The Kahalanui retirement community is said to be a place where residents and staff live and work as one Ohana, but there are deep-rooted rifts in family relationships.
About two-thirds of the community’s independent residents recently moved to develop a second retirement complex in a letter to the CEO and board of directors of the nonprofit that owns and operates Kahalanui. while expressing concerns about how to pay for the purchase of the land under the complex. .
An Oct. 21 letter from about 240 residents expressed concerns that the estimated $90 million land purchase and estimated $275 million expansion would result in higher monthly occupancy fees. .
The use of bonds to finance land purchases is a primary concern of these residents, who are relatively wealthy individuals who generally love living in Kahala Nui. Amenities there include white-tablecloth dining with waitstaff, bar, pool, Jacuzzi and fitness. center, beauty salon, library, card room, art studio, weekly housekeeping, and carefully selected wellness and entertainment programs.
“We, the residents of Kahalanui, fully approve the acquisition of fee simple interest on the 6.5 acre site,” the letter states. “However, we are concerned about the financial burden that management and board decisions may ultimately incur.”
Some residents also placed an ad in the Oct. 20 issue of the Honolulu Star-Advertiser questioning how Kahala Nui would be able to finance the land purchase and expansion. It suggested that leaders were withholding information.
“The problem is, there’s a real trust issue here,” said one resident, who asked not to be named for fear of retaliation.
Three residents interviewed said the only way to restore trust was to replace top management.
Craig Coates, president and CEO of Kahala Senior Living Communities, Inc., said he believes there is a healthy minority of residents who support the letter. He also said the opposition stems from a relatively small number of people who are rejecting information shared by management about the investment, citing deep-seated mistrust stemming from past decisions that have left many residents uneasy. I also think that there are.
“It’s unfortunate that something like this is happening,” Coates said. “This is not the culture we want (for residents). This is the last part of their lives. They should be happy and enjoying it.”
funding dispute
The nonprofit, run by an 11-member board of directors, is a member of the Hawaiian Roman Catholic Church, which leased the property to the nonprofit for 60 years when Kahala Nui was built in 2005. It has agreed to purchase the land below the East Honolulu complex from the church.
According to the notice, the nonprofit organization plans to sell up to $140 million in tax-exempt bonds to investors, of which $40 million will be used to repay existing bond debt used in the Kahalanui development and $1,000 million in tax-exempt bonds. The $10,000 will be used to improve the property.
Some concerned residents are questioning the wisdom of taking on such debt, including up to $90 million for land purchases, when the nonprofit has an investment portfolio of about $160 million. I have doubts.
This portfolio was established primarily through entrance fee deposits from residents. Current admission prices range from $732,870 to $1.8 million, depending on apartment size. If a resident moves out or dies, 90 percent or 95 percent of the fee, depending on when they moved in, is returned to that person or the estate, and the new resident pays another admission fee.
Audrey Morabito, Kahala Nui’s chief financial officer, said using a portion of a nonprofit’s investment assets to pay for the land could actually increase the risk of monthly rates increasing. . This is because accrued income from the portfolio has covered the financial losses of operating Kahala Nui every year since opening. 19 years ago.
“We are doing the right thing for our residents and for our community,” she said. “Kahalanui has had operating losses since its inception. … Kahalanui has never increased its reserves throughout its operations.”
Operating loss was $2.8 million in 2023 and $4.1 million in 2022. The average long-term return on the investment portfolio is approximately 8.5%, providing an approximately 3.5% return cushion over expected bond repayments.
Morabito said financing the land purchase will not affect future monthly payments. “Our investment portfolio will pay off the debt for the (land) purchase,” she said.
Monthly rate increases for residents have been modest in recent years, increasing by 4% in 2023 and 5% this year. Fees will increase by 7% next year. Morabito said a little more than half of next year’s increase will be to pay for soaring property insurance premiums that are hurting multifamily properties across the state.
Monthly fees for independent residents with their own apartment range from $4,125 to $8,262, depending on the size of the apartment. The monthly fee for the second tenant in the apartment is $2,164.
