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What’s up with Coconut Marketplace?

KAPA‘A – In recent months, businesses have been disappearing from one of Kaua‘i’s largest retail centers on the Eastside.

Since the beginning of the year, about a quarter of the tenants at Coconut Marketplace have closed up shop, causing a significant increase in the center’s already low occupancy level.

The shopping center, which features more than 75 retail spaces, has an estimated 70 percent vacancy rate with a tallied sum of 26 tenants still in business.

Recently departed businesses include Island Fever, Animal Land, Tropic Casuals, Garden Island Clothing, Island Jewelers, Kaua‘i Shades and Hats, Tradewinds and Aloha Kaua‘i Pizza.

Tenant rent strike

“None of us wanted to leave – we had to, we were told to,” said Tradewinds owner Kathleen Sykes, referring to Tradewinds, Aloha Kaua‘i Pizza, Tropic Casuals and Garden Island Clothing.

When CB Richard Ellis took over management of the property in 2009, tenants asked for a rent reduction because of the recession’s deep impact on tourism and consequently sales, but their requests went unanswered by CBRE, tenants said.

“People were dipping into their savings just to stay alive,” Sykes said. “December ’09, the cinema was gone and took a lot of business away from them.”

In July 2009, frustrated tenants organized a group led by the tenants association president. As a group, they chose not to pay rent until management responded to their requests. 

“We formed the group because of safety in numbers, or so we thought,” Sykes said. She did not wish to reveal all of the members of the group but said Tradewinds and Aloha Kaua‘i Pizza were the last to join.

“For a year and a half, we tried to communicate with them and got no response,” Sykes said, and for a year a half, some tenants did not pay rent.

“We wanted to pay rent but not premium rent they were charging everyone,” she said. “There was no cooperation, no aloha. We decided if we didn’t pay rent, they would have to talk to us but didn’t. We made offers, but they didn’t respond.”

Last February, Sykes attorney told her that management was finally ready to make an offer.

“It was comical,” she said. “The offer was to close early and higher rent. The message was that they didn’t want us here.”

Closing the bar early would have cost Sykes 60 percent of her business volume, she said. She refused the offer and CBRE gave her 24 hours to move out.

“I understand not wanting the drama of the bar, but not everybody who has a drink causes trouble,” she said. “Tradewinds was there for 34 years. It was like a local landmark … All we wanted to do was get some help.”

Notices to vacate were sent to only a few in the group: Tradewinds, Aloha Kaua‘i Pizza, Tropic Casuals and Garden Island Clothing.

“CBRE went after these four businesses,” Sykes said. “The remaining people in the group stayed.”

The Fish Hut was one of the businesses that stayed, she said.

“The difference between us and them is they were in a lease and we weren’t,” Fish Hut owner Tamara Inman said. “We didn’t want to ruin our credit, so we paid up our lease. Now, we’re on a month-to-month.” 

The Fish Hut has been serving fish burgers to hungry marketplace visitors for 31 years. Inman, the restaurant’s owner the last 12 years, described the marketplace as difficult and strange. Regardless, she said she is not going anywhere if she can help it.

“Just tell me what I need to pay and I’ll pay it,” she said, adding that management did offer her a $50 rent decrease. Her response: “Are you kidding me — in this economy?”

The restaurants are busy, she said, but retail is hurting. She is also one of many who say prospective tenants are not getting callbacks on lease inquiries, which is fueling rumors the marketplace is closing down.

Mark Myers, owner of Trees Lounge in a neighboring retail center, said he contacted management but never received a response to his offer to lease the marketplace’s empty south side parking lot on Friday and Saturday nights.

“Someone showed up at Trees once,” he said, “took some notes, and I never heard anything again.”  

Juliet Kaohelaulii, a current tenant and owner of Sole Mates shoe store, said things have improved since Borders bookstore’s former manager joined CBRE’s on-site management staff.

“She tends to come by and say hi,” Kaohelaulii said. “I think it has gotten better and will get better. They are listening a little bit more.”

Seven years ago, Kaohelaulii bought the shoe store, which has been in the marketplace for 17 years. It has been a struggle, she said, especially over the last few years, but she tries to keep an optimistic outlook.

“Me and my husband and kids all work harder than ever before,” she said, “but if you don’t have bad times, you won’t know the good times.”

