Jan. 23–San Francisco-based Coastwood Capital Group LLC, a partner in the International Market Place redevelopment, confirmed Wednesday that it has bought the leasehold interest in the adjacent Waikiki Trade Center for an undisclosed sum.
“The acquisition of Waikiki Trade Center is an exciting opportunity for Coastwood Capital Group LLC to continue to play a role in the renaissance of Waikiki. We are currently refining our business plan for the asset as we strive to find the highest and best use for the property and the market, as we do with all of our investments. In the meantime, there are no immediate changes planned for the property,” said Cordell Lietz, Coastwood Capital Group’s president.
A hotel may be among the possible uses for the building, said Matthew Bittick, president and CEO of Bishop Street Commercial, the company selected as the building’s leasing agent by former owner Seaside Equity LLC, which closed on its purchase of the property in February 2013.
“I don’t think any decisions have been made, but I’ve been told that the use may be hotel-related,” Bittick said. “We’ve been told to hold off leasing of office space.”
In the heart of Waikiki at the corner of Seaside and Kuhio avenues, the more than 248-foot high-rise office building has approximately 205,390 square feet of rentable space. The roughly 22-story building is currently running about 50 percent vacant, Bittick said.
Such a conversion would shore up Waikiki’s anemic office space market while alleviating some of the district’s lodging pressures, said Mark Bratton, a Colliers International vice president. Over the past 10 years, the vacancy rate among Waikiki office projects has been substantially higher than in any other district, Bratton said.
“The high vacancy rate in the Waikiki Trade Center has contributed to an unhealthy vacancy rate of about 15 percent for Waikiki’s office market,” he said. “There are only so many tour- and travel-related businesses that need to be down there, and they haven’t been growing. On the other hand, the lodging sector is busting at the seams. This is a win-win situation.”
Waikiki-based real estate analyst Stephany Sofos said a common mainland trend is to convert office space into condominiums.
“More people are working from virtual offices,” she said. “Here, in Waikiki, it makes sense to do a hotel conversion because market conditions have shown accommodations are needed.”
Bratton said taking the Waikiki Trade Center out of Waikiki’s office pool would “right-size” Waikiki’s struggling office market to include primarily space within the Waikiki Shopping Plaza, the Waikiki Business Plaza, the Waikiki Galleria Office Tower and the Bank of Hawaii Building.
“The new owners will have to honor all existing leases. However, I would say office landlords within five years of the conversion may begin slowly raising their rents,” he said. “When that happens, we may begin to see Waikiki office space rents become more expensive than those in downtown Honolulu.”
Joseph Toy, president and CEO of Hospitality Advisors LLC, said Waikiki’s tight hotel occupancy, which is running a consistent 85 percent, demonstrates the need for additional hotel inventory.
“Because it is very expensive to build from the ground up, it’s more cost effective to acquire, renovate and reposition,” Toy said. “This is a good-sized property in Waikiki and it’s on the right side of Kuhio, the ocean side, which is where a hotelier would want to be. If successfully renovated, it would re-energize that area.”
If the new owner is able to successfully redevelop the Waikiki Trade Center, perhaps the property would finally find its niche in Waikiki. When Seaside Equity bought the leasehold interest in the property last year for $8.2 million, it was looking at making substantial reinvestments to replace old mechanical components, reduce energy consumption and upgrade the building’s tired finishes. Maintenance had been deferred on the building during a multiyear dispute between a former owner and owners of the land under the tower.
