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PBN Op-Ed Piece from Michael Steiner
The following was published in PBN on December 25, 2009:
HAWAII TENANT LAW ONLY RECOURSE AGAINST HRPT
Last Friday’s editorial “State should keep out of landlord’s business” fails to address the true story of the plight of local businesses trying to deal with the largest owner of commercial and industrial land in Hawaii.
What’s missing from PBN’s analysis is an understanding of the underlying business process and why the Legislature and governor felt it necessary to get involved.
A few years ago, HRPT, a Massachusetts-based real estate investment trust, bought the Damon Estate lands along with its existing long-term ground leases. These ground leases are usually 50 years long and call for the renegotiation of “fair and reasonable” rent every 10 years.
In these ground leases, HRPT leases out just the dirt – nothing more. It’s the lessee’s responsibility to finance, construct and maintain the buildings and infrastructure.
But the lessees are not free to move if the rents demanded are unfair and unreasonable; they’re obligated to pay through the end of the lease term, which for most is year 2030, and forfeit their buildings. In addition, lessees are not free to sublease without the lessor’s approval. They are, in fact, captive lessees.
HRPT is an oligopoly and has used its enormous size and power to gain unfair advantages against its lessees, insisting on new lease terms favorable only to HRPT with take-it-or leave-it offers. There is no “negotiation” as HRPT routinely ignores lessee counteroffers.
After months of silence from HRPT, lessees are told that if they do not accept the offer, HRPT will force them into arbitration, which most businesses can’t afford. The lessee has little choice but to capitulate to above-market rent demands.
By way of example, if a large company owned nearly all of the produce in Hawaii would it be reasonable for them to increase the price of papayas to $9, knowing its customers were contractually obligated to buy from them for the next 20 years, even though smaller producers sell a similar product for $4? That’s gouging and it’s exactly what HRPT is doing.
Act 189 was enacted to redress these grievances by bringing HRPT back to good-faith negotiating. The Act neither seeks nor calls for rents that are below fair and reasonable, but reminds everyone that the term “fair and reasonable rent” applies to both the lessor and the lessee. The Legislature saw a public need to discourage gouging in the market, and Act 189 provides a reasonable and narrowly-drawn means to accomplish a legitimate public purpose.
Act 189 does not say that rents should be higher or lower. It only says that rents should be “fair and reasonable to both parties.” This does not violate HRPT’s constitutional rights.
The Legislature acted to help small businesses retain their employees and stay in business. Given HRPT’s control over such a large number of lessees and so many people, this is entirely appropriate.
The press has an obligation to the community, to fairness and decency, but PBN’s editorial is one-sided. It provides an excuse for HRPT to continue its unreasonable demands. The people of Hawaii will pay the cost of this kind of abuse through higher consumer prices, more business failures and higher unemployment taxes.
Michael Steiner is executive director of Citizens for Fair Valuation, which represents HRPT tenants in the Mapunapuna area.
The following was published in PBN on December 25, 2009:
HAWAII TENANT LAW ONLY RECOURSE AGAINST HRPT
Last Friday’s editorial “State should keep out of landlord’s business” fails to address the true story of the plight of local businesses trying to deal with the largest owner of commercial and industrial land in Hawaii.
What’s missing from PBN’s analysis is an understanding of the underlying business process and why the Legislature and governor felt it necessary to get involved.
A few years ago, HRPT, a Massachusetts-based real estate investment trust, bought the Damon Estate lands along with its existing long-term ground leases. These ground leases are usually 50 years long and call for the renegotiation of “fair and reasonable” rent every 10 years.
In these ground leases, HRPT leases out just the dirt – nothing more. It’s the lessee’s responsibility to finance, construct and maintain the buildings and infrastructure.
But the lessees are not free to move if the rents demanded are unfair and unreasonable; they’re obligated to pay through the end of the lease term, which for most is year 2030, and forfeit their buildings. In addition, lessees are not free to sublease without the lessor’s approval. They are, in fact, captive lessees.
HRPT is an oligopoly and has used its enormous size and power to gain unfair advantages against its lessees, insisting on new lease terms favorable only to HRPT with take-it-or leave-it offers. There is no “negotiation” as HRPT routinely ignores lessee counteroffers.
After months of silence from HRPT, lessees are told that if they do not accept the offer, HRPT will force them into arbitration, which most businesses can’t afford. The lessee has little choice but to capitulate to above-market rent demands.
By way of example, if a large company owned nearly all of the produce in Hawaii would it be reasonable for them to increase the price of papayas to $9, knowing its customers were contractually obligated to buy from them for the next 20 years, even though smaller producers sell a similar product for $4? That’s gouging and it’s exactly what HRPT is doing.
Act 189 was enacted to redress these grievances by bringing HRPT back to good-faith negotiating. The Act neither seeks nor calls for rents that are below fair and reasonable, but reminds everyone that the term “fair and reasonable rent” applies to both the lessor and the lessee. The Legislature saw a public need to discourage gouging in the market, and Act 189 provides a reasonable and narrowly-drawn means to accomplish a legitimate public purpose.
Act 189 does not say that rents should be higher or lower. It only says that rents should be “fair and reasonable to both parties.” This does not violate HRPT’s constitutional rights.
The Legislature acted to help small businesses retain their employees and stay in business. Given HRPT’s control over such a large number of lessees and so many people, this is entirely appropriate.
The press has an obligation to the community, to fairness and decency, but PBN’s editorial is one-sided. It provides an excuse for HRPT to continue its unreasonable demands. The people of Hawaii will pay the cost of this kind of abuse through higher consumer prices, more business failures and higher unemployment taxes.
Michael Steiner is executive director of Citizens for Fair Valuation, which represents HRPT tenants in the Mapunapuna area.
Servco Arbitration Award Made Public
Honolulu, December 1, 2009: UPDATE - An arbitration panel recently determined that $5.26/SF with no step ups is "fair and reasonable annual rent" for the 10-year period beginning February 1, 2009 for Servco's 9.6 acre dealership and headquarters site at 2810 Pukoloa Street.
This compares to HRPT's offer to Servco of $7/SF for the first year of the 10-year period with 4% annual increases thereafter. Because the notice initiating the Servco arbitration was issued in February 2009, well before the July 1, 2009 effective date of Act 189, both HRPT and Servco agreed that Act 189 did not appear to apply to the Servco arbitration.
CFV has been saying for the past two years that HRPT's approach to setting fair and reasonable annual rent is unrealistic. Although CFV believes that an even lower award would have been appropriate in light of the poor economy, the unanimous award of the three-member arbitration panel, including HRPT's appointee, is a clear rejection of HRPT's approach to setting rents.
Since the panel consisted of three distinguished Hawaii appraisers, including the President of the local chapter of the Appraisal Institute serving as chairman, CFV hopes that HRPT will take the award to heart and adopt a more realistic approach going forward.
CFV strongly recommends that lessees discuss this with their attorneys or negotiating professionals before settling rent renegotiation issues with HRPT as the details of the Servco award may have an impact on those issues. For additional information as to the renegotiation process or to attorneys and other professionals who might advise and assist you in the process, please contact Michael Steine, Executive Director of CFV.
HRPT again rejects CFV`s attempts to work together
• See letter of 11/10/2009 from HRPT CEO John Mannix. Another regrettable decision by HRPT.