Kauai Village sold for $40 million
A California group buys the 110,000-square-foot retail center in Kapaa
Kauai Village, a 110,000-square-foot shopping center in Kapaa, was sold yesterday to a group of California investors led by Diversified Equity Investment Corp.
The buyer's broker, Faris Lee Investments, said yesterday the deal totaled $40 million, including the cost of planned renovations. A person familiar the transaction who asked not to be identified put the renovation costs at $5 million.
Diversified Equity, which operates in California and Hawaii, acquired the center from Passco Cos. LLC, a California-based real estate investment firm. Passco bought the retail complex for about $27 million in May 2004. It is now looking to invest in other retail centers and apartment buildings throughout the islands, said Julie Kasper, Passco's director of advertising and marketing.
Diversified Equity, which also owns the Big Island's Crossroads Center in Kona, Waiakea Center in Hilo and Windward Town & Country Plaza in Kailua, is planning a major remodeling of the plantation-style complex, which was built in 1990, to create a resort atmosphere to attract more local residents and a growing number of tourists.
The 8-acre Kauai Village, one of the island's largest shopping centers fronting Kuhio Highway, is 85 percent occupied and has 20 tenants, which hold five- to 10-year leases and pay a monthly rent of about $2 per square foot. Its major tenants include Long's Drugs Stores and Safeway.
The complex, which has a three-story clock tower as well as whale murals designed by marine life artist Wyland, has had a difficult time leasing space.
The typical vacancy rate for similar-sized shopping centers is 3 to 5 percent.
The new owners plan to keep the same tenant mix and will focus on attracting new restaurants to the center, which includes an open-air courtyard and small bridges and walkways.
"There's a 15 percent vacancy in the center, so our focus is on building the center up, which is going to require a lot of work," said Richard Walter, president of Faris Lee Investments, the buyer's broker.
He added that the property has significant deferred maintenance that needs to be completed before prospective tenants are identified.
"They're using their own cash and credit line to buy the property because lenders don't want to loan on a property that has that much of a vacancy rate," Walter said. "There's a lot of risk in that, because interest rates are climbing and there's such a low return going in."
The center was hard hit when the 4,000-square-foot Wyland gallery closed last year and other larger spaces were vacated.
Walter said the new owners expect that it will take between one to two years to compete remodeling and fill the vacant spaces. They plan to secure long-term financing once tenants are in place.
"It's going to take them a long time to restabilize the property," he said. "The investors are hoping that rents will grow over time, but it's going to take years."