For the last two years, the state Division of Boating and Ocean Recreation has been paying $150,400 a year lease rent on an acre of vacant land at Ma`alaea, Maui. To date, the only income this property is bringing in to the state is $18 a month — and even that has come in only since August, when the Board of Land and Natural Resources issued a revocable permit allowing the Waterfront Restaurant to place a directional sign on the lot.
The Division of Boating acquired a non-cancelable, 30-year lease on the property in September 1994 after an intense, five-month-long period of negotiations with Don Williams, a real estate agent with offices in Maui and Texas who said he represented the parcel’s owner. At the time negotiations began, the owner was a branch of the Church of Scientology. However, less than a month before the state signed the lease, Williams himself took title to the land.
Misrepresentations
The Board of Land and Natural Resources approved DOBOR’s proposal to lease the land on May 27, 1994. The lease rental rate was not specified; rather, the staff report prepared for the board’s review said only that the rental would be determined “by independent appraisal.”
As it turned out, the land valuation determined by the independent appraiser hired by the state was discarded by the Division of Boating when Williams said it was too low. (However, the actual price Williams himself paid when he purchased the property two months later was $310,000 less than the valuation placed on the land by the state-hired appraiser and $530,000 less than the valuation DOBOR eventually agreed to.)
The submittal also identified Williams as the lessor, even though at the time, everyone at DOBOR involved with lease negotiations was referring to Williams as the owner’s agent and at the meeting where the board approved the lease, DOBOR administrator David Parsons informed the board orally that Williams “represents a hui who presently owns it.”
The submittal stated that the land would be used for a maintenance baseyard for DOBOR, a fish processing center, Marine Patrol offices and support facilities, and expanded harbor parking. All of this was needed, Parsons told the Land Board, in conjunction with the long-proposed expansion of Ma`alaea Harbor. The environmental impact statement for the harbor expansion, however, makes no reference to development of this parcel for any purpose. Meanwhile, the fish processing center that was the intended occupant has since left the area and the Marine Patrol has been disbanded.
Answering The Call
In the late 1970s, the same land had been proposed for a four-story condo development with a restaurant and shops on the first floor. The project received a Special Management Area permit from Maui County, but nothing was done other than the land being cleared and filled up to an elevation of 23 feet. Since then, scrub vegetation has pretty well overrun the lot, although parts of it appear to have been graded quite recently. Soon after getting county approvals, the developer experienced financial difficulties, leading eventually to foreclosure and the permit expired.
No further plans to develop the property were evident when, in March 1994, the state began its efforts to acquire the land. Charles Penque, who is DOBOR’s Maui administrator, said the land was brought to his attention by Bruce Johnson, the owner of Fresh Island Fish. Johnson’s company was losing its lease on land that is part of the Ma`alaea Triangle development (involving an aquarium and other tourist-related features). It was Johnson, Penque said, who “knew about this lot. I had driven by it a lot of times, but wasn’t aware of it.”
The land “was ideally suited for a baseyard and a district office,” Penque said. “It was more land than we actually needed, but it just so happened that Fresh Island Fish … were losing their lease. It was an ideal situation. We had an instant tenant, and we’d help assist … the fishing industry.”
Penque said he then talked with Larry Cobb, the former property manager for DOBOR. All further negotiations were done by Cobb and the Honolulu office of the division, he said.
Political Pressure
According to a statement DOBOR administrator Parsons made to the Board of Land and Natural Resources, “Mr. Williams first contacted us the day after we had the public hearing” on the Conservation District Use Application for expanding the Ma`alaea small boat harbor. That meeting occurred March 10, 1994.
The first correspondence in DOBOR files relating to use of the land is a letter from Williams to Penque, hand-delivered to Penque four days later, on March 14. “Dear Chuck,” Williams wrote, “It was a pleasure receiving your call this morning. Thank you for your continuing interest in the Ma`alaea Corner.”