Like so many other tenants, she said she was frustrated by management’s lack of communication and the center’s absentee ownership.

However, Coconut Marketplace’s owners are not just absent; they are unknown.

Owners are a mystery

During March 2007 — and probably unbeknownst to Coconut Marketplace’s previous owner Wilcal Kaua‘i, a foreign LLC — Credit Suisse bundled the center’s $32 million mortgage into a commercial mortgage-backed security, or CMBS, made up of 238 fixed-rate loans on 278 multifamily and commercial properties throughout the U.S., all underwritten by Key Bank.

The total loan balance of the security, or pool of mortgages, was $2.503 billion in May.

Investors in the security own the mortgage notes. The security’s investors may be any number of people or entities, from your rich Auntie Millie to your company’s retirement fund to Iceland. They are anonymous investors who own a piece of the security called CSMC 2007-C3 Kapa‘a Retail LLC.

In the first half of 2009, Wilcal Kaua‘i forfeited its debt obligation via deed in lieu, thereby reverting ownership of the marketplace to the security’s investors. This is what makes the current owners of Coconut Marketplace a mystery, and it will remain such until all of the security’s investors agree to release the property from the mortgage pool by selling it.

LNR Properties Inc. is the special servicer of the mortgage pool in which Coconut Marketplace’s debt was placed. LNR manages the assets that comprise asset-backed securities, or ABSs, on behalf of security investors.

LNR Partners is the largest special servicer of CMBSs, ABSs and collateralized debt obligations in the country. Its 2007 portfolio serviced some $277 billion in collateralized loan obligations. 

After the Coconut Marketplace’s 2009 foreclosure, LNR contracted CB Richard Ellis to manage the center.

The first thing CBRE did was start making improvements, Sykes said.

“They wanted upscale Asian tourists,” she said. “We said, ‘Why don’t you do tropical landscaping?’ They never attracted the market they wanted. They did do a lot of marketing. I really hope it doesn’t become another Coco Palms.”

Future uncertain

LNR Property Senior VP Kevin Hanson declined an opportunity to comment about tenants’ complaints and did not respond to questions concerning the property’s future.

CBRE’s on-site property manager, Stephanie Ano, said her company would not allow her to comment.

“It’s not unusual for retailers in this economy to negotiate lower rent,” said Joe Haas, senior managing director of CBRE for Hawai‘i, in an interview last March. “When tourism is off, it’s really painful.

“What typically happens is when the market turns, (property managers) can’t maintain the property the way it should be. The servicer then asks should I hold it or try to sell it. I’m not aware of any effort to sell (Coconut Marketplace). They’ll probably decide to update it and release it at some point,” he said.

“It needs restructuring and repositioning, no doubt. Right now, it’s not in good health. When you don’t have a single owner, it makes it difficult,” Haas said. “Coconut Marketplace will be fine. In the meantime, there will be casualties.” 

He declined to comment on matters related to the tenant rent strike, complaints of poor site management or its client LNR.    

Coconut Marketplace comprises 66,000 square feet of retail space on 7.6 acres. According to a Kaua‘i County property tax assessor’s 2011 report, the building’s value is $11.15 million and the land’s value is $7.13 million. The total $18.28 million assessment is more than $13 million shy of its $32 million mortgage, indicating that the property may be severely under water.

The leasing arm of CB Richard Ellis said current retail rents at the marketplace are $2.50 to $3 per square foot; there are no plans for renovations; and occupancy is about 50 percent, although “the most recent report is not available.”

A stroll through the center on Thursday revealed there are more than 50 empty retail spaces, the majority of which are on the south end of the complex.

The average asking price for retail rents on Kaua‘i ranges between $2.95 and $4.91 per square foot, according to a CBRE first quarter Hawai‘i commercial real estate report. 

CBRE still lists all eight vacated businesses on its directory of Coconut Marketplace shops. Employees at marketplace stores on Thursday said visitor traffic remains slow, but they are hopeful things will pick up this summer.

Next month, The Happy Kauaian will become the ninth retail shop to leave Coconut Marketplace. It is one of two Kaua‘i resort shops that its owner, the Kawakami family, plans to dissolve. They cited the general economy as the reason for the closures.

• Vanessa Van Voorhis, staff writer, can be reached at 245-3681 (ext. 251) or by emailing vvanvoorhis@thegardenisland.com.

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