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The Honolulu Advertiser
Posted on: Tuesday, February 11, 2003

Indigo, theater dispute puts downtown revival at risk

By James Gonser
Advertiser Urban Honolulu Writer

Indigo Eurasian Cuisine and the historic Hawai'i Theatre Center have for several years been two bright spots in the effort to redefine the area between the high-rises of downtown and the family shops of Chinatown from a somewhat shabby neighborhood into a developing center for culture and arts.

Lease negotiations between landlord Hawai'i Theatre and Indigo Eurasian Cuisine, have grown contentious.

Bruce Asato • The Honolulu Advertiser

The two businesses have worked side by side, the restaurant drawing a dining and drinking crowd that enjoys chef Glenn Chu's Asian-inspired cuisine, and the theater providing a much-needed venue for a wide variety of acts from Hawaiian shows to circus groups to dance productions.

Customers frequently combine dinner and the theater into an evening out.

But beyond their mutually beneficial relationship, the Hawai'i Theatre, through its nonprofit parent corporation Hawai'i Theatre Center, is landlord to Indigo, and lease negotiations between the two have grown so contentious that the restaurant's owners say they may have to move. While such negotiations are common, they take on broader implications in this case with both parties considered essential components to a downtown renaissance that is just beginning to take shape.

The parties came out of arbitration just last year over the current lease, which expires in September, and tension is rising as the restaurant balks over new terms. In the middle of hammering out a deal, Indigo says the theater is asking for way too much.

Theater managers say they have a fiscal responsibility to get the most they can for the nonprofit corporation that owns the property, and they're not trying to force Indigo out. On the contrary, they say, they would like nothing better than to keep Indigo around.

An agreement delivered to the restaurant in December offered a new lease at about $2.50 a square foot and asked for a percentage of all aspects of the eatery's income, including catering and income from portions of the restaurant not on theater-owned property, Chu said. The restaurant expansion has taken it into an adjoining building not owned by the theater.

Chu's business partner, David Stewart, said the new lease also stipulates that Indigo must spend $100,000 on restaurant renovations, and agree that the theater can take back all or a portion of the property leased to the restaurant with 180 days notice.

Chu said lease rents for other restaurants in the area are much lower and a percentage of income is only appropriate in a shopping center, where a guaranteed customer base is drawn.

He would like to see an agreement more in line with what other area shops pay — about $1.50 per square foot and no claim for a percentage of the gross income.

Jeff Nasrallah, research services manager at Honolulu-based Grubb & Ellis/CBI Inc., said $1.50 base rent sounds reasonable for that area. He said the price will go up the closer you move toward the core of downtown or into the heavy-traffic areas of Chinatown along King Street.

"Indigo is built out very nicely inside, so it is not like comparing it to just a shop," Nasrallah said. "So the landlord knows they have a good product and can lease it out" at a premium price.

Indigo leases from the theater about two-thirds of its space, or 4,676 square feet, at several different price-per-square-foot rates, paying more than $10,000 a month plus a percentage of the income generated from sales on theater property.

Robert Midkiff, the former chairman of Bishop Trust Co. and chairman of Hawai'i Theatre Center, said there is no effort to force Indigo out.

"They are very good tenants," Midkiff said. "I eat there all the time. They pay their bills and we'd love to keep them. But we need to get a fair and decent rent. This is just a negotiation. We want a lot, but they want a lot, too."

Chu, who opened Indigo 10 years ago, said a lawsuit against Indigo about how much of a percentage the restaurant should pay on what activities was settled in arbitration last year in favor of the restaurant, creating ill will between the parties.

An arbitrator ruled that the restaurant did not have to pay the theater for business conducted off site or off theater property, a decision that ended up costing the theater "tens of thousands of dollars," Chu said.

But with the new lease negotiations, those same terms have been put back on the table.

"The proposal sent to us the end of December, I was just totally offended by it," Chu said. "We certainly feel that we have made a substantial contribution for the neighborhood as well as the theater has. If this were a shopping center that had a draw on a constant day-to-day basis, I wouldn't mind paying a percentage."

Chef Glenn Chu fixes a plate of food from Indigo's lunch buffet. Chu says he will move on absent a deal with Hawai'i Theatre.

Bruce Asato • The Honolulu Advertiser

A group of businessmen, landowners and artists has been working for more than two years to form an official Honolulu Culture & Arts District in the area between Smith Street and Fort Street Mall from Beretania Street to Nimitz Highway. The group envisions an area filled with sidewalk and courtyard cafés, bars with live music at night, artists creating works in loft studios then showing them in adjacent galleries along tree-lined streets and pedestrian malls filled with evening strollers.

The Hawai'i Theatre, the ARTS at Marks Garage, a new art gallery called Studio 1 and Indigo restaurant have been touted as the kind of businesses needed to make the vision a reality.

Lynne Matusow, chairwoman of the Downtown Neighborhood Board, said several businesses and restaurants have already closed on Nu'uanu Avenue and if Indigo were to move out everyone would lose.

In the one-block span of Nu'uanu that includes Indigo, 60 percent of the storefronts sit empty.

Their names are a litany of businesses old and new, but all gone. Havana Cabana, closed. Next door, the old Pantheon Bar has been closed for years. On the other side of Indigo, Pitre Fine Art, closed.

Across the street, Nayong Filipino Restaurant and the offices next door, closed.

Two doors down, the McCandless Building sits empty.

"There are a lot of vacancies and we don't need more," Matusow said. "My hope is that cooler heads will prevail. I think Indigo wants to stay and I think the theater wants to keep them. They just have to work out their problems."

Hawai'i Theatre president Sarah Richards said the arbitration loss is behind them now and that nothing is "written in stone" as far as the final lease price.

"It is very important to have a good restaurant in the space and Indigo certainly has been a good restaurant and it seems appropriate for the whole ambiance of the theater and the whole area," Richards said. "We think they have done a good job as a restaurant and we hope they can stay."

The Hawai'i Theatre is in the final phase of a $10 million campaign to restore the building's exterior including the facade on Bethel and Pauahi streets and reconstruction of its vertical, lighted "Hawaii" sign and a 1930s-style marquee.

Chu said if an agreement is not reached, he will reluctantly move on.

"If we don't reach agreement, we will look at new locations and think about different ways we can reopen Indigo," Chu said. "I think restaurants are basically destinations. People will find you if they want to. My belief is that if we move, people will find us again."

Reach James Gonser at jgonser@honoluluadvertiser.com or 535-2431.