“We are seriously discussing the sale and/or development of the Corner with several qualified purchasers and developers,” Williams continued. “I don’t want to move too fast here, but if we decide to make this deal, I’d like to at least initiate the transaction while I’m on Maui. Perhaps you could offer me a non-binding letter of interest, or intent, if your interest in the Corner continues to grow.”
Grow it did, with DOBOR apparently laboring under the impression that the land could be purchased for $1.35 million. In an effort to drum up political support for state acquisition of the land, Cobb drafted a letter to state Senator Rosalyn Baker of Maui. The letter, dated April 15, 1994, was sent out under the signature of then BLNR chairman Keith Ahue.
The Fresh Island Fish Co., Inc., the letter said, “is desperately in need of assistance. Their lease has been cancelled effective December 31, 1994, in connection with the impending development of an ocean center attraction and retail complex. Failure to obtain relief from a dire situation will result in an imminent threat to their operations that will have far-reaching affects [sic] in the fish processing industry. I cannot describe their dilemma better than they have in the enclosed urgent plea to Governor Waihe`e.
“A major responsibility of public service is to respond to its citizens in need of assistance. We have such a need and must answer the call to come to the aide [sic] of this important segment of our community.
“Our Boating Division has identified an available parcel of land adjacent to the harbor. This property can serve the needs of Fresh Island Fish Co., Inc., better than their current location and also satisfy the future requirements for a Boating Division maintenance baseyard. The purchase can be accomplished with issuance of General Obligation bonds reimbursable from the Boating Special Fund or an exchange of suitable state lands. The asking price of $1.35 million will be subject to our own independent appraisal…
“We request your assistance to expedite the acquisition of this parcel. Legislative approval is a requisite to acquiring lands for public use. We know it is late in the session, and we would not make such a request if the situation was not absolutely crucial. Please help us save this valuable resource,” Ahue concluded, referring to Fresh Island Fish.
Ghost Writing
Baker appears not to have responded to the letter. Yet the letter did elicit a quick — and angry — response from one of Williams’ lawyers, Ryther L. Barbin, of Wailuku. “My client and I have reviewed the copy of Keith W. Ahue’s letter to Senator Rosalyn Baker … that you prepared for his signature,” Barbin wrote in an April 20, 1994, letter to Cobb, the DOBOR property manager. “We specifically take issue with your misrepresentation of an ‘asking price of $1.35 million’.”
Barbin went on to refer to a meeting on March 21, 1994, involving Penque, Cobb, and Williams. During that meeting, Barbin continued, “my client stated to you that he believed the property could appraise between $2 and $3 million, and you replied that the DLNR would purchase the property at its appraised value. A specific asking price was not discussed at that meeting or at any other time.
“If a purchase price of $1.35 million is the expected or perceived price by the DLNR, it would be futile to continue negotiations, since that price would not be acceptable to my client.”
In the event the DLNR wanted to pursue acquisition of the land, Barbin stated, Ahue would have to write Baker again, indicating that “there has been a misunderstanding regarding ‘asking price’ and that the final price to be paid … is to be determined solely by negotiations between the parties based upon an independent ‘fair market value’ appraisal of the property.” (In the DOBOR files are two drafts of just such a letter. The first one originated in Barbin’s office, as indicated by the facsimile heading. The second draft, which is on Ahue’s stationery, differs little from Barbin’s draft. Attempts to determine if Ahue actually sent out such a letter were inconclusive.)
Barbin was not yet through with his conditions: “My client kindly requests, and I understand that you have agreed, that I be allowed to review and approve in writing all future correspondence relating to this matter prior to its distribution. It would also be appreciated if details of this matter were kept as quiet as possible, since my client is now receiving phone calls from the general public regarding this matter.”
