By Ken Ige, Star-Bulletin
Liberty House at Ala Moana Center has a great deal
on their rent with the shopping mecca.
Liberty House has
‘sweet’ deal on rent
Court records show Ala Moana Center
By Peter Wagner
charges it only a fraction of what
new shops must pay for space
Star-BulletinWith some rents above $150 per square foot at Ala Moana Center, Liberty House has a reason to smile through its bankruptcy tears.
According to a report recently filed in U.S. Bankruptcy Court, the store is paying just $8.85 a square foot under its current lease with the center's owner D/E Hawaii Joint Venture.
Some say it's a "sweetheart" deal, showing Liberty House fell into bankruptcy despite a heavy advantage. Others note that "anchor" stores like Liberty House are the mainstay of a shopping mall and deserve lower rents because of the traffic they generate.
And even with a break, the 326,355 square-foot store is expected to pay nearly $2.9 million to its landlord this year. The figure includes a base rent of $903,918 plus $1,983,582 -- 2.5 percent of anticipated sales.
"Traditionally, the bigger the store the less the rent," said retail analyst Stephany Sofos. "For a shopping center it's critical who your anchor's going to be because that's who brings your tenants."
Details of the closely guarded Liberty House lease are in a February appraisal of the store by Cushman & Wakefield of Illinois Inc. The appraisal puts a $90 million market value on the store lease.
The appraisal was sought by Liberty House to secure its lease as collateral for a $50 million loan from General Electric Capital Corp. The Ala Moana store is one of six Liberty House leases, with a total appraised value of $113.4 million, being used to secure financing.
Bankruptcy Judge Lloyd King last week approved $13 million in interim financing from Bank of America Group, a competing lender which also has offered $50 million to rescue the store.
A final decision on emergency financing was to be made by King today.
The Ala Moana Center landlord is opposed to mortgaging the Liberty House lease, an issue that snagged loan proposals at a hearing last week.
Liberty House, which filed for Chapter 11 reorganization bankruptcy protection on March 19, needs the money to resume the flow of merchandise from vendors and suppliers.
According to Cushman & Wakefield, Liberty House has a 50-year lease at Ala Moana Center, effective Dec. 31, 1995. The lease has renewable ten-year options with total rents -- base plus 2.5 percent of sales -- growing from $8.85 a square foot to $57.34 a square foot by the year 2045.
Current rents include a base rent of $909,918 a year -- about $2.80 a square foot. An additional 2.5 percent of gross sales -- estimated at $110,000 this year -- adds $1,983,582 to the rent for a total of $2,887,500 in 1998.
Shops at Ala Moana Center pay rents between $40 and $90 per square foot, with newly built shops paying more than $150 a foot, the appraiser's February report said.
D/E Hawaii attorney Leslie Kobayashi declined comment on lease agreements at Ala Moana.
She acknowledged there is a wide range of rents, but questioned figures in the Cushman & Wakefield report.
"It makes these broad sweeping conclusions," Kobayashi said. "We're not prepared to give a range of our lease rents. And we're very curious how they calculated that $90 million."
Retail analyst Martin Plotnick notes a favorable lease didn't help Liberty House avoid bankruptcy.
"It's such a sweetheart of a lease," he said. "If you have such a low lease to pay and you still fail, something's wrong. I know landlords in town that have hit their tenants with base rent plus 18 percent of gross. That's egregious."
Liberty House's lease
According to court records, Liberty House operates at Ala Moana Center under a 50-year lease signed in December 1995. Rents -- including a base plus percentage of sales -- increase from the current $8.85 per square foot to $57.34 per square foot by the year 2045. Rates are based on projected sales. Here's a look at the store's projected rental outlay in 1998:
Lease Term: Dec. 31, 1995 to Dec. 31, 2045
*Based on projected sales of $110 million in 1998.
Sales are projected to vary annually.
Source: Cushman & Wakefield of Illinois, Inc.
