Facing Economic Eviction
Rent renegotiations are up for tenants in prime locations near Honolulu’s airport and docks. Will high land values and a slowing economy displace long-time industrial tenants?
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The tension between landowner and tenant grew after HRPT’s second quarter earnings conference call. According to the transcript, HRPT reported declining rates from all its regions except for Hawaii. The company was working on securing rent rates in the $8 to $10 per square foot range as the market flattens out. Adam Portnoy, HRPT’s managing trustee, tells an analyst, “So rest assured that we’re doing everything we can, as much as we can and as fast as we can to try to increase the rates there to push cash flow to HRPT.” Calling the statement “arrogant,” CFV responded by holding a press conference for the local news media. In addition, CFV member Ameron Hawaii filed a lawsuit against Orville Properties, a subsidiary of HRPT, regarding rent increases.
HRPT, like any other landowner, understands it is easier to keep its current tenants than to find new ones. “As a public company, we do have a fiduciary responsibility to our shareholders,” HRPT’s Bonang says. “Part of that obligation in our case is treating tenants in a manner that wants them to remain tenants, but also allows us to attract new tenants if existing tenants decide to go someplace else.”
Obviously, the businesses don’t want to move out of the area because they have created long-term plans along with their long-term, 30- to 50-year leases. The finite land situation and low vacancy rate creates a low supply for high demand. Add to that the inherent cost of moving infrastructure, equipment, employees and customers, and relocating is not an economically viable option.
In the end, though, a contract is a contract, bound by law. “We agree with them and we move on with life, if you can afford it,” says Collier’s Scott Mitchell. “There may be economic evictions of people. There’s no question. That may end up being the result of some of this. And at some juncture, someone will backfill that space.”
Olelo needs to find an agreeable rent because moving is not an option. Olelo owns the building, and can’t just relocate. The company installed infrastructure to directly connect with Oceanic Time Warner for six television channels. And it does community work with area schools Moanalua and Radford high schools and Aliamanu Middle School.
Rent renegotiations are ongoing. “The last two most recent revised proposals from HRPT have been much more favorable than the original proposal,” Lopez says. “However, it is still very far from what Olelo, as a nonprofit community organization, can afford.”
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