Barbin, Williams, Cobb and other parties involved all apparently were of the belief at this time that DOBOR would acquire the land through purchase. Thus, Barbin wrote, “if we proceed, my client will need you to … obtain [legislative] approval to acquire the property prior to May 6, 1994. This time frame will enable my client to determine the best utilization of the property in a timely manner. As you have been told by my client, he has spent nine (9) years and thousands of dollars on acquisition, development planning and analysis, and does not wish to become further entangled in long, drawn-out, inconclusive determinations regarding the property.”
(Baker told Environment Hawai`i that she doesn’t remember the Ahue correspondence. However, she did say she remembered being pressed by the Division of Boating and Ocean Recreation to draft last-minute legislation authorizing purchase of the parcel.)
Changing Courses
The Legislature ended its 1994 session without approving purchase of the land. Negotiations continued, but focused now on leasing the land from Williams with money from the Boating Special Fund. According to DOBOR administrator Parsons, the Legislature has to approve expenditures from the Special Fund, but when Environment Hawai`i asked if the Legislature explicitly approved acquisition of the Ma`alaea parcel by lease, Parsons said, no, it had not. “The Legislature approves money we spend as a lump sum, with categorical descriptions of projects — for example, lease rentals, which can include land as well as office leases.” The Ma`alaea lease falls into this category, Parsons said.
Even though the matter had not yet been approved by the Land Board, by May 26, Williams and Cobb were at the point of discussing whether lease payments would be made monthly or, as Williams preferred, annually. Penque, meanwhile, was shopping for tenants — besides DOBOR and Fresh Island Fish — that might use the land. In a weekly meeting with the Maui Marine Patrol, Penque reported to Cobb, “we discussed the possibility of including the Maui MPOs as part of the hui… On the surface this looks to be a possible solution to their location problem and makes a stronger case for us.”
The proposed lease of the land finally came before the Land Board on May 27, 1994. In his presentation to the board, DOBOR administrator Parsons described the purpose of the lease as being “for expansion of our boat harbor to include our boating maintenance baseyard, approximately 20,000 square feet for a fish processing center, Marine Patrol offices and support facilities, expanded harbor parking… The owner is Mr. Don Williams, who represents a hui who presently owns it. We would be leasing it, our division, with the rental to be determined by an independent appraisal.”
Board chairman Keith Ahue volunteered, “We’re losing the existing fish processing center, and so that’s a consideration.”
Parsons elaborated: “One of the things that prompted this was the fact that Fresh Island Fish Processing — one of the primary ones on Maui — is being displaced by the Ma`alaea Triangle development right across the street, and he needs a place to go. And we were approached by them, and Mr. Williams first contacted us the day after we had the public hearing on the Ma`alaea CDUA on Maui. So this has moved quite fast. The reason we wanted to get it on the agenda today is Mr. Williams still enjoys the authority for sole disposition of the property up till the 15th of June. So he said, we could get some sort of commitment from the state… So this is what we would intend to do. First enter into a long-term lease, if the price is favorable, with the object of later acquisition if approved by the legislature.”
With virtually no discussion or questioning by the Land Board, Kennison’s motion to approve the lease was approved without dissent. As Parsons left the table, Kennison thanked him “for what you did on Maui.”
The proposal approved by the board authorized the Division of Boating to lease the land, on condition that an environmental assessment be prepared, “if applicable, … prior to the issuance of the lease.” No environmental assessment for use of the land has yet been prepared. Parsons has said that this will be done only when the state has more specific plans for using the area.
The ‘Williams Factor’
Well before the Land Board gave the project a green light, the Division of Boating and Ocean Recreation had selected an appraiser, the Hallstrom Group, to prepare a report on the property. By sheer coincidence, its appraisal sets a value for the land on the same date — May 27, 1994 — that the Land Board gave approval to DOBOR’s request to lease it.
