 Okay, we're back, we're live, 11 o'clock, clock, rock, with life after statehood. And today we're going to talk about the condo craze with my co-contributor, Ray Tsuchiyama, informed citizen, and is he ever. Welcome back. Thank you. And I'm wearing my 1987 Rens Christmas shirt that I still fit in from the year that I was married in Honolulu. So I take it out every December 1st and wear it through the month. Amazing. So I'm here with you to discuss this very important topic. In 1960 or so, the law was passed. And Hawaii was one of the first states that adopted a condominium law, allowing what they call the horizontal property regime. And it was actually a vertical property regime, call it horizontal if you like, where you could buy space within a larger beehive kind of structure, and you could own it. And that was different than what they had in New York, which was the co-op approach. Management of the co-op is different than management of the condo. And management of the co-op is everybody is a partner in everything, and you only get a kind of lease arrangement with the partnership to use that space. In Hawaii and other states with condos, and we were a leader, you get to own it. You own those four walls. And it's remarkable what happened, because until then, everybody was in single-family residences. Until then, you know, the idea of multi-unit, multi-story buildings had not really taken off. Everything was really horizontal before then, 1960 or so, as I recall. What was interesting about this rate is that it was a coiled spring. All of a sudden, the people coming off the plantations, the people going into the professions had a new concept to play with, and they played. And by the way, also at that time, there was a certain tax benefits to limited partnerships. Before that, I guess you would call them a hui or a tanamoshi. But after that, it was a limited partnership. And you would still call it a hui or a tanamoshi, but it had structure. And the Internal Revenue Service allowed you to have benefits in a limited partnership that way. And you could also set it up so you were a partner, but you were a limited partner. So it was like owning stock in a corporation. This was very attractive and a big incentive for people to be limited partners and not have liability or be general partners and have a lot of control. It was really an incredible device. So that, taken together with the condominium law, and you have a fantastic confluence, and you have the people who would like to make some money, and so off they go to Makiki. And you can still see the product of their efforts with these small condo buildings, not well-designed, not well-situated, not well-constructed, but there they are. They're still there, and that changed Makiki forever. People don't realize you build a condo, it's very hard to take it down. There's no specific provision in the law to take it down. And the third thing that happened, and I'll turn this over to you, the third thing that happened is the notion of leasehold, because all of a sudden, you know, thanks to, I guess, the Bishop of State, it wasn't yet known as KSBE, thanks to the Bishop of State, we kind of invented the notion of leasing your property, we had it from single family residences in Kahala, for example, leasing your property rather than owning your property. So these smart guys building condos would lease the land to the condo association, and your unit would last, you know, traditionally 55 years. After that, there was a provision in the lease that said, thank you very much for paying us the lease rent for the last 55 years, now you must demolish the building and take it away. I don't think that has ever, ever happened, but that was in a lot of those leases. So the combination of those things, right after statehood, changed residential living. Talk about it. Well, going back to 1959, if you go to Waikiki, you go walking beyond the zoo and the beautiful area by the Elks Club, there are co-ops, as you know, Santsusi, Tahitian, many co-ops in that area, and it's a different world. And that was where maybe a building of 20 units, 30 units, barely 11 stories were built, again, for mainland investors or people who spent a month or two in Hawaii coming from California and the West Coast. So the co-ops are in Hawaii, patterned after New York laws and so forth. In 5960, you see manifest destiny, actually, because the condominium laws and so forth were not developed on the thin air, they came from somewhere else, California. Had a huge building boom in the post-war period. People flocked to LA, San Francisco, a lot to LA area, San Diego, working in the war industries there for manufacturing of aircraft, guns, radar, aerospace. So they developed a whole condominium regime, all those laws and so forth. So it was an adaptation of those laws that were developed. They were just coming over to Hawaii at that point. But you have a very good point about, again, the tax laws also. Now 5960, you have veterans of 442nd and so forth. They had some cash, they were great savers. The Japanese, Americans, and Chinese and Koreans are great savers. They had money in the banks, under the bed, I mean, they had money to spend or invest, rather. And you're correct about the Tanomo-shi-wo-hui's, and they began to band together, and they knew each other. They knew each other from high school, from elementary school, even from kindergarten. But they trusted each other. They trusted each other, and it was not a bank thing. Remember, if you go back in time, each bank was a kind of an ethnic bank. You know, CPB, Central Pacific Bank was a Japanese bank. Hawaii National Bank of Chinese. That's right. So it was hard to go to Bank of Hawaii if you weren't a castle or a cook or a bishop. It was hard to get a loan from First and Wine, or the banks that before. So there were ethnic banks at that point. But even the ethnic banks were reluctant to loan to people who were working-class people, working for the big five or plantations or small mom and pops at that stage. You're correct. And the 442nd, again, that bonding also was a key. They were still meeting each other every month for lunch or dinner. They