Small Firm Helps Families Maximize Assets
February, 15, 2008
Pacific Business News (Honolulu) -by Janis L. Magin, Pacific Business News
Some of Hawaii's most prominent land-rich family-owned companies are making the most of their assets by investing in commercial real estate – on the Mainland.
It's a way to keep such organizations, which may own thousands of acres of land in the Islands but have limited cash flow, divesting their core assets or dissolving completely, said Easton Manson, managing director of Persis Asset Advisors.
The firm specializes in guiding what Manson calls "historical companies," locally owned businesses whose shareholders are multiple generations of the same family.
Because such organizations are often C corporations, subject to federal income tax laws, the simple sale of land can result in large tax liabilities.
Persis helps clients dispose of noncore assets while pursuing tax-deferred exchanges to reinvest in commercial real estate on the Mainland. The firm also will occasionally coinvest with clients.
The goal is to keep these companies together for future generations, Manson said. Without steady income from investments, there may be more pressure to liquidate everything in some instances.
"We like to see these companies prosper," he said. "Recognizing they have to change, they have to diversify."
Persis looks for conservative investments for their clients, often occupied office, retail or industrial buildings that generate a consistent revenue stream.
And although the proceeds of land sales in Hawaii are being reinvested on the Mainland, Manson noted that the income returns to Hawaii and helps keep local companies alive.
"What they're looking for is diversification," he said. "It has a ripple effect across the local economy."
The firm's clients include some of the largest landowners on Oahu, Maui, Kauai and the Big Island, including Kaneohe Ranch Co., Haleakala Ranch Co., Kahua Ranch and the Eric A. Knudsen Trust.
The Knudsen trust owns some 4,000 acres, most of it on Kauai's south shore.
"It's all on Kauai except for the Home Depot store," said Knudsen trustee Stacey Wong.
The trust hired Persis two years ago when it sold a piece of property in Poipu to Starwood Vacation Ownership and wanted to invest the proceeds, which amounted to $21 million, according to public records.
Manson and his partners advised the trust to buy a Home Depot store in Grand Rapids, Mich. Under the Internal Revenue Service Code Section 1031, capital gains taxes on a land sale can be deferred if an investment property is exchanged for another piece of business or investment property of a like kind, and if there is no gain or loss.
Making assets productive
"It's part of making these assets productive and diversifying out of Hawaii real estate, Wong said. "They basically held my hand through the entire process. They knew how the transaction was structured and made sure we did everything correctly so we didn't run afoul of the IRS on the 1031 rules."
Fred E. Trotter Family Ltd. bought three commercial properties on the Mainland with proceeds that Trotter, a Honolulu businessman, received as an heir of the James Campbell Estate.
The family company now owns a Whole Foods Store in Alexandria, Va., a DHL operating warehouse in Maryland, and a Best Buy store in Owasso, Okla., Trotter said.
The deal was complicated in that Campbell Estate actually bought the properties, then deeded them over to the Trotter family when the trust was dissolved last year.
"I knew a little bit about it because I had been a Campbell trustee for 22 years but I had never been involved in the details, so they walked me through it," Trotter said.
Manson and his partners, William Crowley and Van Cornwell, keep their client list small, adding no more than two new clients per year. Their overall list represents clients who work with them on an as-needed basis. Currently they are working with just five projects.
Billion-dollar milestone
Yet, Persis Asset Advisors recently reached a $1 billion milestone in completed real estate transactions, work that began some 10 years ago when Manson was with PricewaterhouseCoopers in Honolulu.
The figure represents some 6.5 million square feet of commercial real estate properties and individual deals that ranged from several million dollars up to $60 million. In addition, Persis Asset Advisors serves as the asset manager for more than 2 million square feet of commercial property.
Manson, Crowley and Cornwell charge an hourly fee for their services, except for asset management, in which case clients pay a percentage.
The firm, which was founded in 2002, took its name from one of its clients, Persis Corp., the kamaaina real estate investment company and former owner of The Honolulu Advertiser.
Manson, 35, also is president of Persis Corp., as well as its largest shareholder. Persis was founded in 1967 as Asa Corp. and led by Thurston Twigg-Smith until he turned it over to his grandson, Michael Thurston Pfeffer, in 2002. Manson was appointed to head Persis Corp. in 2005 after Pfeffer left the company to start his own business.
The privately held Persis Corp., which sold the Advertiser to Gannett Co. for $ 250 million in 1993 and today owns more than 2 million square feet of distribution, office and retail properties on the Mainland, is a client of Persis Asset Advisors. Many of the family members that own Persis Corp., including founder Twigg-Smith, have divested themselves of their shares in recent years.
Manson also is president of Malulani Investments, which owns real estate in Hawaii and on the Mainland, and which developed residential high-rises in Waikiki such as the Waipuna, 1717 Ala Wai, the Villa on Eaton Square and the Marina Towers, and still owns the fee to some units. The firm also owns land in Hawaii, industrial and retail properties on the Mainland and the Langtry Estate & Vineyards in California.
Both Persis Corp. and Malulani Investments have assets in excess of $100 million.
jmagin@bizjournals.com / 955-8041
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