Matsumoto is founder and chairman of Tradewind Capital Group, a real estate investment firm that just last month purchased two properties along Queen Street in Kakaako adjacent to the rail route and within walking distance of a planned train station. The purchase came just five days before Caldwell announced Matsumoto’s appointment.
Tradewind also has owned two parcels at 925 Dillingham Blvd. since 2008, properties it bought for about $20 million. The Dillingham property is located next to the rail line between two nearby train stops. It is across the street from Honolulu Community College, and one of the parcels is slated to be the site of a future satellite city hall. The city is already paying Tradewind $1.8 million a year to lease the empty building as it is being renovated.
Profit potential for these commercial properties is considerable, especially as city and state officials push for more development around future rail stations, and would likely result in financial gains for Tradewind’s owners should Honolulu’s $6.9 billion project be completed as planned.
Matsumoto’s connections to the properties, which were not disclosed by Caldwell when he announced the appointment, raise questions about potential conflicts of interest involving the biggest public works project in Hawaii’s history.
Matsumoto is well known in the business community, and is connected to some of the state’s most influential political players.
In addition to his role at Tradewind, he is the executive chairman of Island Insurance Co., a trustee of the state Employees’ Retirement System and a director of Oahu Publications, parent company of Hawaii’s largest newspaper, the Honolulu Star-Advertiser.
As a HART board member, Matsumoto must follow city ethics rules regarding conflicts of interest. He’s also required to fill out a financial disclosure form to indicate which businesses and organizations he has ties to and what properties he owns.
Matsumoto’s financial disclosure form is not considered a public record by the Honolulu Ethics Commission, and on Monday he told Civil Beat that he has no plans to release it.
He downplayed his financial interest in the Kakaako and Dillingham Boulevard properties, saying that it is Tradewind that has the biggest financial stake in the company’s assets since he does not own the company or the parcels.
“I work for Tradewind, I don’t own Tradewind and I don’t own the properties,” he said. “I don’t have a direct interest in the properties.”
Matsumoto said his role as a businessman whose company owns property along the 20-mile rail line provides him with a unique perspective on the project that might be lost on bureaucrats and professional politicians.
“As a property owner along the route I think I would have a little higher level of sensitivity with respect to the impact that the route has on adjacent properties both good and bad,” Matsumoto said. “I think that perspective probably is helpful in terms of how to manage the project, project construction and all the collateral consequences that crop up as a result of the activities that take place along the line.”
Avoiding Conflicts Of Interest
One of the biggest questions for Matsumoto is whether his decisions as a HART board member will have a direct financial influence on the properties he’s associated with along the rail line.
Matsumoto said he’s now working with HART attorneys to determine what rules he must follow to avoid any conflicts. He added that he also plans to ask the Honolulu Ethics Commission for guidance.
Richard Painter, a corporate law professor at the University of Minnesota, specializes in government ethics. He was the chief ethics lawyer for President George W. Bush and other White House employees from 2005 to 2007, and was recently a fellow at Harvard University’s Safra Center for Ethics, where he worked on a book about campaign finance reform.
Painter said that while it might be important to have a developer or business person’s perspective on the HART board, that person should not be voting on matters that could have a unique benefit to him.
Painter said HART — and all government agencies — should have clear rules to avoid conflicts of interest, both real and perceived.
“It’s critical to avoid the appearance of impropriety,” Painter said. “If it appears that people are using a public entity to better themselves and their own position, that looks like corruption and that could undermine the entire project.”
Matsumoto says he hopes that his involvement with Tradewind doesn’t become a public concern, despite the contentious nature of Honolulu’s rail project.
There are still many people on Oahu who believe the project is a financial boondoggle that will do little to ease traffic congestion on the island.
“There’s not much I can do about that,” Matsumoto said. “So long as I’m on the board and so long as I’m affiliated with Tradewind and Tradewind owns those properties, people will perceive whatever they want to perceive regardless of what reality may be.”
He said the only thing he can do is to be forthright about any conflicts that might arise.
Mayor Caldwell declined to talk to Civil Beat about the potential conflict of interest, and instead issued a written statement through his spokesman, Andrew Pereira.
“As a leader in our community, it is likely Colbert Matsumoto will encounter situations that involve a conflict of interest with the city’s rail project,” Pereira said. “Colbert will disclose and recuse himself whenever a conflict arises.”
Big Business For Developers
There’s little doubt that the Tradewind Capital Group stands to gain from its Kakaako and Dillingham properties because of rail, especially after trains start zipping along the route between East Kapolei and the Ala Moana Shopping Center.
In fact, the city started paying Tradewind $154,000 a month in July 2015 to lease space at the Dillingham site, and is in the midst of renovating for a future municipal center at that location that will house a driver licensing office and other municipal agencies.
Caldwell’s proposed capital budget for fiscal year 2017 also notes that the city wants to set aside $27.5 million to purchase property at 925 Dillingham. City records show the assessed value of the land and building owned by Tradewind at that address is just over $18 million.
But the true value of the property lies within its development potential around future train stations. Government officials often point to transit-oriented development, or TOD, as one of the greatest advantages of building the rail line.
Not only does the rail project provide an opportunity to upgrade deteriorating city infrastructure, but it allows for a complete makeover of existing neighborhoods near future train stations by reshaping the urban landscape to provide for more open space and mixed-use development that includes more housing and businesses.
In other words: Honolulu’s rail project is big business for developers.
“I don’t think there’s any question that the value of property is going to increase substantially in concentric circles as you get (closer to) a rail transit stop,” said David Callies, a law professor at the University of Hawaii Manoa who specializes in land use and local government.
“If you’ve got property around a major transit stop where scads of people are going to be embarking every day,” Callies said, “that could be a great place to put a commercial center of an apartment building or a condominium, anything that could be useful to provide quick access.”
He noted that not all properties along the rail line will see their values increase once the guideway is built and the trains are running.
Properties located next to the guideway, but without a nearby station could actually see their values plummet, Callies said, due to train noise and visual blight from what is effectively a large concrete bridge.
Matsumoto said Tradewind wasn’t speculating that rail would drive up property values when it recently purchased the two sites along Queen Street. Instead, he considers those properties to be long-term investments for Tradewind as Kakaako continues to develop.
“We think Kakaako is going to be an important part of the future development of Honolulu, and we thought it would be good for us to have some commercially zoned real estate in that area,” Matsumoto said. “Whether or not we’re going to be able to capture the value of that asset in the next five to 10 years, we’re not sure, but we think that in the longer term the real estate in Kakaako will have significant value.”
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