Downtown
post office back
on the block

The 2.6-acre site is put up
for sale after a plan to transform
it into a boutique shopping
complex fails

---

By Tim Ruel
Star-Bulletin

The downtown Honolulu post office is up for sale as office space following a failed plan to turn the historic building into a boutique shopping center.

Potential buyers may include local organizations that have a historical interest in the property, such as the Office of Hawaiian Affairs, according to real estate firm CB Richard Ellis. The company has a national contract to lease and sell real estate owned by the U.S. Postal Service.

The offering includes the entire six-story building in fee simple, on 2.6 acres fronting Merchant Street, across from Iolani Palace. The Honolulu post office currently takes up 38,000 square feet of the total 175,000 square feet in the building, leaving 137,000 square feet of vacant office space. The largest spaces available are two 42,000-square-foot offices on the second and third floors.

In 1996, the Postal Service had agreed to sell the unoccupied part of the building for $14.2 million to a company led by local developers Russell Allen and Harold Spector. Major plans were announced for a $57.5 million Galleria Shopping Center, with restaurants, a wedding chapel and high-end shops, along with an expansion of the post office. But the Postal Service terminated the deal last year when financing failed to materialize. Several prospective tenants sued, seeking refunds of their deposits.

The Postal Service is now selling the property to seek income from the real estate to pay for renovations and improvements of its downtown operations, said Andres Albano Jr., vice president of development consulting for CB Richard Ellis in Honolulu. The company is marketing the post office property without an asking price to create competition for bids.

Prospective buyers would have the option of keeping or relocating the post office, although any moving costs would have to be covered, Albano said.

A third option would be to split the building's fee interest with the Postal Service in the same fashion as condominium owners. "It's all just a numbers game," Albano said.

The downtown post office's official lifetime began in 1922, but the history of the property extends beyond that.

For example, at the time of Hawaii's annexation in 1897, U.S. Marines had occupied the spot as a show of force, Albano said. Later on, the building expanded to include federal courts and the U.S. Customs Service.

Because of legacy attached to the building, the Office of Hawaiian Affairs has discussed turning it into a center for native Hawaiian organizations. However, no action has been taken and OHA is locked into its current office at Pacific Park Plaza at 711 Kapiolani Blvd. for the next two years.

The postal building's history has also brought wear and tear. The offices require $11.6 million in renovations, including electrical work, asbestos removal, central air conditioning and termite repairs, Albano said.

One advantage of the property, however, is a decline in vacant office space downtown, which makes the market more favorable to landlords.

Downtown vacancy peaked at 18.8 percent in 1996, and now stands at 12 percent.

Albano said he expects the number to drop to 10 percent by year end.

Given the current rates of absorption, the entire post office building should fill up with tenants within a year, he said.

One major consideration for a buyer is how to deal with parking. The building offers 40 stalls.

Options include making a deal with the city to shut down a portion of Merchant Street, which could add 30 stalls, or tunneling underneath the current parking lot, which could open up 154 stalls. Albano could not estimate of the cost of either alternative.