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Isle businesses fear rent hike


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POSTED: Wednesday, October 01, 2008

The ground lease for Island Lighting Co. in Mapunapuna isn't up for negotiation for another four years, but Vice President Glenn Kurashima already is concerned about a rent increase that could more than double the $3.95 a square foot the business pays now.

Kurashima has joined about 20 other businesses in the Mapunapuna, Sand Island and Kalihi Kai areas who are calling for fair and reasonable rent rates after land owner HRPT Properties Trust said it will push renewal lease rates higher in the next two years.

“;It is important for us, because as the businesses that are up for renegotiation now, as they agree to deals, that is all going to set the floor for us when it comes our time,”; Kurashima said. “;It is not something we are used to. If we have to pass that cost along to our customers, I don't know if we can be competitive.”;

Separately yesterday, CB Richard Ellis said in its third-quarter industrial market report that rents have increased 12 cents on average to $1.26 a square foot, with Kapolei lease rents remaining the highest on Oahu. Industrial land sale transactions have slowed, but prices vary widely, the report said.

HRPT, the state's largest owner of industrial property with 17 million square feet of leased industrial and commercial lands on Oahu, purchased the properties of the Damon Estate in 2003 for $480 million. That land now encompasses more than 180 businesses, which operate under a lease agreement for a fair and reasonable rent.

HRPT said in its second-quarter earnings call in August that it has about 400,000 square feet of space in Hawaii scheduled to expire through the end of the year. About 300,000 square feet are set to expire in both 2009 and 2010.

“;The rental rates in Hawaii really have skyrocketed in the last two to three years,”; Adam Portnoy, managing trustee of HRPT, said on the call. “;When we bought properties there, the existing rental rates were at $3.50 to $4 a foot. We're typically doing renewals anywhere from $8 to $10 a foot now for rent resets.”;

An after-hours call yesterday to the company's Newton, Mass.-based headquarters was not returned. The company reported a net income of $68 million, or 25 cents a diluted share, in the three months ending June 30, up from $31.5 million, or 8 cents a share, a year earlier.

Michael Steiner, executive director of the business group Citizens for Fair Valuation, said in a press conference yesterday that HRPT poses an “;economic threat that is affecting the small businesses in our area.”;

“;In effect, they are causing a potential for an economic eviction for those businesses,”; he said. “;HRPT's offers are forcing local businesses to re-evaluate their stand and assess whether or not they can continue. The renegotiation process is not going well.”;

Rent renegotiations occur every decade for most tenants, who operate on 50-year leases. Steiner said he has not heard of any closures from the renegotiations, but that many business owners are considering that option. Details of rent negotiations have been kept under confidentiality agreements by HRPT, he said.