Throughout Hallstrom’s work on the appraisal, Williams was in constant communication with them, as may be seen from a July 5 letter from Brian Goto, the appraiser for Hallstrom, to Larry Cobb. “As discussed by telephone,” Goto wrote, “we exceeded our budgeted compensation for the above-referenced assignment [the Ma`alaea appraisal] due to extraordinary circumstances of which we were unaware at the initiation of the study. We quoted an all-inclusive fee of $4,700 which included professional fees, out-of-pocket expenses, and gross excise tax. Typically, our fee quotations allow for a single meeting with our client to discuss the methodology employed in arriving at our value conclusion… However, in this instance, we were unaware of the ‘Don Williams factor,’ which you jokingly referenced during our discussion of possibly sending along a supplemental billing for the extraordinary time required for this assignment. Please understand that significant extra time was required to accommodate the persistence of Mr. Williams.”
Goto continued: “Usually we do not interact with anyone other than our client. In this instance, we asked at the commencement of the assignment about whether we should be speaking with Mr. Williams and were instructed by you to do so since he knew the most about the property. As you might suspect, this opened up a flood of telephone calls, facsimiles, and suggestions regarding knowledgeable individuals to call.”
(Parsons told Environment Hawai`i last month that he was aware at the time the appraisal was being done that Williams was intending to purchase the land. When asked if that knowledge had any effect on DOBOR’s negotiations with him, Parsons indicated it did not.)
The next page and a half of Goto’s letter is spent detailing the interactions with Williams. Among other things, Williams appears to have challenged the appraiser’s determination of adequacy of water and comparable property sales; he provided Hallstrom with numerous lengthy faxes concerning the Maui Ocean Center (the Ma`alaea Triangle Partnership development nearby); and he requested the appraiser speak with his banker and two other real estate agents.
“Due to the extraordinary circumstances which have in part been enumerated above, we are sending this supplemental billing for an additional $3,629.43,” Goto wrote, all of which was to cover the cost of having “accommodated the extra burden of responding to Mr. Williams.”
Williams appears to have attempted to influence the appraisal report even after it was completed. In a short note faxed to Cobb on June 15, Williams asked Cobb to “kindly allow Brian one more day to present you with the appraisal so I can have more time to find other comparables for his review.” There is no indication of a response to this request.
A Second Bite
The fee-simple value of the Ma`alaea land, according to the Hallstrom report, was $1.66 million. On July 1, Williams met with Cobb and Penque to explain how the appraised value was not high enough. In a follow-up letter to Cobb written the same day, Williams attempted “to further elaborate on the concerns that are perceived by my lender. These concerns have created the need for a new appraisal, at my expense…
“Since your appraisal produced a value that was lower than expected, the transaction would require me to come up with $150,000+ to close. Also, if interest rates continue to go up and the state does not purchase the property very soon, the potential for debt service rising above income before re-appraisal at the fifth anniversary of the lease concerns me and the lender.”
Williams then proposed two changes in the proposed lease: that rental rates be renegotiated every two years, instead of every five, and that the option to purchase would expire in five years.
“Since you and Chuck have stated explicitly that it is the state’s intent to purchase the property very soon (within the first or second year of the lease),” Williams wrote, the proposed changes in lease terms “will not have a negative impact on the state.” In addition, he said, “if my new appraisal produces a higher value and the resulting rent is increased slightly, this will further diminish the lender’s concerns.”
Indeed, the appraisal Williams provided to DOBOR did place a higher value on the land than did Hallstrom’s appraisal. The report, done by ACM, established the value at $2.1 million, as of August 1, 1994.
(Although Williams had indicated to Cobb that the appraisal would be done at his expense, the cover sheet indicates it was prepared for Kenneth Yee, vice president and chief appraiser of First Hawaiian Bank. Yee, interviewed by telephone, said he didn’t remember this specific appraisal report, but that any report done for the bank remains its property and is not to be distributed without the bank’s authorization.)
Unrelenting Pressure
Records at the state Bureau of Conveyances indicate that on August 4, 1994, Williams took title to the property. The purchase price on which the conveyance tax was paid was $1.35 million.
