The Office of Hawaiian Affairs‘ vote in favor of buying the Gentry Center violated the agency’s own investment policy, the State Auditor says.

The audit, released Wednesday, hits the agency pretty hard for its inability to manage its own land holdings to make money and to ensure oversight of its grant program.

It comes at an awkward time for OHA.

Just last year the agency greatly expanded its real estate portfolio, acquiring 10 land parcels in downtown Honolulu’s Kakaako Makai area and buying the nearby Gentry Pacific Design Center and the Galbraith Estate lands in Central Oahu. The purchase attracted a lot of attention and squabbling among board members and the staff.

The Gentry property is five acres along North Nimitz Highway in Honolulu that holds an 183,000-square-foot building.

In March, a Civil Beat story about the purchase focused on a 2012 complaint by Trustee Rowena Akana against Trustee Haunani Apoliona to the Hawaii State Ethics Commission. Akana alleges that Apoliona should not have voted in 2012 to approve purchase of the Gentry Center because she sits on the board of directors for Bank of Hawaii, OHA’s financier of the purchase.

But Apoliona and other OHA officials said Apoliona was not in conflict because her vote came before OHA knew who its financier would be. Bank of Hawaii was competing against First Hawaiian Bank and Central Pacific Bank at the time.

Asked Thursday about the audit’s findings regarding the policy violation, an OHA spokesman declined to comment but directed Civil Beat to the agency’s formal response contained in the audit.

In that statement, Board Chairwoman Colette Machado said OHA waited until the Kakaako land deal was approved by the state before making adjustments to management of its land holdings. She said that OHA’s primary purpose is preservation and protection of “our ‘āina and rights,” and that the goal of financial return and sustainability “must not compromise that purpose.”

Machado disagrees that Apoliona’s vote violated OHA investment policy, the audit says. It cites a letter from the Ethics Commission stating that it was closing its probe into a possible violation of the State Ethics Code.

But the auditor insists the Gentry vote was problematic. “We maintain that the trustees’ action was contrary to OHA’s Native Hawaiian Trust Fund investment policy,” the audit said.

Investment Expansion

OHA is a semi-autonomous organization of the state, charged with administering revenue from former Hawaiian monarchy lands for the benefit of Native Hawaiians.

The purchase of the Gentry property represents one of the first OHA initiatives to expand its portfolio.

“The real estate holdings, which are the office’s first acquisitions in six years, have an aggregate value of $224.4 million and are part of a diverse portfolio that with 28,206 acres of leased and owned land is one of the state’s largest,” according to the auditor’s report.

The Gentry Center is projected to earn OHA $3 million during its first three years of ownership. OHA says the money will be used to build up agency reserves.

But the purchase has been subject to much speculation focused primarily on whether OHA paid too much. Some trustees, including Akana, believe that to be the case.

The audit takes no position on the value of the purchase. But it makes clear that OHA violated its own investment policy.

Specifically, it points out that the Ethics Code says “no employee may take any official action directly affecting a business in which the employee has a substantial financial interest.”

The OHA audit does not specifically name Apoliona, but she was a member of Bank of Hawaii’s board of directors at the time of the vote on the Gentry purchase.

The auditor deferred to the Ethics Commission on whether OHA’s purchase vote violated the Ethics Code.

“Nevertheless, the trustee’s actions may damage OHA’s reputation and undermine the agency’s credibility with beneficiaries and the public,” the audit concludes. “As OHA prepares to develop its $200 million Kaka’ako Makai property, the likelihood of similar conflicts will increase, particularly for trustees involved in banking, real estate, and professional services firms that stand to benefit from the project.”

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