Hawaii lawmakers set to extend land lease terms to nearly 100 years

How the state leases public land for commercial and other use is on the verge of historic change.

A highly divided Legislature recently passed a heavily contested bill that would let tenants on state-owned public land maintain leases for roughly a century, up from 65 years, without competition.

The measure, House Bill 499, reflects a furthering policy shift in recent years by the state Department of Land and Natural Resources, which generally used to oppose giving new lease terms to tenants nearing lease expiration because it would undermine a long-standing objective to provide equal opportunity for use of public land via competitive auctions promoting higher rent revenue.

HB 499 would give DLNR’s board the power to extend leases for up to 40 years if tenants make major property improvements — defined as costing at least 30% of what existing facilities on the land are worth — and agree to revised rent based on land value.

If Gov. David Ige enables the bill to become law, lessees of public land statewide, which include businesses at airports, harbors, industrial parks and other places as well as government entities other than the University of Hawaii, potentially can put off competition for land they lease.

The bill attracted opposition mostly from Native Hawaiian organizations and individuals largely concerned that beneficiaries of the Office of Hawaiian Affairs and the Department of Hawaiian Home Lands will suffer by not having such lands used for other, possibly more beneficial purposes.

On Tuesday, Councilwoman Heidi Tsuneyoshi held a rally outside the state Capitol and urged Ige to veto the bill, which she called a terrible piece of legislation that would allow longtime lessees to maintain control of 1.8 million acres of public lands after people waited decades for such lands to become available.

“I pray you choose to do the right thing,” Tsuneyoshi said of the governor as she was flanked by roughly 50 people holding Hawaiian flags and signs criticizing HB 499. “Leave a legacy behind you that says you care.”

Other critics of the bill include the Hawaiian Affairs Caucus of the Democratic Party of Hawaii, the Native Hawaiian Legal Corp., the Sierra Club of Hawaii and more than 140 individuals who submitted written testimony.

“This bill would allow current lessees to bypass a public bidding process where input for past, current, and future land stewardship can be reviewed, higher rent negotiated, and if need be environmental assessments allowed,” Jonathan Osorio, dean of the Hawai‘inuiakea School of Hawaiian Knowledge at UH, said in written testimony. “This bill simply produces an extension of an economic status quo that is at the root of Hawaii’s economic inequalities, as well as the continual denial of Native Hawaiian claims to these lands.”

OHA noted in written testimony that in many cases a portion of public-land lease revenue is owed to the agency to benefit Hawaiians, and that extending leases to “excessively long” terms could substantially inhibit DLNR’s board from fulfilling its fiduciary duty, given that extensions could result in lost opportunity to benefit from future real estate market changes and not taking ownership of improvements on the land at the original end of a lease, among other things.

Some bill opponents fear DLNR’s board could extend a lease for 23,000 acres of the Pohakuloa Training Area on Hawaii island used by the Army under a lease set to expire in 2029.

Other opponents are concerned that DHHL can exercise a right to use the 40-year extension provision to extend commercial leases on land it owns. Currently, DHHL has to seek new bids for such land when leases expire, though a decade-plus-old rule change still pending federal approval allows DHHL to extend its maximum 65-year leases by 20 years one time only.

Supporters of the bill include several commercial lessees of public lands and DLNR, which in recent years has been wading into more limited lease extensions.

DLNR in written testimony cited a 2011 law governing resort land leases that allowed its board to extend a lease for the Hilo Hawaiian Hotel from 2031 to 2068 as part of an agreement for the hotel owner to substantially improve the property following the hotel’s sale in 2010.

In 2017 a new state law allowed commercial and industrial tenants with less than 10 years left on a public land lease to obtain an extension beyond an existing 65-year term limit if no one else expressed interest in leasing the land in response to an offering by DLNR’s board.

Then in 2018 a new law established a 10-year “pilot project” to address concerns over deteriorating public lands in Hilo leased by businesses that faced uncertainty upon lease expiration and therefore had little reason to invest in improvements.

The 2018 law established lease extension terms similar to HB 499 but limited public land lessees to much of Hilo’s commercial core, including Banyan Drive hotel sites, industrial sites around Hilo harbor and more inland retail areas where major tenants include Walmart, Safeway and Target makai of DHHL land occupied by Prince Kuhio Plaza.

DLNR also noted that most industrial land lessees in Hilo’s Kanoelehua Industrial Area received 10-year lease extensions to original 55-year leases in return for making substantial property improvements under another law.

In 2019 DLNR sought to make the 2018 pilot project a permanent statewide program under bills it requested. Those bills, however, stalled in 2019 and didn’t advance last year amid the onset of the coronavirus pandemic.

Before advocating for HB 499, DLNR reported to the Legislature in December that two lessees had obtained lease extensions under the 2018 law.

In one case, JH Moku Ola LLC, led by Miles Sakane, received a 30-year extension from 2028 to 2058 on an original 55-year lease previously extended by 10 years for 2.2 acres in Hilo.

As part of the deal, JH Moku committed to spend $800,000 on improvements including warehouse renovations and replacing a cesspool with a septic system by early next year, representing 68% of the appraised value of existing facilities on the land.

JH Moku intends to sublease much of the property to Ace Hardware Hawaii for $300,000 a year, according to DLNR.

DLNR said it factored sublease revenue into revised ground rent for JH Moku, which since 2018 has been paying $85,260 a year. Annual rent will rise to $104,750 in 2028, then to $140,775 in 2038 and $189,190 in 2048.

The other extension covered three land leases to HPM Building Supply for 5.5 acres in Hilo. The company committed to spend $2.2 million on improvements representing 33% of the value of existing facilities to obtain a 30-year extension running from 2026 to 2056 and taking the full length of the lease to 95 years from an initial 55 years after a prior 10-year extension.

HPM’s annual rent will increase to $257,386 for a dec­ade starting in 2026 from a current $172,100. Rent for subsequent periods are subject to future land appraisals.

HB 499 adds a provision to the 2018 law limiting lease extensions to lessees that have not assigned their lease to another entity within the past 10 years. Lessees also may not assign their lease within 10 years following an extension.

“The department believes that retaining long-term lessees in good standing is in the best interests of the state and therefore supports the bill,” DLNR said in written testimony on the bill.

The vote to pass HB 499 was 36-15 in the House and 16-9 in the Senate.

Ige has until June 21 to indicate whether he intends to veto specific bills, followed by a July 6 deadline to act.