Ward Centers owner wins harbor lease

The owner of Ward Centers now has a marina to go with its envisioned neighborhood of condominium towers, shops and restaurants in Kakaako, after a state board voted Friday to lease the Kewalo Basin small boat harbor to Howard Hughes Corp.

Board members of the Hawaii Community Development Authority, an agency regulating development in Kakaako, voted 7-0 to approve the Kewalo Basin lease deal with Hughes Corp., a Dallas-based developer that owns 60 acres mauka of the harbor including Ward Centers.

The lease, which runs up to 45 years effective Aug. 15, is being given to privatize harbor improvements that HCDA drew up several years ago, while also providing the state revenue.

Contemplated improvements are estimated to cost about $20 million and include replacing nearly every pier and dock at the 144-slip harbor, adding 100 more berths, creating a pier-front pedestrian promenade, installing a sewage pump-out system and putting barriers in the water to reduce ocean swell impacts.

Actual improvement work carried out by Hughes Corp. is subject to HCDA approval and could be less — but not more — than what is in an environmental impact statement the agency produced for the project.

"We see this as a real exciting opportunity for our company … to make Kewalo Basin a great place," Race Randle, Hughes Corp.’s director of development, told HCDA directors before the vote.

Hughes Corp. said it has a big incentive to make the harbor more attractive because it fronts a planned entryway to Ward Village, the company’s $7.5 billion plan to redevelop the Ward Centers area into a community with up to 22 residential towers, including several overlooking the harbor. The first tower, called Anaha, recently broke ground and includes a penthouse priced at $20 million.

Anthony Ching, HCDA executive director, presented a video touting how improvements to the harbor and an attractive pedestrian link with Ward Village across Ala Moana Boulevard can turn what is now a relatively quiet harbor into an oasis with much more activity.

Hughes Corp. committed to complete upgrades in two to five years.

Some commercial charter boat operators at Kewalo Basin previously expressed concerns about Hughes Corp. leasing the harbor, but only one, Rob Harrington of Reel Intense Sport Fishing, testified Friday and asked HCDA to defer a lease decision.

Joe Bardouche of yacht charter operator Hawai’i Yachts said the company moved four boats to Kewalo Basin from Ko Olina Resort & Marina in anticipation of the upgrades, which from his perspective can’t happen fast enough.

HCDA has worked on harbor upgrade plans since 2005 when the state Department of Transportation announced it would turn over Kewalo Basin management to HCDA after years of neglect that left many slips unusable.

HCDA drafted repair and renovation plans and retained California-based marina operator Almar Management Inc. in 2009 to manage the harbor for a fee.

After some state-financed repairs, occupancy rose to about 100 percent from 40 percent, in part because HCDA opened the harbor to recreational boats while giving priority to commercial boats that include fishing vessels and charter operations that have long been fixtures at Kewalo Basin.

The higher occupancy, combined with slip rental rate increases implemented by the agency, now generates about $1.3 million in revenue and $676,000 in net operating income annually.

In 2011 Almar sought to implement HCDA’s importment plan under a long-term harbor lease. The agency embraced the unsolicited proposal in light of government funding uncertainties, procurement bureaucracy and financial risk of improvements paying off.

Negotiations with Almar, however, got put on hold so HCDA could 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, and its rival bid was deemed better by HCDA staff in February.

Since then HCDA and Hughes Corp. worked to refine lease terms including monetary returns that until Friday had not been made public.

Under the lease, Hughes Corp. will pay HCDA $550,000 upfront and annual rent that the agency estimated would amount to about $14 million over the first 30 years.

Ching said the lease with Hughes Corp. makes financial sense because the state stands to receive about $35 million over an initial 30 years, including the value of harbor improvements.

"I would suggest to you there is clearly a benefit to this lease to the harbor operator as well as ourselves," Ching said.

Luis Salaveria, state deputy budget director and an HCDA board member, said the current operating income from the harbor isn’t enough to pay off a $20 million revenue bond that the state would need to issue for the harbor work.

"We’re underwater now, from the way I look at it," he said.

However, there is some question as to whether Hughes Corp. will spend $20 million on harbor upgrades. The company said it has yet to determine whether it will develop everything in HCDA’s plan, though it is committed to delivering efficient improvements that suit harbor users.

Ching said HCDA expects a minimum of 50 new slips and upgrades to all existing piers and wharfs.

Wayne Takamine, chairman of a community advisory panel that gave HCDA input on the harbor, criticized the agency for negotiating exclusively with Hughes Corp. and suggested the state could improve the harbor without the help of a private developer or losing money.

"I’m appalled by this exclusive negotiation," he said.

Takamine sent a letter to Gov. Neil Abercrombie on Thursday asking him to intervene in the lease decision.

Michelle Matson, an advisory panel member, expressed concern that the harbor will become a place for Ward Village’s luxury condo owners to park luxury yachts.

Hughes Corp. is bound by HCDA-established slip rental rates and harbor rules giving preference to commercial boats.

Ching added that the agency retains authority over the harbor improvement plan through the lease.

"We have final say on what the project is," he said.