Landlord offers to buy lease on Hilo Hattie store in Iwilei

The landlord of Hilo Hattie’s warehouse-size store in Iwilei has stepped up to take back the lease on the property in a move that could help the struggling retailer emerge from bankruptcy and stay in business with smaller stores.

Honolulu Ltd., an affiliate of the Harry & Jeanette Weinberg Foundation that owns the land under the store on Nimitz Highway, submitted a $5.1 million bid Monday to reclaim the Hilo Hattie lease.

The purchase offer, submitted in U.S. Bankruptcy Court in Honolulu, would provide the retailer cash to help repay creditors. Hilo Hattie filed for Chapter 11 bankruptcy in February, listing $8.1 million in assets and $13.2 million in debts.

Honolulu Ltd. made the only offer on the lease. California-based real estate investment firm Adobe/Avery Parkway LLC terminated a tentative $4.8 million offer it made in May. Some city officials had entertained making a bid with the idea to convert the store into a homeless shelter, but ended up not making an offer by a Monday deadline.

For Hilo Hattie the Nimitz store represents its biggest asset — and a big liability in lease rent that the company was unable to pay as store revenues plunged to $15.6 million last fiscal year from $23.6 million in 2013.

“Even though the property is the most significant asset held by the debtor, the property also constitutes a substantial drag on the debtor’s business,” Hilo Hattie said in a court filing. “The debtor has determined that the highest and best use of the property for the debtor’s future is to sell the property to the highest bidder.”

Honolulu Ltd. was owed $2.5 million in back rent when Hilo Hattie filed for bankruptcy.

It is unclear what Honolulu Ltd. intends to do with the store space if its offer results in a completed sale. A company representative could not be reached for comment Tuesday.

Mark Storfer, Hilo Hattie’s chief operating officer, said he expects to discuss the matter with Honolulu Ltd. But for the immediate future, the store will continue to operate.

“It’s business as usual,” he said.

Storfer has said the preferred plan for Hilo Hattie is to vacate the 87,000-square-foot Nimitz location and open a dramatically smaller store in Waikiki in a space between 2,000 and 4,000 square feet as part of a departure from large store formats.

The retailer, which buses in customers to its flagship store from Waikiki, uses only 33,000 square feet of the store’s space for retail. Much of the balance once housed manufacturing operations that were outsourced several years ago.

One recent downsizing move in line with Hilo Hattie’s strategy was receiving court approval in April to cut the size of the company’s Maui store to 4,500 square feet from 18,000 square feet. The retailer also operates a 2,100-square-foot store at Ala Moana Center and a 13,500-square-foot store in Lihue.

Right before filing bankruptcy, Hilo Hattie closed three of seven stores — in Kihei, Maui; Kailua-Kona; and Hilo — in an emergency cost-cutting move that resulted in 60 employee layoffs.

The purchase of Hilo Hattie’s Nimitz store is subject to court approval. A confirmation hearing is slated for Aug. 17.