Should state buy Alii Place?

The contention that the state is racing down a path to purchase Alii Place is a false perception.

The reality is the state is racing down a path to build a $270 million office building in Iwilei and House Bill 1366 is my way of trying to stop it by providing a more attractive option.

If HB 1366 does not pass, by law, the state must start the process to build a new building. In 2014, the Legislature allocated $15 million to ensure the process is started.

Further, the passage of HB 1366, itself, would not preclude continued due diligence. The measure does not bind the state to the purchase of Alii Place but merely allows it to further discuss the sale in good faith without missing a golden opportunity.

Ask any young couple looking at their pocketbooks and to the future: Does it make more sense to continue to rent or to invest in the purchase of a home? By any measure, the answer is the latter. So it is in the case of the state purchasing Alii Place. But if common sense isn’t convincing enough, look at the numbers:

Currently, the state rents approximately 420,888 square feet of office space in the downtown area, and spends about $10.15 million in rental costs, which includes common area maintenance and general excise tax expenses.

Under a proposed draft of HB 1366, the state would be allowed to enter into an agreement to purchase Alii Place, a 25-story "Class A" office building located at the intersections of Alakea, Richards and Hotel streets in downtown Honolulu.

Other office space options were also explored, including the HGEA and Clifford Center buildings.

It is an alternative to building a new state building in the Liliha Civic Center (the old Oahu railway station in Iwilei). The state is currently in discussion with owner Bristol Alii Holdings LLC of San Francisco, to buy Alii Place for about $90 million, compared to $270 million to plan and build a comparable size building.

Like many business transactions, discussions have gone through several phases, with the state conducting preliminary due diligence. There is a balance that needs to weigh cautious deliberation against a missed window of opportunity. That said, the sheer economics of the purchase of Alii Place versus constructing a brand new building or continuing to spend millions of dollars in rent just adds up to a better deal. For example:

» The purchase of Alii Place would initially reduce the state’s downtown rental cost by about 60 percent, with the remaining 40 percent eliminated by 2021.

» The purchase price per square foot would be about one-third the design and construction cost per ground square feet for a new state-constructed building in Iwilei.

Alii Place is one of the highest quality Class A office buildings in the downtown area, conveniently located adjacent to the state Capitol complex. It is LEED Gold certified and its operating and maintenance expenses are among the lowest of any Class A downtown building.

The state would have the added benefit of being able to occupy a large portion of the building immediately, versus the years it would take to plan and construct a new building. This would be a turnkey project, without the threat of cost overrun issues, in a convenient location with significant parking for the public and employees.

Does it make sense to invest in the direct purchase of Alii Place rather than continuing to rent? The numbers say yes. Does it make sense to purchase the existing Alii Place with today’s dollars rather than build a new building at tomorrow’s construction costs? Again, the numbers and common sense say yes.