Let's pretend it is 1997 and YOU are Mr. Oaktree. (Part 1)

(the scene) 1997 - The real estate market in California and Japan is bleak. Both bubbles burst in the early 1990's and the casualties from the fall out include the Pacific Northwest, California and in the pincher of both recessions - Hawaii.

Hawaii's economy is hurting, home prices have declined for at least 6 years and the factors that drove it up - Japanese and primarily California visitors and investors have much larger issues to deal with than leisure market investment options.

Turtle Bay since the big marketing bang of the late 1980's - PGA and LPGA golf tournaments, Jazz Festivals, lavish parties, big plans for expansion has been steadily declining and the place is gradually starting to resemble its nickname "Beirut". Chunks of concrete are falling off the building, the roof leaks, the keiki playground is closed due to hazardous equipment, there is no maintainence budget and both golf courses are suffering from lack of money to take care of priorities. The Japanese owners are out of money, can not execute their development plans because they have no dough, the market is awful and they are doing NOTHING to make the place better. They cut spending to pretty much $0 and put the property up for sale.

YOU are Mr. Oaktree with offices in L.A. and N.Y. sees something come across your desk. "800 plus acres on Oahu for sale. Distressed owner from Japan, needs fixing up, with approvals to build 4 more hotels and 2 condos developments. 27 holes of golf, with potential to have 36 holes".

Interesting.

At this point in time, you Mr. Oaktree have a number of big things to consider. How much do I pay? Can this place be fixed? How much will it cost to be fixed? Will Oahu be an attractive destination again? If I fix it will people come and pay what I need them to pay to make money?

You do not consider that if you do everything you need to do you might not be able to build out the Resort.

We know how this story plays out. You Mr. Oaktree buy the Resort in 1998. It takes 2-3 years to get approvals to start the massive remodeling of the hotel. In 2001, there are cranes in the air and work is going full blast. 9-11-01 is another blow to Hawaii's tourism industry, people are afraid to fly and the economy nose dives.

Mr. Oaktree keeps going, by time he's done. Essentially a new hotel is done, new pools, Lei Lei's, Ola, new 9 holes of golf, 2 remodeled courses, Ocean Villas condos, hiking trails, etc. etc. etc. - $100,000,000 plus in investment.

Now Mr. Oaktree wants to put in infrastructure to build more stuff. The infrastructure will deliver to the 6 zoned parcels water, power, cable, sewer, etc.. The maximum combined number of units is 3,500 as the Unilateral Agreement states. Those are the conditions that he bought the property under, in full compliance with all laws.

In January 2006, UNITE HERE Union Local 5 who was in a labor dispute and boycotting Turtle Bay notifies and starts organizing some North Shore people against Oaktree. Which brings us to today.

Next Post - Part 2 (2006) Does the "End Justify The Means?" Is 20 years too long?