Lease extension for Hilo mainstay spurs debate

A business that has operated in the Kanoelehua Industrial Area for more than 65 years narrowly avoided its state lease expiring next month.

The Board of Land and Natural Resources approved on Friday a 20-year lease extension for three parcels at the intersection of Kanoelehua Avenue and Leilani Street to Yamada Consolidated Inc., which was first issued a state lease in 1959 for a term of 45 years. Since then, the business was granted a 10-year extension in 2004 and a second in 2014, the latter of which was set to expire next Monday.

Yamada Inc. leases the three parcels as warehouse space to three different sub- or sub-sublessees, including Suisan Foodservice and electrical supplier Rexel USA.

A program by the Department of Land and Natural Resources allows lessees in the KIA to apply for lease extensions if they make certain investments in their properties, in an effort to reverse the dilapidation of the area. While that program began in 2018, the lease extensions have been slow going, with the BLNR only approving its fifth extension in May.

Yamada Inc.’s proposed improvements to the property include a $300,000 repaving project, a pair of $200,000 re-roofing projects, and the installation of 39 ventilation units for about $20,000, with an estimated total cost of about $754,000.

Shellby Yamada, president of the company, told the BLNR that those improvements could be carried out in two years.

However, the BLNR imposed further caveats, requiring Yamada Inc. to close a cesspool on the properties and convert it to a septic tank. At the same time, DLNR Land Division Administrator Russell Tsuji said the lessee’s current $85,800 rent will be subject to a future assessment.

Despite the unassuming nature of the property, the extension provoked a lengthy discussion among BLNR members about extending a lease for the fourth time in a row.

“An 85-year lease, this is what this amounts to, these extensions,” said BLNR Chair Dawn Chang. “An 85-year exclusive lease … I do struggle with this extension, extension, extension.”

Board member Vernon Char noted that despite the properties’ general need for rehabilitation, the main warehouse building is still estimated to have a value of about $2 million.

“If we waited another month, then DLNR would then have the land and a $2 million building, which could then go up for public auction,” Char said.

BLNR member Riley Smith asked whether evicting a tenant would be an acceptable cost for such an action, but Char said eviction is not the same as choosing not to extend a lease.

But Smith, the board’s Big Island representative, pleaded Yamada Inc.’s case and praised the businesses for being good state tenants.

“Suisan and Yamada … have been core businesses in Hilo,” Smith said. “Suisan serves products to all the restaurants. … Yamada is a lessee of lands on Railroad Avenue.”

While the board also noted a previous fault in Yamada Inc.’s management of the properties — at least one of the subleases on the property had lapsed without the DLNR’s knowledge, allowing the sublessee to remain on the property without state approval — Yamada said she has worked to correct that oversight since becoming aware of it.

Char voted against the extension, as did Oahu member Aimee Barnes. Barnes said she believes the properties have more potential value to the state by going out to bid for lessees, and that the current situation with the tenant does not allow the state to capture any of that value.

But Smith once again advocated for keeping the Hilo businesses running, pointing out that East Hawaii’s business economy is not in great shape these days.

“The (Sears) store in Prince Kuhio Mall is still vacant,” Smith said. “J.C. Penny’s never got reoccupied. The Borders store in the Waiakea Center … is still vacant. And so, as much as possible, it’s important that we support businesses that pay employees and add to the tax base. I think on Oahu, it’s much easier to find tenants to reoccupy sites. … But the economy is slower in Hilo.”

The BLNR ultimately voted 5-2 to approve the extension, allowing the lease to extend until 2044.

Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.