Cost dispute stalls city offices’ move

The city has been paying $154,000 a month since July to lease an empty Iwilei office building because it cannot reach agreement with a contractor for renovating it to become the new home for Oahu’s busiest driver licensing office.

Robert Kroning, city director of design and construction, said Thursday that the first city offices are now expected to relocate in April to the planned Kapalama Hale, the former Sprint building at Dillingham Boulevard and Alakawa Street.

When the project was first made public in June, city officials had said the relocation of the licensing office and satellite city hall from City Square, several blocks away, would take place by Sept. 30.

Since July the city has been paying landowner Tradewind Dillingham LLC $154,000 a month in lease rent for the Kapalama Hale space. That’s in addition to the approximately $114,000 the city has been paying for the offices that are relocating.

Besides the driver licensing and satellite city hall offices at City Square, other city agencies slated to move into the two-story, 61,896-square-foot Kapalama Hale are some divisions of the Department of Community Services, the city Ethics Commission, the Neighborhood Commission, the health branch of the Department of Emergency Services and a section of the Honolulu Police Department.

Kroning said the major reason for the delay is the inability of the city and a contractor to agree on the cost for renovating the interior of the old Sprint building.

Negotiations with the original contractor were initiated because the company has worked with the landowner previously and is familiar with the building, he said.

“The lease has been executed, and we’re working with their contractor as part of the lease to do these renovations,” Kroning said. “And it’s their contractor that’s come in with some pretty high cost estimates that we haven’t been satisfied with, and so that’s why we’re negotiating with them to … bring (the price) to something we can accept.”

The work to be done includes “everything from installing bathrooms to furniture to carpentry work,” Kroning said.

The city has begun to speak with other contractors about doing the work as it continues to negotiate with the initial contractor, he said. “We have some flexibility there.”

“We understand having to spend the extra money to pay two leases is not something we want to do. But we believe in the end we’re taking the precautions to make sure we’re getting the appropriate pricing on the reconstruction that will offset the amount that we’re paying in dual leases,” Kroning said.

The $154,000-a-month cost of the new site is about $40,000 more than the collective lease amounts the city is currently paying for the agencies scheduled to relocate there. But after leasing the Kapalama Hale the first two years, the city will have the option to purchase the site in the third, fourth or fifth years, something the city intends to exercise, Kroning said in June.

That would allow the city to recoup the purchase price in seven years because it would be saving money from no longer having to lease, he said.

City records show the property at 925 Dillingham Blvd. assessed at $12.5 million.

The city needs to relocate the licensing division and satellite city hall because RCK Partners, owner of City Square, wants to use the two spaces for expansion of its Chinatown Marketplace.

RCK has agreed to extend the city’s leases there until it can relocate, Kroning said.

The city began leasing at City Square, site of the former Kapalama Gem store, in 1996. The driver licensing office takes up about 12,000 square feet, while the satellite city hall operates out of a separate, 2,500-square-foot space.