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State pays to sublet its own building

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The state is paying $876,000 a year to sublease its own building near the Honolulu International Airport.

The state bought the 52,000-square-foot building on Ualena Street in the mid-1990s. The building was under a long-term lease, which the state allowed to continue. In May 2008 the state was looking for more office space in the area and decided to sublease the building back from the company with the long-term lease.

Under the arrangement the state gets $16,966 a month from Warehousing Co., which has the long-term lease on the property. The state then pays Warehousing $73,000 a month to sublease the building back.

The state has two tenants occupying the property, according to state testimony. One is Hawaiian Sea Life marine center, which pays the state $12,447 a month, and the other is Parsons Transportation Group, which rents about half the space and pays no rent because it is working on an airport modernization plan for the state.

The result is the state loses $43,587 a month through its management of the building, and the losses could continue until the long-term lease expires at the end of 2012.

"So here we own the property, we have this lease, we take it back early, we pay ($73,000 a month) … and then we have consultants in there that don’t pay us a dime," said state Sen. Donna Mercado Kim, chairwoman of the Ways and Means Committee, during a hearing last week on airport contracts. "It sounds like there were a lot of decisions that were made that cost the state a lot of money at a time when we least can afford it."

The state assumed the property sublease in 2008 from Hawaiian Tel with a plan to lease the building to a car rental business, said Brian Sekiguchi, state deputy director for airports, during last week’s hearing. The auto rental business never leased the building.

"We had taken the property back earlier from the original occupant, which was Hawaiian Tel, with plans to make it the seventh car rental concession," Sekiguchi said. "That was the earlier plan, but that changed when the whole economic situation kind of went south."

Instead, the state provides a portion of the property to Parsons.


» What: Hearing on airport contracts
» Where: Room 211, state Capitol
» When: 10 a.m. today

The state provides Parsons rent-free quarters under terms of an $8.4 million airport design services contract. Parsons is project manager for a planned $2.3 billion airport modernization plan.

Kim questioned the wisdom of the arrangement given the state’s tight budget.

"Don’t you think this is a large enough contract that we would have contractors coming in without us providing free rent?" she asked during the Senate committee hearing last week.

State Transportation Director Brennan Morioka said it is not unusual for an airport modernization plan program manager to be based rent-free on an airport’s property.

The airport modernization plan includes building new gates, adding moving sidewalks and a people-mover rail system. The project’s other major contractor is architect Hellmuth, Obata & Kassabaum Inc. That firm, which has a $4 million deal, is not located on airport property.

Airport officials said the situation for the building at 3239 Ualena St. will be resolved once Warehousing Co.’s lease expires at the end of 2012. That means the state is likely to continue to lease its own building at a loss for another year and a half.

Kim plans to hold another round of hearings on airport contracts today.


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