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The Honolulu Advertiser
Posted on: Saturday, January 25, 2003

Alakea high-rise drawing low bids

By Andrew Gomes
Advertiser Staff Writer

The Japanese developer of the downtown Honolulu high-rise 1100 Alakea is considering purchase offers from at least three local real estate firms that could have the 32-story office building selling for roughly a quarter of its development cost.

Among the half dozen or so interested buyers are Alexander & Baldwin Inc., Baywest Properties and MW Group, according to more than one person involved in the offering.

Terence O'Toole, a local attorney representing building owner Toa Kogyo Co. Ltd. in Tokyo, declined comment, though a representative of the owner's management firm said Toa also was considering alternatives to selling.

Representatives of A&B, Baywest and MW Group declined comment.

If the office tower is sold, it will be the first downtown commercial high-rise to change hands in more than a year — since sales of Amfac Center and Pioneer Plaza in 2001.

A sale also could bring new competition for downtown office space, by repositioning the 180,000-square-foot building, which is about 75 percent empty.

Average vacancy for quality Honolulu office buildings is about 14 percent. Because of low occupancy at 1100 Alakea, offers are expected to hover around $20 million — far below the building's $80 million to $100 million development cost roughly a decade ago.

Douglas Pothul, senior vice president of local real estate firm Colliers Monroe Friedlander and one-time manager of 1100 Alakea, said the cost to lease the building, including finishing interior space, could easily top $6 million.

The city values 1100 Alakea at $31 million for tax-assessment purposes.

The office tower, at the 'ewa-mauka corner of Hotel and Alakea streets, is notable for Toa's purchase of the land in 1989. The company, headed by Harumichi Ohtani, paid Honolulu auto dealer James Pflueger's Pflueger Partners $33 million for the 0.6-acre site — a record $1,250 a square foot.

The wild overpayment for property valued around $7 million in the late 1980s and today only ushered in the project's troubles.

As 1100 Alakea was being built, construction delays enabled primary tenant Honfed Bank to back out of leasing the lobby and five floors. Leasing problems persisted when the building opened in 1993 within a year of Ali'i Place, Harbor Court and the former First Hawaiian Tower — new downtown high-rises that combined to create an office-space glut.

The granite-and-glass building designed by Stringer Tusher Architects, featuring exterior elevators and high-tech infrastructure, appealed to high-tech companies and smaller businesses because they could rent an entire floor, about 5,000 square feet.

But the high-tech industry meltdown and continued competition for tenants have plagued building occupancy.

Matt Bittick, managing director of local real estate firm Grubb & Ellis/CBI, said larger tenants found multiple floors a hassle, and above-market rents hurt leasing efforts.

Pothul, of Colliers Monroe Friedlander, who also is not connected to building purchase efforts, said the property has potential to be resold as office condominiums, similar to unit sales at the long-vacant leasehold Queen's Court building and Executive Centre downtown. Zoning makes residential and hotel uses also possible.

"It's a fabulous asset that hasn't been well-positioned in the market throughout its history," Pothul said. "But the right buyer with capital and stamina could be successful with the property."