were still going to the same diners and so forth. That was a very interesting investment view. They were in their 40s. They were young. They were in their 40s. That's right. Around the same time. They were just at the prime of their life, raised in children, and they want to go ahead. The other thing that you mentioned, interesting, is, of course, leasehold. Now, there's a controlling view about leasehold. Leasehold really developed in the post-war period. And it was a way to allow for business to allocate capital, which didn't have much, and not to buy a piece of property to put their manufacturing plant or their gas station or whatever, and to reserve it and then invest in machine tools or paying for people and so forth. It was a way at that time to really get small business started. That's another contrarian view. Now, if you look at leasehold in the residential real estate world, there were a leasehold before, especially in, say, the UK. There were leases for 100 years, 200 years, I mean, historically and so forth. But you're correct. Look at Hong Kong. You're right. There's long leaseholds there. Now, what happened in Hawaii was unusual because, of course, we're on an island and much of the land is owned by larger states. So they had an overwhelming leverage against the small person, and they could dictate terms. You wouldn't sell. You wouldn't sell? Why would they sell their only asset, which was land, as opposed to the continental U.S. which was land all over the place? And if you didn't like it, you could move. But you couldn't move in Honolulu. They had to take what they had to get. And in fact, the early, very early developments like Hawaii Kai was, again, Bishop estate, leasehold land by Henry Kaiser. But again, a large community could not be developed without a large, one parcel, a huge parcel to develop. Now, the good side of that is that there were planned communities that developed, like Milani by Castle and Cook. But you could see already that Castle and Cook had an advantage, or in fact, or many other companies had an advantage over other developers in that they owned the land. And it was packed to the agricultural rates before they could, again, convert it to R1, BMX1, or whatever. But it was a long time to get to that point, as you know. Well, Castle and Cook's first project in Milani took 40 years from the beginning to actually to finishing the project. So even though you owned the land, you were in a conundrum because you had to, like, invest and all that time and resources to get to a point before you even built the first house. And that, of course, added to the price of the house. And of course, the land itself is so expensive that in many times, that's why you don't tear it down. Or you try to renovate because if you tear it down and start it from scratch, it just potentially increases the construction of the new house. Permitting and all that. Yeah, to build a new house. Thanks forever. As you say, time is money. That's right. So there's all these confluences that happened, again, on an island. But you bring up a little interesting point about Hong Kong. Now Hong Kong and Singapore are also islands. And their experiences in the 60s and 70s, starting from that period, was to take over land as the government and build what we would call condominiums, apartment houses. And as people began to get higher salaries, they got to buy their own place. But they were allocated in kind of a master-planned way. So they would just release a little bit of land here, a little bit of land here. And then build them. So people had the opportunity to live in their own apartment. So it was... And own it. And own it. Even though it was not forever. That's right. But there was a kind of a planned out kind of thing. And of course here, there was no plan. Something happened in Makiki, which was a tremendous, like a wild west. It was something like Oklahoma. And people came in and then began to do this without any thinking, except to make a very short-term profit. That's right. Exactly right. Those limited partnerships would be... They'd try to do the whole deal as quickly as possible and take the money and run. That's what it was. There was no lingering interest. Sell all the units, get out, not be a member of the condominium association. Developers would be gone and they'd have a bag of money for their efforts. The other thing is there was plenty of intrigue, plenty of shenanigans that went on in these condos. It was sometimes it was not a pretty picture. There was litigation among the partners, among the members of the limited partnership. There'd be litigation with the contractor. And of course the traditional litigation that followed construction. Construction litigation with the construction contractor. It was a lawyer's delight for a long time. A lot of legal work. I think in those years, maybe the 10, 20 years that followed 1960, so a lot of legal work all around condos. And it came of age though. It came of age in that period. For example, the way you handled the condo board, the way the board members wrote their bylaws, the way they managed, the way they managed their managing agent. There was a whole industry that came up around condos. Cheney Brooks and Company. Right. Is it a good example? Management companies. Management companies. Yeah. And they would send managers down, I mean their managers down to your condo board meeting. There was a whole new industry in the managing person. The condo manager person who managed the condo sometimes lived in the condo in a unit there. There were insurance firms that made their bones selling condo insurance. There were contractors by the carload that made their bones painting, repairing, upgrading condos. I mean, it's been a huge industry for a while. Well, what you just said in a nutshell, it created an entirely new ecosystem of companies and lawyers and inspection and property managers and it became a whole world that did not exist in 1959. But because of these new laws and investment vehicles, there was a new jobs created also. And the condominium associations began to flourish as small bodies and replaced what was the neighborhood. Yeah. We can