Yet in his ongoing dealings with the state Division of Boating and Ocean Recreation, Williams continued to portray himself as being pressured by an unidentified seller to wrap up the deal, one way or another.
On August 4, for example, Williams faxed a “VERY IMPORTANT” letter to Cobb concerning lease conditions. The state had wanted to insert a provision giving the state an option to cancel. Williams objected strenuously. “In short, if this ‘Option to Cancel’ is not supported by statute requirements and cannot be removed, I cannot enter into the lease with the state… As you will remember, this condition was discussed by you and I and the bank at the outset of our negotiations and we all agreed at that time that such a condition could not be included in the lease… Now, after months of negotiations and thousands of dollars having been spent by the state and myself on legal opinions, appraisals, etc., you come back with such a condition.
“I have been patient with the process and have paid handsomely for continuing the process, but we either need to stop it now, once and for all, or finish it now once and for all…”
“I have to wrap up this deal no later than next week. If we do not have cooperation from all involved, I will have to accept another opportunity other than the state.” (In the final lease, there is no option to cancel.)
On August 15, Williams told Cobb that he had been contacted that day by the “seller and their agent yesterday. They want to close today.”
Over the next few days, Cobb and Williams appear to have arrived at a valuation of the property that was agreeable to both: $1.88 million. Using a formula allowing for an 8 percent return on investment, the lease rental rate was established at $150,400 a year, for the first two years, with rental renegotiations to occur every two years throughout the term of the lease, based on a fair-market appraisal of the property’s value.
The lease was executed and took effect September 1, 1994.
To Bid Or Not to Bid?
Two months before the state signed the lease, Fresh Island Fish Co., Inc., had already retained an architect to begin developing plans for a new fish processing facility at the site. But over the next 14 months, what had seemed like a sure bet slowly crumbled under increased scrutiny of the Board of Land and Natural Resources, whose members were growing increasingly nervous about perceptions of favoritism in the deal.
As indicated earlier, at the time the Land Board approved the lease, there were no such concerns. Nor were concerns raised when DOBOR administrator Parsons brought the matter of the sublease of Fresh Island Fish to the board for its approval in October 1994. While the board deferred action on the approval at that time, the reason given was to address the objections of the neighboring condominium association, which by then had learned of the intended use of the vacant lot.
The board considered the sublease again, on November 18, 1994. Once more, Parsons was asking the board to approve giving Fresh Island Fish a long-term (up to 30 years) sublease by direct negotiation instead of by public auction. The fish company would occupy about half of the land leased from Williams.
As Parsons told the board that day, “Use of a portion of the premises by the applicant was a major factor in the acquisition of the property.” In attempting to address the concerns of the condominium owners, Parsons said, “Since the lease will require the lessee to conform to county requirements, this will include an SMA [Special Management Area] permit application on the part of the applicant, and we believe that these issues [the condo owners’ concerns] can be further addressed through the SMA process. It’s our opinion that issues of noise can be addressed through construction, design, and other provisions.”
With little discussion, the board approved the request to sub-lease the land to Fresh Island Fish, for the “manufacture and sale of ice, operation of a fish processing center and sea food restaurant.”
Expansion
By early 1995, it was apparent that Fresh Island Fish would not be able to develop a facility on the vacant land in time for occupancy by August 1995, the deadline it then had to vacate its old premises. On January 4, Bruce Johnson, president of Fresh Island Fish, informed the state that “it will take from 50 to 60 months to develop the property. We plan to expend approximately $200,000 in soft costs for the development, that is, costs prior to engaging an architect/engineer to prepare construction drawings. The plan is only feasible if Fresh Island Fish can continue in its operation in the Ma`alaea area until occupancy in the new facility… As the result, we looked at the possibility of converting the SeaFlight [sic] building at Ma`alaea into a transitional facility.”
