Prince Kuhio Plaza is seeking a 40-year extension of its lease for almost 39 acres of Department of Hawaiian Home Lands property in Hilo.
The extension, if granted to Prince Kuhio Plaza LLC, a subsidiary of Brookfield Properties, would extend the lease from its current end date of Sept. 30, 2042, to Sept. 30, 2082.
“It’s important for us to get this lease in order as far as being able to do more investment into the property,” Daniel Kea, Prince Kuhio Plaza’s general manager, told the Hawaiian Homes Commission at its monthly meeting last week on Maui. “With the limited term that we have, it’s harder for us to do large investments. It’s also harder for us to bring in large retailers who need to do huge property improvements. Most of the large retailers, when they come in, if they need to do several million dollars in investment … they want to be able to amortize that cost multiple years.
“With a limited lease, we’re not able to do that, which is why we’re asking for the 40-year extension.”
The current total annual rent is $841,100.47, which includes base ground rent of $292,792.50, additional ground rent of $420,867.97 and rent for an a separate 5.25 acres of parking of $127.440.
The original ground lease was for 53 years from Oct. 1, 1977, through Sept. 30, 2030. On Sept. 30, 1992, a 12-year lease extension was granted by the HHC through Sept, 30, 2042.
The rent can be reset on Oct. 1, 2030, and Oct. 1, 2036, during the current lease term.
Kea told commissioners his employer “is one of the few companies I’ve ever worked with truly put money back into the properties.”
“From 2017 to 2021, we’ve already done about $19 million in development, spending on improvement of the property,” he said. “We are asking for a 40-year-lease extension. With that, we understand … that would require another 30% investment. … You’ll see that we have another $14.5 million in development plans that are based to cover that. That’s actually about 36% of what we assess the value of the property.
“… Our lease represents 10% of the income generated for DHHL on Hawaii Island.”
According to PKP, the property improvements made and proposed are 84% of the market value of the property, well above the 30% required for a ground lease extension.
Other economic impacts of PKP in 2020 alone, according to Kea’s presentation, include: $757,899 paid in property taxes, the highest in East Hawaii; more than $5 million in general excise tax, estimated to be surpassed only by Costco and Walmart; $34,786,500 in wages paid, based on its prepandemic estimate of 1,500 employees for PKP and its sublessees; and $10.4 million in annual payroll taxes paid.
“If you consider us as a single entity, we’re one of the largest employers on the Island of Hawaii, period,” he said. “I’ve worked for a lot of companies. And for me, personally, it’s the only one that allowed a part-Hawaiian like me to become the head of it.”
Kea added he’s proud the other members of his management staff, Makalani Guillermo, the property management associate, and Kaleo Wong, the operations manager, are also part-Hawaiians.
According to a PowerPoint presentation, in 2016, Brookfield completed a $6 million aesthetic interior renovation of the mall which included new tile floors, furniture in all common areas, column wraps and lighting. That same year, the old Hilo Hattie building was demolished at a cost of $5 million to make way for new retailers such as Verizon Wireless and Genki Sushi. In 2018, another $7 million was expended to re-lease the former Sports Authority premises to TJ Maxx and Petco. And In 2020, another $3.1 million was spent on tenant improvements and landlord work to lease the former Safeway building to Tractor Supply.
According to Kea, although Sears has left the islands, it continues to pay the lease rent on the 75,000-square-foot anchor space it had at PKP.
“I’m assuming they’re trying to sublease it or force us to buy it back from them,” he said. “If this lease extension goes through, we’re going to try to get that back, and we’re probably going to redevelop that entire side of the mall. They’ve had development plans to redo an entrance-way … add some green areas to it, as well as a small set of shops.”
In response to a question about the viability of brick-and-mortar retailers in the age of online shopping, Kea said PKP has “changed the mix of our leasing” and called the mall “more than just a shopping center … it represents a gathering place.”
“Before, it used to be just retail,” he said. “… We do a lot more lifestyle stuff, now. That’s why we’re talking about a fitness guy coming in. We have the theater. We have other stuff going in that is not just retailing.
“We’re actually up, sales-wise. In dollars-per-square-foot, we’re over prepandemic numbers. … We create an experience more than just ‘we’re going to the mall to shop.’ Now, we go to the mall for entertainment. We were already doing stuff based on community. Because we find that’s who we are. That defines us.”
A vote on the lease extension is expected at HHC’s next community meeting at 6:30 p.m. on Oct. 17 at a location to be announced in Hilo.
Email John Burnett at jburnett@hawaiitribune-herald.com.