take a minute now, Ray, Ray Tsuchiyama, my co-contributor and co-conspirator here. A life after statehood and we're talking about the condo craze in Hawaii after statehood. Very interesting. We'll be right back. Hello. This is Martin Despeng. I want to get you excited about my new show which is called Humane Architecture for Hawaii and Beyond and it's going to be on Think Tech Hawaii from downtown Honolulu on Tuesday after noon's 5 p.m. And we're going to talk about to make architecture more inclusive on the islands which is one of the definitions of humane which is being tolerant of many people of nature of many other influences. So we're going to have some great guests, like today's guest for example, my collaborator David Rockwood who's the author of the awesome manifestation of humane architecture in the background. So see you on Tuesdays 5 p.m. I look forward to. Okay. We're back. I'm going to talk about the condo craze here on life after statehood on Think Tech. So somewhere along the line my best guesstimate would be around 1980 instead of having little wee you know fourth story condos in Makiki which were which you know rebuilt Makiki used to be all single family and big lots. Now people made a lot of money assembling those lots or actually not assembling them. Make a little wee lot, make a little wee condo and bagpoles of money because it'd be worth much more if you sold you know 10 or 15 units or 20 units on the same space used to be one single family house. But somewhere along the line it got bigger and there got to be some iconic condos in much more expensive neighborhoods than Makiki. Remember the ones? Well one is of course in Waikiki, Yad Haver Towers that sprung up in the 70s. Stark. Yes and Sherying and that is iconic because they faced the ocean. Views became prominent in as a criteria for marketing condominiums very much so. And so that would if you fast forward that to the one alamoana and others in Kakaako and Nauru Tower which appeared about in the 80s, mid 80s and so forth and that led to Amoana Pacific and others around that area. But the one that goes way back is 1350 Alamoana and that's by Alamoana Center. Manaphy. You Manaphy. Yeah and that was you know now it looks ancient, it looks very ancient compared to the glass. Great location. Yeah the location is everything. The location is everything for 1350 and the others are prominent along Alamoana Boulevard and they began appearing Nauru and Yad Haver and others just before the great Japanese investment boom and they became synonymous with not only living in a luxurious style but also as branding that you own the condo in Waikiki and of course Waikiki began to also develop especially in condo tells and like the Trump Towers and Richard Carleton's nobody makes it just a purely hotel anymore. They sell it to investors for time sharing as you know. Time sharing and condos. Yeah and condos. So it's a mixture now. You spoke of the Ilekai where the Ilekai one building of the Ilekai the one on the other side it's all condos. That's right. In fact the one on the diamond head side is condo too. No hotel. So I mean condo was like going everywhere. Alamoana hotel. And I think it goes back to what you just said. As a developer when you go through the permitting process and all the construction and so forth the objectives getting your money back as quickly as possible we have no idea what's going to happen afterwards in the market and you spend all that time investment with no income. You're just totally with no income. So it's better to condomize or you know to get money up front and to sell out as quickly as possible because who knows what the market will be in two or three years. And so you're correct even in Waikiki the revenue stream of a hotel room over several years you can amortize that and so forth. But to sell as a condominium you get money immediately. So that that is the objective. Yeah and get out. Get out. Just get out. Do the math. I mean the land itself is going to be worth X dollars a single family residence or a series of them going to be X plus dollars but a condo especially a fee symbol condo can be worth huge amounts of money. And the idea is to you know have the revenue the sales revenue from that well exceed any construction costs. And a lot of people did demand a lot of money making you know and it's not just the luxuries the big ones say going you know West from from town starting in IA and working that way all the way down through Pearl City lots of big condos and condos in town a lot of condos came up in town. And these are for ordinary middle class people they'd have to beg borrow and steal to raise the money they'd have to take big loan 90 percent loans and they did. And for a time you know when developers were straddled on this kind of thing they would sell to you cheap and they would they would finance it for you and make it easy. So we wound up with a whole bunch of middle class condos all over Oahu and the neighbor islands where people would naturally move to. It's easier in a way to live in a condo than a single family residence. You just pay your maintenance fee and everything is taken care of for you have to worry about security. So it's a convenience. It's a convenience factor. And you're correct that for many people who lived in this residences in town during the 60s 70s began to go out to the suburbs Pearl City, Kapolei, the sort of Greek gentry way out there during the 80s and 90s and then we entered the 2000s people coming back into town. Their children have grown up. They just need a place for their dog and there are a couple and people are coming back into town. There's also there's a segment of a population who are coming in and they don't have any children. They want to have an urban experience. And again this is linked to mass transit though. And the other reason why people move back into town is that they just cannot stand the commute from the West coming into the East. So you have a group of people who also would like to be in town without a car but there isn't efficient mass transit. And so the argument goes back to why did we begin outside of outside when again if we had a series of