Eugene resident Jim Hanks has developed a sudden and keen interest in the unlikely subject of Hawaii’s native koa tree.
It’s not the sultry grain of the wood that attracts Hanks, or its historical relationship with Hawaii’s succession of King Kamehamehas.
Rather, it’s his pocketbook.
His JRH Engineering is owed money by Arlie & Co., a major local real estate company that has filed for the protection of bankruptcy court while it reorganizes its finances. And harvesting koa on land that Arlie owns in Hawaii has been batted about in bankruptcy hearings as one way for the company to repay the $873,734 it owes unsecured creditors — including $8,930 that belongs to Hanks’ company.
Money owed to unsecured creditors isn’t backed up by any collateral that the creditors could seize.
In a three-hour meeting with the unsecured creditors committee earlier this week, Arlie’s forester touted the value of koa timber that covers much of 5,600 acres of land Arlie owns in Hawaii, Hanks said.
Arlie executive vice president John Musumeci said during a recent bankruptcy hearing that harvesting the rare timber, which only grows on Hawaii, could produce a couple of million dollars a month.
“My preference, right now, given everything I know — and we want to be open with everybody about this asset to the extent it makes business sense — now is the time to harvest it,” he said, later adding, “Let’s just go ahead and harvest it.”
Musumeci declined to speak to a reporter on the record for this story, but company officials said in court that their goal is to do sustainable harvesting.
Arlie owns about 5,600 acres in long narrow parcels that cross the hills above Hilo on Hawaii’s Big Island. Musumeci said there is valuable timber on about 3,800 of those acres.
But Hawaii state officials say getting approvals to harvest koa on the islands is a long and arduous, if not impossible, process, especially when the land is designated for conservation — as is 95 percent of Arlie’s Hawaii holdings.
“The point is: It’s not guaranteed,” said Sam Lemmo, the state official who oversees Hawaii’s conservation lands.
The restrictions on private lands — when they’re designated for conservation under state land use law — are mind-boggling for developers from around the world who’ve purchased land in Hawaii, Lemmo said.
“They’re floored when they hear ‘I can’t do this and I can’t do that.’ It’s different here,” he said.
State would like to buy the land
Musumeci bought the Hawaii land, with what he called its “extremely rare and highly valuable timber,” in 2002 from C. Brewer & Co., a crumbling sugar empire, which had owned the land for as long as 140 years — since the time of King Kamehameha IV.
Koa has become the subject of speculation among Big Island land buyers in recent years, said John Henshaw, a retired, Oregon State University-trained federal forester who recently started a second career with The Nature Conservancy in Hawaii.
The rare and highly figured red flame koa wood sells for upwards of $150 per board foot, and some dealers claim sales as high as $500 per board foot.
The finest woodworkers sell the wavy grained “curly” koa tables, beds and other furniture pieces for a jaw dropping $10,000 to $20,000 each.
High-end veneer mills, auto manufacturers, jet plane companies, instrument makers and conference table builders all vie for a steady supply of koa, Musumeci said.
“The nature of this (Big Island) property,” Musumeci said in a recent bankruptcy hearing, “is that it is extremely unique in the world in that it’s the largest privately held forest — or maybe I should say one of the largest privately held forests — of a commodity in which there’s great worldwide demand.”
A lot of people see the potential, Henshaw said.
“They see a gold mine. They see the trees there,” he said, “but they don’t understand they’re in conservation areas and — even though they’re buying land — they can’t just cut the trees down.”
Hawaii resident Kyle Dong was the last to attempt large-scale koa logging on conservation land. A decade ago, he borrowed $10.3 million to buy 13,000 acres on the Big Island, within 10 miles of Arlie’s land, Henshaw said.
He figured his company could produce koa at the rate of 50,000 to 100,000 board feet per month.
But the lion’s share of the land that Dong bought was zoned “conservation.”
Hawaii’s 1961 land use laws divide the land on each of the islands — across private and public ownership — into four classifications: Conservation, which includes about 51 percent of the land; agriculture, about 46 percent; rural, less than 1 percent; and urban, about 2.5 percent.
The broad conservation zone was born out of worries that clearing land for growing sugar cane and pineapple — and grazing cattle — threatened to hamper the land’s ability to recharge underground water supplies.
Much of Arlie’s forests, like Dong’s forests, are “very much the intact upland forests that act like a sponge and collect water and produce water in the low land areas where most of the people and the agricultural endeavors are at,” said Sheri Mann, a state forester who surveyed the Arlie land by air last week. “They’re also where our threatened and endangered species rest. They’re like a haven for them.”
Hawaii, in fact, would like to buy Arlie’s land, if it could afford to, Mann said. “The state owns land right above it and on either side — and literally all around it,” she said.
No permits issued since early 70s
Dong began seeking a permit to log on his own land — as Arlie would have to — from the Board of Land and Natural Resources in 2000. The requirements include an environmental impact statement, public hearings and close state scrutiny.
Theoretically, it takes a minimum of six months or a year to get through the process — although the exact length of time is unknown because no applicant has gotten a permit to log on conservation land since the early 1970s, state officials said.
All who tried were either rejected or they withdrew their applications.
Dong quit trying after seven years.
“Environmentalists and native Hawaiian groups blew the whistle and said, ‘No you can’t allow this.’ They in effect stopped him from logging,” said Diane Ware, conservation chair with the Big Island’s chapter of the Sierra Club.
Dong, meanwhile, was fined $141,000 for illegally logging 135 koa trees. The developer and his lenders have been mired in a foreclosure procedure for years. This February, a bankruptcy court judge ordered the sale of the land.
“It was really agonizing for them,” Henshaw said.
So how would Arlie fare in an effort to raise cash through harvesting koa?
The company owns 289 acres zoned for agriculture and logging there would be comparatively easy. Arlie officials said in court they are doing a timber cruise to estimate the timber there.
With regard to the vast holdings of conservation land, the company has conducted preliminary talks with Mann, the state forester, who oversees the Hawaii Forest Stewardship program, which helps landowners set up forest management plans, which can include timber production.
So far, the program has been used mostly for restoration projects and seldom participates in logging proposals, Mann said. And the company still would have to obtain a permit to log on conservation land.
Arlie could face additional obstacles.
A Hong Kong-based group, Pioneer Asset Investment, holds a $1.5 million security interest on a large share of Arlie’s Hawaii land. Under Oregon law, Pioneer Asset Investment can try to stop the company from doing anything that it feels would diminish the value of the land — which could include cutting trees.
The Hawaii Sierra Club has already issued an e-mail alert to members about Arlie’s potential logging plans, Ware said.
Native Hawaiians value koa wood, Lemmo said. Koa is the traditional material of canoes, bowls, containers and tools. The Hawaiian royal families lived surrounded by furnishings made of koa.
“Native Hawaiians have certain rights to gather resources and worship and do certain things on private land,” Lemmo said. “I wouldn’t be surprised if the native Hawaiian groups came in and said, ‘No you can’t give (Arlie) a permit because those trees don’t belong to them.’ People can make those claims.”
Arlie officials told the unsecured creditors Thursday that they would first log small pieces to build confidence with regulators and Hawaii residents that the company would act sustainably and with respect, Hanks said.
“They understand it’s a difficult process, but it’s not an impossible process. And the economics for Arlie would make sense,” he said.
On the other hand, Hanks said, it’s premature to say what Arlie will do until it files its actual reorganization plan in May.
by BAR managing editor Bruce A. Dixon