JPMorgan affiliate buys Waikiki mall

An affiliate of the giant bank JPMorgan Chase & Co. is now the owner of Waikiki’s largest shopping center.

New York-based J.P. Morgan Asset Management has bought Royal Hawaiian Center from Kamehameha Schools in a deal estimated to be worth more than $500 million for the local trust benefiting Native Hawaiian children.

Kamehameha Schools announced the sale Friday but is not disclosing a price or other terms of the deal, which includes the mall buildings but not the underlying land.

The trust retained broker Eastdil Secured to find a buyer for the center in October and at that time said it might offer a 60-year ground lease, at the end of which Kamehameha Schools would recover complete ownership of the property.

One person familiar with the sale, who asked not to be identified because they were not authorized to speak about the transaction, pegged the price at over $500 million.

Mike Hamasu, research and consulting director for commercial real estate brokerage firm Colliers International in Honolulu, said such a price would become a new high-water mark for Hawaii property based on a price per square foot.

"It seems awfully high but it’s not inconceivable," he said. "It’s ground zero for retail in Waikiki."

Stephany Sofos, a local retail industry analyst, said $500 million to $600 million is a realistic price based on the long-term income flowing to the mall owner.

"Over 65 years that should be a good investment," she said. "It’s the jewel of Waikiki."

Andy Starn, a vice president of retail brokerage services for commercial real estate firm CBRE, said JPMorgan’s acquisition shows how attractive Waikiki is to big institutional investors.

"That’s another really strong indication of the quality of the Waikiki market," he said. "The fact that they’re putting money in Waikiki bodes well for Waikiki."

Chris Graham, managing director of J.P. Morgan Asset Management, called Royal Hawaiian Center one of the nation’s finest shopping venues and said it will make an outstanding addition to the company’s portfolio of best-in-class retail properties.

"Kamehameha Schools has created, maintained and continually enhanced the world-class shopping and community destination," he said in a statement. "We are excited to continue Kamehameha Schools’ responsible stewardship of this important local asset, its enthusiastic promotion of Hawaiian culture, and its enriching community programs."

Kamehameha Schools developed Royal Hawaiian Center in 1981 on three blocks fronting Kalakaua Avenue and about seven years ago invested $115 million to transform what was a four-story, fortress-like structure with concrete finishes and tenant vacancies as high as 40 percent into a modern-looking center with new tenants including Apple, Cheesecake Factory, Forever 21, Hermes and Tory Burch.

Recent occupancy in the 322,000-square-foot mall has been about 90 percent with about 110 shops and restaurants.

Management of the mall, which is handled by Los Angeles-based Festival Cos., is not expected to change with the sale. Festival managed the renovation and tenant leasing of the center for Kamehameha Schools.

Selling the center was a way for Kamehameha Schools to capture the increased value it created while retaining ownership of a prime part of the land base that underpins the trust.

Proceeds from the mall’s sale will be reinvested and used to support Kamehameha Schools operations, which besides education include conservation land stewardship and major real estate development projects in Haleiwa and Kakaako.

L. Jack Wong, interim CEO of Kamehameha Schools, said in a statement that the sale greatly strengthens the trust’s perpetual endowment that funds education for Hawaiian children to the tune of $300 million to $350 million a year.

"With this decision, we are able to keep and care for this special property while investing the proceeds from the sale of its improvements to benefit our children’s futures in perpetuity," he said.

Royal Hawaiian Center was the single biggest asset of Kamehameha Schools, which said in October that it considered a sale as a way to diversify and reduce risk in its roughly $9 billion investment portfolio.

The trust also has offered to sell Hawaii Kai Towne Center and Windward Mall in Kaneohe in similar ground-lease deals as part of the diversification strategy.

Windward Mall, with 530,000 square feet of retail space, is the third-largest shopping center on Oahu and underwent a $30 million renovation between 2006 and 2009.

Hawaii Kai Towne Center is a 30-acre complex which includes Costco, two office buildings, a self-storage facility and a retail shopping and dining center.

Sofos estimates that the value of these two properties combined could be $275 million to $400 million.