The court said the land purchase would eliminate ground rents, improve Kahalanui’s long-term stability and provide the level of service and amenities expected by current and future residents.
expansion plan
Cote and Morabito said that if Kahalanui were to expand, it would not be on the existing campus and all costs would be covered by residents who would move into the second facility.
For years, the nonprofit has sought to expand on Oahu, or possibly on neighboring islands, to meet strong demand. Approximately 650 people are on the waiting list, and even if someone joins the list today, it will likely be six to eight years before they can move in.
Currently, approximately 350 residents live in Kahala Nui’s 270 independent living apartments, with approximately 100 living in the on-site Hiorani Care Center, which has 62 assisted living units and 60 skilled nursing beds. I live in To live in Kahala Nui, residents must be at least 62 years old, with the oldest resident being 105 years old.
Coates said there is no final location or timeline for the expansion, but he has told residents the new facility, with about 150 independent living apartments, could cost about $275 million. . Such costs would be covered by tax-exempt bonds paid only by residents occupying the new project, not existing Kahalanui residents, he added.
“What we do is related to growth and we have to support it financially,” he said. “We are not going to subsidize Kahalanui today.”
Still, some Kahalanui residents don’t believe the court or Morabito’s assurances that their monthly fees won’t go up as a result of purchasing or expanding on land that doesn’t have its own assisted living center.
The court acknowledged that this was in part due to several changes he sought after being hired three years ago when his predecessor, who had served as CEO for 13 years, stepped down. Two other Kahalanui leaders, the executive director and chief financial officer, also left at about the same time.
The root of distrust
One irritating incident was that about two years ago, the fee for residents to switch apartments was increased from $1,500 to $25,000. According to the court, Kahala Nui spends an average of $75,000 to renovate an apartment after someone moves out, including new flooring, cabinets, appliances, etc. If someone requested a room that had been vacated, there was almost no charge.
The court said he failed to give the required 60 days’ notice for the change and apologized after the incident, but no increase was made.
Another issue is the proposed 8% increase in monthly residence fees in 2023, which the court said was in response to high inflation. Some residents complained, but management later lowered the increase to 4% after telling residents a lower number was possible by refinancing the debt.
But some residents believe the debt refinancing was already expected and was used as an excuse to save face.
One of the three residents interviewed, all of whom did not want their names published for fear of retribution, said the new leadership does not seem to be prioritizing residents’ economic well-being over corporate finances. He said it looks like. The resident, who has lived in Kahalanui for nearly 10 years, also said there were no major problems with previous management.
“And now it’s completely different,” the resident said.
Another issue raised by some residents is the decision to include depreciation of Kahalanui assets in operating costs. One resident said the cash flow from the business was positive for Kahalanui, which would help limit monthly rate increases.
Morabito said depreciation is properly taken into account as it takes into account the maintenance and renovation needs of the asset. He also said admission deposits, which must be largely refunded, are included in total cash flow but not from operations.
In a June 2023 letter to Kahalanui’s board of directors, about 260 residents said they lacked confidence in the court and found the departure of the highly regarded former chief financial officer questionable. The letter also criticized previously proposed significant increases in apartment change fees and monthly rates.
“These serious operational and financial issues require immediate action by the board,” the letter said. “They impact the economic security and well-being of residents, undermine trust in businesses and undermine Kahalanui’s standing in the community.”
Residents do not have representation on the board, but one elected representative may attend board meetings. There is also a community association council, led by former state representative Barbara Marumoto, that interacts with administrators.
In a recent email to the board, the council reiterated its concerns about the planned bond sale and the potential for expansion to impact financial security.
“It appears that the voices of residents were not sufficiently considered in the decision-making process,” the email said.
A meeting held on Monday, November 11 to clarify issues related to the planned bond sale was described as controversial by some residents in attendance and “ugly” by one. It was done.
Although the court understands that residents are concerned about finances, it believes that only a small number of residents have a clear understanding of nonprofit organizations’ financial operations and efforts to sustain them in perpetuity. He said there was.
“This is a very complex business,” he said. “Certainly, we know this creates anxiety. It creates uncertainty for them.”
