State set to lease out Kewalo Basin

A state agency is moving closer to privatizing a $22 million renovation and expansion of Kewalo Basin to better serve commercial and recreational boaters.

The Hawaii Community Development Authority has agreed on major terms with a private developer that would lease the 143-slip harbor in Kakaako for 50 years. But the agency’s board deferred a vote Wednesday on whether to approve the deal because directors want to review a finalized copy of the lease.

HCDA proposes to lease the harbor to California-based marina operator Almar Management Inc. and a partner doing business as KB Marina LP.

The Almar partnership would finance $22 million in long-planned work to replace all piers and docks, increase berth spaces by 100 to 243 and add other new amenities including a sewage pump-out system and barriers in the harbor to minimize the affect of ocean swells on piers.

Almar anticipates finishing the upgrades in five years and would pay HCDA roughly $45 million in rent over 50 years.

"It’s a good deal," said agency Executive Director Anthony Ching.

The state agency could try to finance and make the improvements alone, which could generate a more-than-$45 million return if done well. However, the work would likely take longer and be less definite given government funding uncertainties and procurement bureaucracy, Ching said.

HCDA has planned the harbor upgrades since the state Department of Transportation announced in 2005 that it would turn over Kewalo Basin management to HCDA. The transfer happened in 2009, and HCDA hired Almar to manage the harbor for a fee. Since then, the agency has completed an environmental impact statement and obtained several state permits allowing the work to proceed.

No one testified against the lease arrangement Wednesday at a public hearing.

The Office of Hawaiian Affairs, which is receiving ownership of property along the Ewa side of the harbor including the former Fisherman’s Wharf Restaurant site, asked HCDA’s board to delay a decision so that OHA can better understand and plan for how the harbor changes will affect its property.

Ching said the harbor improvements, which include two new piers extending from the Fisherman’s Wharf area, will only enhance the value of OHA’s property.

Under the proposed deal with Almar, the developer would pay rent equivalent to 10 percent of gross revenues for the first five years. The rate would rise to 15 percent for the next 10 years, then to between 13.5 percent and 17.5 percent for the next 10 years. After that, rent for subsequent 10-year intervals would be based on fair-market appraisals.

Almar would be bound by slip rental rates and harbor rules established by HCDA.

Almar has received praise for improving the atmosphere of the harbor, which had fallen into poor shape under what some longtime users deemed to be neglect by the DOT. At the same time, HCDA has pulled in average annual net income of $700,000 over the past three years from harbor operations after occupancy was increased from 40 percent to 100 percent, largely due to opening the harbor to recreational boats.

Presently, 46 percent of boats at Kewalo Basin are pleasure craft, though commercial tenants including tour and charter boats have priority for vacant space.

A balance of $2.3 million in the agency’s harbor fund would be spent to repair a 20-foot-wide loading dock extending over the water along the Ewa side of the harbor.

About $3.9 million left over from a legislative allocation for pier replacement could fund other agency projects.

Ching said the agency is exploring adding a restaurant and a parking garage between the harbor and Ala Moana Boulevard that would not be part of the Almar lease.