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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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 Can We Talk?

 

CFV’s executive director, Michael Steiner, says his members have told him that while the usual landlord-tenant love-hate relationship existed between them and Damon Estate, they at least shared an open dialogue. “Damon would come in advance, it was easy to talk with them, easy to reach them,” Steiner says. “During some of the hard times they were willing to take some of the risk and structure some of their deals. The risk could be spread out over a 10-year period so that it was still a fixed rent in the aggregate, but they were willing to lower it in the front and raise it in the back.”

It is in sharp contrast to the way HRPT communicates with them. “With HRPT now coming into one of their first major renegotiation periods, that level of communication is pretty much nonexistent, sporadic at best,” Steiner says. CFV has invited HRPT to meet with the group, but HRPT has declined the offer.

“We communicate with our tenants on a one-on-one basis,” says HRPT’s Bonang. “That’s how we tend to focus. It’s because each one has a lease that’s expiring at a different point in time. It’s just a different discussion based on what’s happening in the market.” Bonang adds that Bradford Leach, vice president of the Pacific region of Reit Management Inc., has met with all CFV officers individually. Reit Management manages HRPT’s Hawaii properties.

By their very nature, the two owners are different. Damon Estate, a private family land trust, owned part of what is now First Hawaiian Bank and major landholdings. The company’s assets were distributed among Samuel Damon’s descendants in 2004. HRPT is a publicly traded real estate investment trust and owns 63 million square feet of industrial and office properties in 37 states and Washington, D.C. The U.S. government is its largest tenant.

HRPT says it has no short-term development plans for its Mapunapuna properties, and it doesn’t redevelop properties on the Mainland, either. “A lot of other REITs, they buy, they do redevelopment and then they flip it,” Bonang says. “Our approach is to buy high-quality assets with high occupancy rates and strong-credit, quality tenants and hold the properties.”

Despite announcing no plans, the businesses would still like to discuss the future of Mapunapuna. “I think the transparency of the process is important,” says Robert Creps, senior vice president of administration at Grace Pacific and president of CFV. “We don’t have that today. We have a lot of distrust and suspicion because of that. … It’s just not apparent in that matter, to the extent that we could have an open dialogue with them about their expectations, about our expectations. I think everyone wins on that.”

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Hawaii Business,November