Kamehameha Schools to sell Hawaii Kai Towne Center and Windward Mall

Forget about holiday markdowns. Kamehameha Schools is putting up for sale two of Oahu’s largest shopping centers, which combined could fetch upward of $400 million.

The trust said Tuesday that it intends to offer for sale the buildings and other improvements at Windward Mall in Kaneohe and Hawaii Kai Towne Center while holding onto the underlying land.

Kamehameha Schools’ announcement comes two months after it said it was selling Royal Hawaiian Center in Waikiki in a similar type of transaction.

Selling the buildings and keeping the land "greatly strengthens our perpetual endowment," Kamehameha Schools Vice President for Endowment Elizabeth Hokada said in a statement. "As with our Royal Hawaiian Center offering, this action is aligned with our 2000-2015 Strategic Plan, which calls for active stewardship of our lands — whether for commercial, agricultural or conservation purposes — while prudently optimizing the value and use of Kamehameha’s financial and nonfinancial resources in support of our educational mission."

Windward Mall, the third-largest shopping center on Oahu, is anchored by Macy’s, Sears and Sports Authority among its more than 110 stores and restaurants as well as a 10-screen movie theater. The 530,000-square foot center, which underwent a $30 million renovation between 2006 and 2009, is the only shopping mall on the Windward side and sits on 33 acres.

Hawaii Kai Towne Center, the island’s fourth-largest shopping mall, is a 30-acre complex that includes Costco, two suburban office buildings, a self-storage facility and a retail shopping and dining center.

"In my broker’s opinion, the value for Windward Mall will be anywhere from $175 million to $250 million, and Hawaii Kai Towne Center would be worth in the range of $100 million to $150 million," said Stephany Sofos, a local retail industry analyst. "For that type of deal, it’s all about income because it’s a ground lease. … The sale will be based on the existing rent and what is the upside for the increase of potential rent."

Kamehameha Schools is selling its properties at an opportune time, according to Mark Bratton, vice president of investment property services for real estate brokerage firm Colliers International in Honolulu.

"I think the climate is very, very good for Kamehameha Schools," Bratton said. "It’s a low-interest-rate environment, and there are a lot of groups that have raised capital across the mainland U.S. who are looking for larger transactions or portfolios like this."

Kamehameha Schools spokesman Kekoa Paulsen said Royal Hawaiian Center has attracted worldwide interest since being put up for sale.

"We have been getting an enormous amount of interest in that offering from all over the world," Paulsen said. "We expect to have a buyer — or buyers — identified and contracted by the end of our fiscal year, June 30, 2014."

Besides the sales proceeds from the three centers, Kamehameha Schools would earn income from what is proposed to be 60-year ground leases from each of the properties. At the end of the lease, the trust would recover complete ownership of the centers.

Hawaii Kai Towne Center is 100 percent occupied, and Windward Mall has an occupancy rate of 93 percent, but Paulsen declined to disclose the net income that the tenants are generating for the centers.

Bratton said he was reluctant to project a selling price without that information, but added that similar properties that have sold in Hawaii have generated returns of 7 to 9 percent annually to the buyer.

"Kamehameha Schools is probably going to take in several hundred million dollars for the two sales combined," Bratton said.

Both the Windward and Hawaii Kai centers have been doing "very well," according to Bratton, citing the renovation at Windward Mall and the 100 percent occupancy rate at Hawaii Kai Towne Center.

But Sofos disagreed, saying Windward Mall "has always been a struggle" because the income has never reached its potential, and Hawaii Kai Towne Center has been "rolling in tenants for years" with Costco the only real success story.

"Just because tenants are 100 percent doesn’t mean they’re getting a lot of income," she said. "Are these tenants the highest and best tenants for the neighborhood, and can new tenants coming in bring in more revenue? As time goes on, I believe it will happen."

Kamehameha Schools said the new buyer or buyers of the two centers will honor the current leases held by the retailers and restaurants.

"The thriving business at Windward Mall and Hawaii Kai Towne Center should continue as usual under a Kamehameha Schools ground lease," said Paul Quintiliani, KS senior director of commercial real estate.

The trust, which is the state’s largest private landowner, bought Windward Mall for $65 million in 1991 from WM Associates. The mall was constructed in 1980.

Kamehameha Schools bought Hawaii Kai Towne Center from a successor to original Hawaii Kai developer Kaiser Hawaii Kai Development Co. for $69 million in two transactions in 1992 and 1993, according to property records. Those purchases did not include the land, which was already owned by Kamehameha Schools. The development of Hawaii Kai Towne Center was completed in 1993.