Johnson indicated that renovations of the SeaFlite building would cost approximately $300,000. After his company was in its new quarters, he said, it would give the state back the rehabilitated building. In return, he asked to have use of the facility for up to 60 months “without any additional rent other than the renovation costs.”
On February 24, 1995, the Division of Boating and Ocean Recreation approached the Land Board with a request to grant a month-to-month revocable permit to Fresh Island Fish, allowing it to occupy the entire ground floor, some 2,070 square feet, of the vacant SeaFlite Building at the end of the pier until the permanent facility was ready. In addition, the company would get “exclusive use of adjacent open paved area.”
Once again, the board approved the request, without, however, being informed that company intended to occupy the site for the next five years. Nor was there any mention of a waiver of rental in exchange for improvements. The staff submittal indicated rent would be determined by an independent appraisal.
Promoting Competition
By this time, Johnson’s plans for his “interim” facility had expanded again. Now, in addition to the SeaFlite building, he indicated in discussions with Maui County administration officials (including Mayor Linda Lingle) and the state that he would like to place on the vacant Williams land two refrigerated, 24-foot-long shipping containers (one of which would contain an ice machine) and a small removable office, and would also use the area for parking of company employees’ cars and company vehicles.
On April 28, the Land Board was asked to give Fresh Island Fish a right-of-entry to begin renovation of the SeaFlite building (granted), but not until May was the board asked to give Fresh Island Fish a revocable permit allowing it to use the Williams land for storage and parking.
Only then did the board members begin to raise questions about the process by which Fresh Island Fish continued to receive approvals for use of state land that bypassed competitive bidding.
DOBOR administrator Parsons was finally asked about the rationale for giving Fresh Island Fish alone the privilege of using state land.
Parsons responded: “We have had substantial interest and support from both state legislators as well as the county to ensure that the fish processing center remains in business. It was thought to be in the best interest of the general public. And therefore the authorization was for issuance of the lease by direct negotiation. And it had been reviewed and approved by the attorney general’s office as far as the basis for our recommendation for direct negotiation.” Direct negotiation — as opposed to competition by bidding — was needed “to ensure competition,” he added.
Maui board member Kennison, who a year earlier had supported the project, asked: “How does that help competition?”
Parsons: “The information we had was that there was a possibility that other fish processing companies — from O`ahu or Suisan, from Hilo — might come up and look at this.”
Kennison: “The fishermen are saying this is very unfair, that they had no knowledge. If they knew, they would have bid.”
Parsons explained that his office had been pressured to accommodate Johnson’s fish company. “He wrote a letter to the governor and requested assistance from the state… We also had inquiries from Maui members of the Legislature, for the state to do what they could to provide space for him to remain in business.” (No such letters of support could be found in the files of the Division of Boating.)
O`ahu board member Michael Nekoba expressed dismay over Parsons’ response: “I mean, hey, I could put in a request, say I need some land on the harbor or wherever. So I go to the governor, and then a few representatives call you, and you just gonna say, okay, we got this space. I mean, can you do this with other properties, too?”
“Only if they meet certain criteria,” Parsons replied.
At-large board member Colbert Matsumoto noted that as it is, the direct negotiation of subleases and revocable permits “seems to subject us to criticism of possible favoritism… If it involved ceded lands, we’d run into a problem with respect to subsidizing this activity at the expense of the public land trust.”
On the motion of Kennison, the Land Board deferred approving the request for a right-of-entry to allow the attorney general’s office to review the matter.
* * *
Yellow Light
Shortly before that meeting, the office of Land Board Chairman Mike Wilson had begun to look into the award of the revocable permits to Fresh Island Fish. Deputy DLNR Director Gil Coloma-Agaran asked to review materials associated with the Fresh Island Fish sublease on May 23. On June 14, he asked DOBOR property manager Cobb to provide him with a copy of the lease. And on June 15, the next day, he was asking Cobb why the state was “leasing a site that will not generate any income for 5 years under the Fresh Fish proposal.”
