I received an interesting comment about the Ala Moana Hotel condominium conversion yesterday from a former state securities commissioner following my post about falling real estate values.

He suggested restrictions on use of the units could have meant that buyers were being asked to invest in the hotel operation rather than simply buy a condominium.

Published accounts at the time reported owners can not occupy their own units more than 18 out of 36 months, and the rest of the time the unit has to be placed into the hotel pool to be available to visitors.

According to a PBN story in 2005:

Part of the reason for the 18-month stipulation, according to Crescent Heights spokeswoman Kathryn Acorda, is that the property at 410 Atkinson Drive is zoned for hotel and resort use.

Here’s what my friend had to say:

The main problem with the Ala Moana Hotel sales were that they were in reality not condominiums, they were investments. Condos let the owners stay there or choose to put them in a hotel pool. This investment allowed buyers to only live there for a limited time and required the rest of the time to be in the hotel pool. Of course, the buyers could rent it out themselves, but that would be too much humbug for most people, and still had to go through the management for the reservations and key control.

As an investment, these sales should have been properly sold and registered as “securities” under Hawaii and Federal law. Why this was done or why an exemption was given, should be subject to some inquiry.

Registration as a security would have required more extensive disclosure.

I don’t know enough about the securities laws to evaluate this view, but, if true, it wouldn’t be the first time that state regulators looked the other way for one reason or another.