Waterfront Plaza up for sale

By Andrew Gomes
Advertiser Staff Writer

The campus-like project on the edge of downtown Honolulu is to be offered to investors as early as next week by international real estate investment banking firm Secured Capital Corp., according to individuals briefed on the sale initiative.

If sold, the seven-building office and entertainment complex on 8.7 acres leased from Kamehameha Schools would be one of the largest single commercial property sales on O'ahu in the last few years, and provide new leadership for a project that has rebounded from hard times following booming early success.

A spokeswoman for Waterfront Plaza's lead owner, Michigan-based Kojaian Management Corp., declined comment. A principal with Kojaian partner The Witkoff Group of New York did not respond to a request for comment.

Waterfront Plaza was built for $113.5 million in 1988 by developer Bruce Stark. Anchored by Wallace Theaters, nightclub Ocean Club (formerly Studebaker's) and several restaurants including Ruth's Chris and Sunset Grill, the project was an initial hit.

Stark however lost the property to a lender in 1998 after a glut of office space, competition from the newer Aloha Tower Marketplace and struggling economies in Japan and Hawai'i left the developer unable to make mortgage payments.

In late 2000, lender Teachers Insurance and Annuity Association sold the complex to Kojaian-Witkoff as part of a package of five office properties the New York-based pension investment trust sold to the partnership for $176 million.

Since then, the Kojaian-Witkoff partnership has sold at least three of the five properties, including office buildings in Las Vegas and Oakland as well as the Ceridian building in Mapunapuna, which Kaiser Foundation Health Plan bought for $5.8 million, or $2.5 million more than the partnership reported paying.

Kojaian-Witkoff reported paying $47 million for Waterfront Plaza in Bureau of Conveyances records, and a Kojaian official previously said its strategy was to acquire the underperforming property and improve it.

The new owner hired a new property manager, Colliers Monroe Friedlander, to fill empty space, and spent $1.7 million on upgrades including new landscaping, signs, paint and other physical changes, according to Colliers.

Colliers declined to comment on the turnaround effort, but said in a recent lease listing that Waterfront Plaza, which has 415,000 square feet of office space and 90,000 square feet of restaurant and retail space, is 97 percent occupied.

Alan C. Beall, who developed and later sold the Restaurant Row component of Waterfront Plaza and now owns the Row Bar there, said the current operators have made good progress bringing in new tenants and renovating the complex. But in his view the property doesn't have a great reputation because it isn't promoted enough.

"It doesn't get a lot of personal attention," Beall said, adding that a more hands-on owner might be able to restore the popularity that he said Restaurant Row had in its first five or six years in business.

Stephany Sofos, a local real estate consultant, agreed that the current owner and local management firm have done a good job, but said Waterfront Plaza suffers from its location at 500 Ala Moana.

"The problem is it's still off the beaten path," she said. "It's not quite downtown, it's not quite in the suburban corridor."

Other real estate observers said Waterfront Plaza has always been a challenge for owners because tenant rents have to cover maintenance and ground lease payments for such a big parcel of land.

Although Waterfront Plaza, excluding land, is appraised at $54 million by the city for property tax purposes, brokers said prospective buyers will base their analysis on operating revenues and expenses.

Kojaian owns more than $1 billion of commercial real estate and is led by C. Michael Kojaian, who is also chairman and controlling stockholder of real estate services firm Grubb & Ellis Co.

The Witkoff Group, another private real estate investment firm is headed by Steven C. Witkoff.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.