Meanwhile, Cobb met on June 15 with representatives of the attorney general’s office. In a memo dated June 19, he informed Coloma-Agaran of the outcome of that meeting and gave him the DOBOR version of events leading up to the present situation.
“It was the intent of the Boating Division,” Cobb wrote, “to issue a sublease by direct negotiation to Fresh Island Fish Co., Inc., in response to requests for assistance from the proposed sublessee, and several state and county of Maui officials… A sublease was prepared and the Boating Division was processing it for execution. Due to the extent of the development requirement, a one-year abatement of rental was contemplated. The state should have been receiving rental income within approximately two years, until certain delaying events … were encountered. It is the intent of the Boating Division to continue to expedite processing of a sublease that will ultimately offset lease rent payments on these premises.”
‘Vengeful Competitors’
Those “certain delaying events,” Cobb went on to say, arose while the division “was processing the sublease and other actions to temporarily relocate Fresh Island Fish to the SeaFlite building.” The department and the Maui Land Board member, he said, “received a few inquiries and complaints, primarily from misinformed neighbors and vengeful competitors, regarding the procedures and legality of the actions.”
On the advice of the attorney general’s office, Cobb said, the Division of Boating would ask the Board of Land and Natural Resources to amend the November 18, 1994 board action. Instead of giving Fresh Island Fish a sublease by direct negotiation, the sublease for development of a permanent fish processing center would be offered at public auction. In addition, the board would be asked to amend its February 24 action giving Fresh Island Fish a revocable permit for the SeaFlite building. The amendment would include in the R.P. the use of part of the vacant Williams land as well. Finally, the Boating Division would not issue the right-of-entry approved in April for interim construction activities.
On July 14, the board received a staff submittal from the Division of Boating that reflected the recommendations of the attorney general’s office. The submittal was described as “issuance of revocable permit” and asked the Land Board to grant Fresh Island Fish an R.P. for the SeaFlite building and a portion of the Williams land for $1,785 per month. If Fresh Island Fish were not accommodated, the staff submittal stated, it “would be devastating to the fish processing industry on Maui, threatening its very survival.”
Almost as an afterthought, in the “remarks” section of the submittal, the Division of Boating asked the board to revoke the right-of-entry granted in May and to authorize a sublease for development of the permanent fish processing center, on the Williams land, to be issued at public auction.
No, Thanks
The Land Board members were not pleased about the plan to let Fresh Island Fish occupy the SeaFlite building without putting it out to bid. Larry Cobb, property manager for DOBOR, informed the board that the site wasn’t terribly desirable. “It’s not that attractive,” Cobb told the board. “It’s sat there for 10 years without anybody expressing any interest in it whatsoever until we offered it to [Fresh Island Fish]. It’s been there for 10 years, empty.”
Board member Matsumoto was skeptical: “How desirable it is is a matter of what the market demand would be. As to whether or not we put it out to auction, that’s a policy decision… Why aren’t we putting it out to auction?”
Cobb explained that because the use of the SeaFlite building was to be only temporary, it was not appropriate to put it out to auction. In any event, Cobb went on to say, the division had long-term plans for the site. “Right now, the sentiment of the harbor users is to allow development of the SeaFlite building for the commercial operators. We’ve had interest expressed by the operator of Navatek — actually, the Son of Navatek — operating on Maui. They want to use that area for a staging area… Sometimes it’s very windy out there in the commercial loading area. They’d like the interior space for the comfort and convenience of the passengers.”
Still, the board appears to have soured on the deal by this time. “The actual pleasure of the board is that the division look at putting this out to auction,” Matsumoto said. “And it may be that Fresh Island Fish is the only bidder, but we have concerns that people in the public feel there may be an element of favoritism involved in giving this by direct negotiation to Fresh Island Fish… So I think for the purpose of maintaining the integrity of this whole system, the more appropriate option is to put it out to auction.”
