Kapolei center put on shelf


POSTED: Thursday, April 30, 2009

Kapolei Pacific Center, once one of the largest commercial buildings planned for Oahu's second city, has become the latest casualty of the strained financial market.

Groundbreaking for the retail and office complex was slated for March, but due to market turmoil, Avalon Development Co. LLC has temporarily shelved the project, said Christine Camp, president and chief executive.

“;We put it on hold for a while and have decided not to break ground this year,”; Camp said. “;We want to evaluate it for next year. It's a matter of finding the right time to bring forward a project of this nature.”;

More than 900,000 square feet of office projects had been planned for Kapolei, but the poor economy and slow job growth likely will cause most of them to be shelved or sold, said Mike Hamasu, Colliers' consulting and research director. Hamea Tech Center and Kapolei City Center also have hit road blocks, Hamasu said.

“;Square footage in Leeward and West Oahu's office sector was expected to double this year, but I think we'll see zero growth,”; he said.

Avalon began telling signed tenants last month that they would have to go elsewhere, Camp said.

While Phase I had been 87 percent leased at one time, project delays had taken that number down to 54 percent, she said.

“;I think we had about 12 major tenants left,”; Camp said. “;Some have gone to competitors, but some were relieved and willing to wait because now is not the time for them to expand.”;

The project delays, while bad for developers, are good for the market, Hamasu said. “;In a softening market, you don't want to get hit with more space.”;

The office vacancy rate, which hit a decade low of 6.5 percent in mid-2007, has risen as firms related to real estate, construction, tourism and retailing downsized or closed their offices, Hamasu said.

Though construction financing had been secured for Kapolei Pacific Center and at one time the development was 87 percent leased, Camp said the developer wanted a clearer picture of the permanent financing rate before moving ahead.

While Avalon may be able to time the market, other developers who do not have enough resources could begin to struggle, Hamasu said.

“;We had a run-up in investment sales from 2003 to 2007. If they took out five-year term financing, we could see huge problems come up between now and 2012,”; he said. “;Investors who took out cheap financing may find that it is difficult to replace when they have to refinance.”;