stops within, within Alamona, downtown, Kalihi and so forth, that urban corridor that would be the starter and that would have brought people back into town to live in condos and then have a more vibrant neighborhood feeling. What we lost out is we built condos everywhere and there were no green belts to speak of and now, funny we hardly remember his name but Neil Abercrombie talked about building high rise condos, really high rise, two high rise condos in the center of the city in Kakaako because you have to do that if you have limited space but we could have planned it a lot better. Now we have condo sprawl in every direction. But what I wanted to get with you is on the Japanese investment thing that happened in the Japanese time and that would have been 80 to 90 roughly. Yeah, I mean it started in about 83, 84 and then it would continue into the early 90s. So when they first started buying condos and they did, they bought the middle class condos but then condo developers could see there was really a benefit in trying to go trophy condos and vocation meant a lot but fancy, you know fancy buildings meant a lot, lots of amenities meant a lot and they were going to be used as retreats in which the owners did not live, maybe rented, maybe not and they would come here from time to time and use the place and all of a sudden we went to extravagance and now we had condos and this is really important if we're examining, you know, life after statehood. Now condo became synonymous with fancy, expensive, extravagant condos and it happened a long time ago, this is 35 years ago but all of a sudden you saw these really expensive condos going up. Condos that you and me would really not be interested in, condos that local people could not afford being sold off to investors from offshore. What kind of effect did that have? Well, in effect in several ways. Number one, I think developers found out that if you put slightly more expensive material you could potentially sell the condo, the valley would go up. It would also position Hawaii as a location for the super rich, I mean that's another place. And it goes back in time to what Hawaii tourism was before the war, which was one segment, which was the very high wealthy segment of the population and not the middle and so forth. But to be frank, there is still a huge population of middle class visitors coming to Hawaii who are kind of outside that kind of zone of wealthy and condo investors and so forth. However, going back to Waikiki and the condos that are in that area, again, limited area and even if you build a condo with the same type of materials, maybe slightly better, slightly more marble, developers' choices go luxury rather than middle because there's no money. That's why you have Burger King's leaving in Kalakaua for Max Mara or Louis Vuitton and so forth because per square foot you can make so much more money and so forth. So that change in retail and real estate is one that's not focused just on buyers of condos. I think it's kind of emblematic of the whole part of it. Yeah, part of the chain transformation of Waikiki. Yeah, it's like the Palm Court phenomenon. We want well-healed investors here. We want to build high-value condos for them. We want to offer them high-value stores. We know they're not from here. We know that the local middle class isn't going to shop there or live there, but we do it anyway because it's part of raising money for investors and then you find the investors are from Offshore too and then you wonder exactly what does this mean for us? The investors are from Offshore. The people who buy that stuff, they're from Offshore. People who buy retail Offshore. It's like having an Offshore phenomenon right in our midst except we can't really participate in it. And then you have, we have a minute left here, but then we have the latest and greatest in Kakaako. We have in Kakaako condos that routinely go for two, three million dollars and in fact there's one penthouse there in one particular building that recently sold for 95 million dollars. They were asking a hundred. And we're talking about prices that would never, never be, you know, within the reach of local people. And so now the condo has gone to a completely different place in the economy in the residential hierarchy. Nobody in the state could ever afford it, so we are selling to the most well-healed people in the world. It stands a parallel to, you know, London and New York and whatever as the cost of living there. And this has also an effect. So I don't think, you know, there are condos being built that are middle class, but I don't think they hold a candle to these huge condos drive down Alamoana. One after the other, block after block, building after building, they are very expensive. I'm talking about affordable housing, but that's a small part of it and it's not very affordable. In reality, we are building luxury condos in the best locations of the city and this is changing our quality of public, public spaces. Well, historically, the state and the city has attempted to address public housing. Also, Mayor Rice was before the war. KBT, Queer Park Terrace was, you know, early 60s, mid-60s. Both really didn't address the issues or deteriorated through time and whether the state could have planned it out better kind of thing. And you're correct that the green belts are gone. I mean, the sugar is gone, but still that opened up for more housing. And what if we use the former sugar lands as agriculture to sustain, you know, a kind of urban lifestyle in downtown and so forth. But again, I think how the developers transformed CACACO was that they saw an opportunity to really create new spaces outside of Waikiki that didn't exist in Waikiki. You can't build big things anymore in Waikiki. There isn't much space. Yeah. In the end, it's market-driven, investment-driven. But why do I feel, Ray, that you and I can never actually finish our conversation? Because we raise issues and think of things we never thought of before. And we'll just have to keep on trying. That's Ray Tsuchiyama. We co-contribute on life after statehood today, the Kondo craze. Thank you so much, Ray. Thank you. Aloha.