Liquidity in the Pacific

A 104-year-old property trust is making quite a splash in investment circles. The Hawaii-based estate of James Campbell, which owns a diversified portfolio of 59 commercial properties around the nation, will become a $2 billion real estate operating company within three years. The trust secured $645 million in debt financing in October through an institutional investor-led private placement.

The funds will enable the estate to become the closely held James Campbell Co. LLC in 2007, 20 years after Campbell's last surviving daughter passed away. That date was stipulated in Campbell's will.

The trust owns 59,700 acres of land in Hawaii, as well as 27 industrial centers, 16 office properties and four retail centers in 17 states. The mainland portfolio consists of 12.9 million sq. ft. of commercial property. Through September of this year, the portfolio was 94.8% occupied.

“I can't think of any other private placements that were quite this large,” says Douglas Poutasse, chief investment strategist at Boston-based pension fund advisory firm AEW Capital Management.

Normally, says Poutasse, it would be difficult to keep a deal of this magnitude quiet — but he admits that he was unfamiliar with it. “It shows how much liquidity there is in this real estate market, if they could raise that much money without many people knowing about it,” says Poutasse. “Everyone is pouring capital into this asset class.” The money will be used as working capital, to refinance debt and to cover the new firm's cash needs in 2007.

The flood of capital on both the debt and equity sides is not expected to slow in 2005. Respondents to the 2005 “Emerging Trends in Real Estate” survey — a research report conducted by the Urban Land Institute and PricewaterhouseCoopers — say pension funds will lead the equity investment charge. Many of these funds have loads of capital to be invested in real estate. The Campbell Estate private placement was raised chiefly through life insurance companies and pension funds.

In 1850, Campbell, who was born in Ireland, arrived in Hawaii seeking work as a carpenter. Instead he founded the Pioneer Mill Co., a sugar-processing plant, with local business partners. His timing was fortuitous as the sugar trade was booming.

By using profits from his plant to buy large parcels of land in Oahu, Maui and the big island of Hawaii, Campbell became one of Hawaii's biggest landowners. Campbell created the trust in 1900 in order to preserve his legacy. Then, the Hawaii real estate owned by the trust was valued at $3 million.

“Since there's a law that prevents trusts from lasting in perpetuity, it was decided that the estate would become a closely held real estate company in 2007,” says Steve MacMillan, CEO of James Campbell Co.

Most of the trust's 31 beneficiaries, all descendants of Campbell, will become shareholders in the new company.

MacMillan expects a seamless transition because the new firm will carry on the estate's mission of buying core properties on the mainland. It also will oversee the development of Kapolei, a large master-planned city on Oahu.

In 1990, the estate broke ground on the 32,000-acre site of Kapolei, a master-planned community outside of Honolulu. The fastest-growing region in Hawaii, Kapolei has created more than 15,000 jobs over the past 14 years. Home Depot recently opened a store and Gannett Pacific's Honolulu Advertiser — the local newspaper — opened its new printing facility there.

“We'll be totally built-out at Kapolei in 20 years,” says MacMillan. “The intent was to create a large urban center with jobs.”

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