KIHEI - Developer Doug McLeod is hoping his "lack of ambition" and decision to build on a small scale will help him get through the current rough patch in commercial real estate.
Things appeared much different when he began planning to develop the last lot in the Kihei Franks subdivision three years ago.
Now the small (6,200 square feet of rentable office space) building on Waiwai Place is just about finished, and McLeod is looking for tenants, who are scarce.
It is the second small building he has put up since moving to Maui. The first is at the corner of North Market and Vineyard streets in Wailuku. That project has no vacancies.
"If I had had the slightest bit of ambition, I'd probably be dead in the water," said McLeod, pointing out that a large project would likely be left without tenants but with heavy carrying charges in the current market. "My lack of ambition probably saved us."
Location isn't everything in real estate. There's also timing.
"When we started three years ago, I never thought it would take this long," said McLeod, whose Kihei project went through the time-consuming process of getting a special management area permit.
In prospecting for sites, McLeod made a choice. He could have bought a lot at the Maui Research & Technology Park, which has a fast-track permitting provision but also restricts the kinds of businesses allowed. He chose the Kihei Franks light-industrial area, with more flexibility but also within a coastal area that requires an SMA permit for development.
Getting the permit within the coastal zone "adds quite a bit of time" to the development schedule, he said.
He put up a two-story structure, with an unusual feature, basement parking.
McLeod said he has had some prospective tenants look at the property but so far "nothing I am counting on."
Although he started the project for the long term - he says it is for his daughters - he was not counting on carrying the expenses himself.
"I'm a turnaround capitalist kind of guy," said McLeod, but "the math you do when you start a project is different."
Since the project is small, its costs are not huge. It all figures in the economies of scale, a point Grant Howe of Commercial Properties of Maui, who is his broker, makes.
For a small tenant needing 1,000 to 1,500 square feet, Maui land costs make developing on your own prohibitive. It really doesn't pay to build much less than 5,000 square feet.
But by doing such things as buying eight air conditioners rather than just one, McLeod said he realizes cost savings and delivers a higher quality space for the same overall expense. Somewhat counterintuitively, more air conditioners consume less energy and are thus cheaper to operate, McLeod said. The high-efficiency units he bought - with volume discount - are not available in larger sizes.
McLeod said he remains optimistic about commercial property.
"I'm long on real estate on this island," he said.
* Harry Eagar can be reached at heagar@mauinews.com.
