Cassiday said, Kawamoto would have been able to get higher prices. "It's just plain old nutty that he let the homes go to seed," he said. "He could have maintained the homes ... and sold them for more."

If Kawamoto sells the 12 properties, he would still own nine others on Kahala Avenue, including two homes he bought in the last two months -- one for $2.45 million in June and one for $17.5 million in July, according to property records.

It's debatable what impact the relatively large sale effort is having on the area.

Twelve Kahala Avenue properties hitting the market at once is unusual. But Choi said Kawamoto's homes aren't flooding the market with competition because other homes for sale on the street are newer and in far superior shape. In the long run, most buyers of Kawamoto properties would be expected to build new homes, which would help elevate values.

Choi and Braden said there has been good interest among buyers so far, though they said Kawamoto isn't considering bargain-priced offers. "The people who think there are fire-sale bargains to be had are wasting their time," Choi said.

It could be a year or more to see how Kawamoto's move plays out, given that it's not uncommon for such high-value properties to stay on the market for more than a year because the buyer pool is more limited and value is viewed in different ways by wealthy buyers.

"Its availability is what's more important to certain people than value itself," Braden said.






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