When buying a house, a car or a loaf of bread, it’s not terribly difficult to gauge the item’s value and understand what’s included with the sale.
It’s much harder when the sale involves preserving scenic beachfront stretches of Oahu’s North Shore.
That’s the challenge for the state, which is proposing to buy a conservation easement that curtails expansion of the Turtle Bay Resort.
Generally, an easement attaches specific rights and restrictions to real estate that last in perpetuity and are unaffected by any future sale of the property.
The prospective Turtle Bay easement was outlined in a report to the Legislature recently and endorsed by Gov. Neil Abercrombie. Yet major details still need to be ironed out, including the price and the restrictions on use of the property.
By law the state can’t pay more for an easement than the property’s appraised value, which in this case is preliminarily $31.3 million to $38.3 million. The state has a $40 million target price to purchase the easement. Turtle Bay’s owners have said that’s too low but have not said what price they would accept.
If a negotiated price is more than the state’s appraised value, conservation organizations and other sources could be enlisted to chip in.
The value of an easement ultimately is whatever the buyer and seller agree to, though a basis for what is fair can be tied generally to the fee-simple value of the land and how the restrictions affect that value.
In the case of Turtle Bay, the easement proposes to prohibit development of 750 homes on two parcels — 69 acres of undeveloped land largely fronting Kawela Bay, and 541 acres around Kahuku Point, most of which is occupied by the resort’s golf course.
The easement being negotiated doesn’t include the area surrounding the existing hotel, where the resort’s owners intend to build two additional beachfront hotels with a combined 625 rooms.
The easement would allow the resort to continue using its land for golf and other recreational operations such as horseback riding while also providing for public access.
Beyond that, several major issues still need to be addressed, including the extent of public access, whether public parks will be created on portions of the easement land and if the developer will be exempted from certain required road improvements.
"There’s still a lot to be worked out," said Doug Cole, executive director of the North Shore Community Land Trust, who has been involved in the easement talks.
The state is negotiating the easement to prevent Turtle Bay from carrying out a plan, approved by the city in 1986, that allowed building up to 3,500 hotel and condominium units in the area. Turtle Bay owners have scaled back the expansion plan to include only 1,375 new units.
In negotiating a price for the easement, Turtle Bay owners are concerned they will still be bound by parts of the 1986 plan that require the owners to pay for millions of dollars in upgrades, mostly for roads and parks, to the areas in and around the resort.
For instance, the 1986 plan calls for a 5-acre park at Kawela Bay and a 38-acre oceanfront park at Kahuku Point. The required road improvements tied to resort expansion include improving three intersections on Kamehameha Highway, creating a new resort entrance and building a four-lane road bisecting the resort property generally parallel to the shoreline.
Whether improved parks, which are intended to be conveyed to the city, and roads become part of scaled-back development under an easement is a subject of negotiation that could affect the easement price.
In a supplemental environmental impact statement, the resort owner estimated the infrastructure costs would be $87.8 million if most of the Kahuku Point and Kawela Bay parcels are excluded from condo development.
Blake Oshiro, Abercrombie’s chief of staff, suggested that the resort owner might save close to $80 million in infrastructure costs as part of agreeing to an easement. That would allow for an easement purchase closer to the state’s appraised price.
Turtle Bay officials say there is no certainty they won’t have to pay for the infrastructure upgrades.
"We can’t assume that those obligations won’t apply," said Drew Stotesbury, CEO of resort operations and development for Turtle Bay manager Replay Resorts Inc. The resort owners are a consortium of financial institutions and investors.
This infrastructure discount is a major factor in the state’s valuation of the proposed easement at $31.3 million to $38.3 million using an appraisal commissioned by John Child & Co.
Turtle Bay’s owner has declined to publicly reveal its appraised easement value, but indicated that its appraiser, The Hallstrom Group, made different assumptions about how much road and other required infrastructure could be excluded.
Agreeing on and implementing reduced infrastructure requirements could be tricky. The city, which is a party to the requirements under the 1986 plan, is working on a solution with Replay. Meanwhile, both resort and state officials express optimism on the issue and agree that there is room to negotiate on an easement price.
Based on the resort’s sale of 32 acres under Kuilima Estates condos at Turtle Bay three years ago for about $500,000 an acre, an estimated value for the 852-acre resort could be around $425 million.
It’s difficult to assess how much less an easement is worth compared with the land value, especially for a big part of the resort where the resort owner would maintain golf operations.
Part of the reason an easement is being pursued is because the resort owner wants to keep ownership of the land pursued for preservation.
The state in recent years has entertained the idea of condemning Turtle Bay land, and the easement talks arose as an alternative to a bill introduced in the Legislature last year by Sen.
Clayton Hee (D, Heeia-Laie-Waialua) calling for condemning land planned for resort expansion if an amicable transaction could not be reached.
Condemnation, which means the state seizes the land for public use and pays the owner the appraised value, is a vastly more expensive option that could be challenged by the resort. Another downside to condemnation is that the state would be responsible for managing and maintaining the property.
Thus an easement is considered a preferable option, though it is complicated and unique because of the factors including improvement requirements, development restrictions, public access and limited continued resort use.
