A long-delayed plan to privatize roughly $20 million in improvements to Kewalo Basin small boat harbor took a sharp competitive turn Wednesday, with a recent bid by the owner of Ward Centers jumping in front of a proposal by the current operator of the state harbor in Kakaako.
The Hawaii Community Development Authority, the state agency that owns the harbor, elected to exclusively negotiate a potential 40-year lease with Howard Hughes Corp., the owner of Ward Centers, for 60 days.
HCDA’s board voted 5-1 on the decision that left a contending bid by experienced marina operator and developer Almar Management Co. on the sideline.
Hughes Corp. is redeveloping 60 acres it owns mauka of Kewalo Basin into an urban village with 22 condominium towers and retail, including one tower where a single penthouse is priced at $20 million and overlooks the harbor.
David Striph, senior vice president in Hawaii for Dallas-based Hughes Corp., said the company has an extraordinary opportunity to tie the harbor into its neighboring redevelopment plans.
“We have a bigger stake in seeing that the harbor does well than anyone,” he said.
Hughes Corp. said it can improve the harbor in less time, without financing and more efficiently because it has leasing, management and security personnel already working next door. The company also said it would hire an experienced harbor developer and manager to make up for a lack of experience in that area.
Almar, a California-based firm that operates 17 harbors and marinas mainly in California and Mexico, touted its expertise and noted that it turned financial losses at Kewalo Basin under the state into a profitable enterprise.
“We are the premier marina company in the country,” said Jim Hayes, Almar’s chief operating officer. “We have a proven performance.”
The Kewalo Basin improvement plan initiated by HCDA calls for replacing nearly all piers and docks, increasing berth spaces to 243 from 143, adding a sewage pump-out system, and putting barriers in the water to minimize the affect of ocean swells on piers.
The agency estimated the project cost at $22 million and said that partnering with a private developer would get work done faster and remove risk to the state that the improvements would pay off.
Almar proposed enlarging the harbor to 220 slips and doing the work over five years at a cost of $19.8 million. Hughes Corp. said it could do the job in 18 to 24 months. Almar planned to finance most of the cost while Hughes Corp. said it has the money for all the work.
Several Kewalo Basin tenants told HCDA’s board that they preferred Almar over Hughes Corp. because of experience.
“I would rather have the experience behind me,” said Rob Harrington, operator of Reel Intense Sportfishing.
But Anthony Ching, HCDA executive director, said Hughes Corp. made a “compelling” proposal.
“Their package was judged to be economically and holistically better,” he said.
Almar and Hughes Corp. proposed paying HCDA a certain amount of lease rent, but detailed terms to make a comparison were not shared in public presentations both firms made Wednesday.
Almar indicated in its presentation that it offered HCDA the higher of a minimum rent or a percentage of revenue ranging from 10 percent to 18.75 percent over the 30-year lease term with an option for another 10 years.
Tom Hogan, an Almar principal, projected that annual rent paid to HCDA would reach $238,660 in the lease’s fifth year and $673,585 in the 15th year based on percentage rent. Net operating income from harbor operations last year totaled about $640,000.
HCDA retained Almar in 2009 to manage Kewalo Basin, and the company made an unsolicited proposal in 2011 to lease the harbor and carry out HCDA’s improvement plan.
In 2012, HCDA’s board agreed to broad terms of a deal where Almar anticipated paying roughly $45 million in rent over what was then going to be a 50-year lease. However, the agency deferred decisions to finalize the deal.
Initially, HCDA held off to consult with the Office of Hawaiian Affairs after that agency was given significant land fronting the harbor. After 18 months, OHA took no position on the lease deal. HCDA also deferred lease decisions in August and September. Then Hughes Corp. expressed interest in October.
Almar’s contract to manage Kewalo Basin expires at the end of this month, though the company is expected to continue operations during a transition period tied to selecting a developer for the improvement plan.
