Pacifica: Spotlight on Waterfront Plaza
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From Our View
When we acquired Waterfront Plaza in July 2004 (then more commonly known as “Restaurant Row”), the uniquely designed property, once robust and exciting with nightclubs, restaurants and the popular Row Bar, had faded against stiff competition from the Ward complexes and Ala Moana Center. With a lack of local oversight, the property continued to fall into disrepair. As a local owner, we faced a case study in a large-scale property turnaround.
To stabilize the property and return some of its original luster, we embarked on a multi-faceted plan. First, we tackled the basics – painting, cleaning up, replacing burned-out light bulbs – that showed people that we were paying attention and that we cared. Second, we worked with Kamehameha Schools to extend the ground lease and establish a longer “known rent” period in return for increasing the ground rent over the remaining term of the existing lease.
Our third decision proved to be transformative: changing the original concept of ground floor retail, which, in the current environment, wasn’t generating enough foot traffic on the property and surrounding areas to support over 100,000 square feet of restaurants and nightclubs. We recognized the value of the restaurants in the property that were doing extremely well so close to the downtown area, so we knew we had to strengthen a significant portion of the ground floor by converting to service/office use with a preference towards medical use. To do so, we reached an agreement with Wallace Theaters -- once state-of-the-art but now overtaken by newer, larger stadium-seating theaters – to terminate their lease.
The theaters epitomized the problems that we faced in turning around this property. In an effort to remain profitable, the 22,000 square-foot theaters became budget theaters, and it didn’t take people long to figure out that buying a movie ticket was a good way to find cheap parking near downtown. As a result, the lease we inherited (perhaps the all-time worst lease) generated very little rent and resulted in a loss of parking revenue to boot.
Terminating the Wallace Theaters lease, a significant and well-publicized deal, allowed us to dramatically change the environment of Waterfront by bringing in Surgicare of Hawaii. (I took a lot of ribbing from my golf buddies who wanted to sign leases so that I would have to buy them out later).
It was worth it! We were not only able to significantly increase our rental income, but to regain full control of the parking, one of the outstanding features of the property. With the recent addition of Ohana Health Care, a medical insurance group, we increased the value of the property 10-fold over the termination costs.
Waterfront has given us other bumps along the way. But every time we lost a tenant (such as Aloha Airlines and Hawaii Superferry, which both went bankrupt), we found a stronger one to replace it. That particular situation opened up space for government tenants having to vacate the nearby federal building.
Eight years after acquiring the property, our occupancy is more than 90 percent with 20 percent of the entire project leased to medical use tenants. We are always looking for ways to improve the property and still have a few odd ground floor spaces we need to re-position. Waterfront Plaza is still a work in progress, but we are pleased with the progress we have made so far. As a local owner, serving our tenants with a building they can be proud to call their professional home is our top priority.
– Lawrence J. Taff,
Executive Vice President
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