In the end, the Land Board voted to put one-year revocable permits for both the SeaFlite terminal building and the Williams parcel out to public auction. In addition, the R.P.s would be cancelled when the new fish processing facility was completed.
* * *
Rigged Bid?
For the next three months, the Division of Boating worked to prepare the revocable permits for bidding at public auction. By mid-September, a bid package, including qualifications that would have to be met by bidders, was put together. Notice of its availability was published on October 2, 9, and 16 in The Maui News and Honolulu Advertiser. The auction was scheduled to be held at 10 a.m. on October 27, at the SeaFlite terminal.
Among other things, DOBOR was requiring prospective bidders to have “had a valid business license for operating a fish processing business or similar business experience for a period of at least five years in the state of Hawai`i within the last ten years. A “qualification questionnaire” set further conditions on bidders, including the requirement that it have $100,000 “in liquid working capital or a firm commitment from a local financial institution” for that amount. In addition, all corporate bidders were required to be authorized to operate a fish processing center prior to submission of the bid.
When the bid package was finally reviewed at the office of the DLNR director, deputy director Coloma-Agaran was furious. In a memo dated October 13, 1995, he immediately notified Parsons that “procurement for the Ma`alaea Fish Processing Center is to be cancelled. Please take the necessary steps to stop the process.”
In the balance of the memo, he outlined his concerns, centering largely on the perception that the bid qualifications had been written so that just one bidder would qualify.
“I spoke with Larry Cobb this morning. I had some questions on the bid package… Specifically, I asked how many people would qualify to bid given the experience requirements in the package, and why the publication notice had dates that had already passed.
“Larry noted that the publication had already been accomplished… My follow-up question to you would be why did DOBOR bother to send the package down for the chairperson’s signature if the notice had already been published?…
“Larry stated that the qualifications were drafted in order to assure that bidders would have experience in the fish processing business… Larry agreed when I asked if he wrote the qualifications for business reasons alone.”
Aftermath
Fresh Island Fish began moving out of its former site, at the Ma`alaea Triangle area, about 18 months ago, leaving the site for good on August 20, 1996, according to Ed Lincoln, its vice president for operations. The company has shifted part of its operations to O`ahu, Lincoln told Environment Hawai`i, and the remainder to the Kahului industrial area on Maui.
DOBOR’s Parsons told Environment Hawai`i recently that he still wanted to use the site. “We’re looking to use the land for Boating District Offices and a baseyard, and a lease for harbor-related activities, maybe something like Fresh Island Fish,” he said. “We have a request for construction funds included in our new budget request, but don’t know if it will be included in the administration budget.”
In the meantime, the Boating Division has brought to the Board of Land and Natural Resources two proposed uses of the Williams parcel that will generate some income. As mentioned at the start of this article, the large sign for the Waterfront Restaurant has produced $18 a month for the state since August 1996.
And in July, the Land Board approved granting a one-year lease of approximately 2,500 square feet of the Williams lot to Ma`alaea Triangle Partnership. That company, which is developing a $20 million oceanarium, had asked the state for permission to use part of the Williams land as a staging area and desilting basin while construction proceeds on Coral World. The rental rate was to be determined by an independent appraisal.
The appraisal arrived in the Boating Division offices on October 8. Fair market value of the area under easement was determined to be $26,688. Based on a rate of return at 6 percent (although the state is paying Williams an 8.5 percent rate), the annual rent for the area was set at $1,600 for the one-year term of the lease. Cost for the appraisal was $1,100.
According to the Maui County Planning Department, Ma`alaea Triangle has not yet applied for an SMA permit to use the Williams parcel, although such a permit is required. Exactly when the state can look forward to receiving anything more than nominal income from use of this land is anyone’s guess.
Volume 7, Number 5 November 1996
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