Hawaii Commercial Real Estate: The Hidden Cost of “Good Tenants” (Below Market Rent Explained)

Are you leaving money on the table? Every commercial landlord loves a tenant who has been there forever, pays on time, and never complains. But in Hawaii’s commercial real estate market, owners often confuse a good relationship with good economics.

In this video, Jason Wong, Principal Broker at Island Dragonfly LLC, breaks down one of the most misunderstood issues in commercial property valuation: below-market rent. If a tenant is paying below the current market rent, you cannot simply wake up on Tuesday morning and raise it. A lease is a binding contract. We discuss how the timing and mechanics of increases depend entirely on the lease structure, including scheduled bumps, reopeners, and renewal options.

Federal banking guidance tells lenders to carefully analyze current lease terms, historical rents, and comparable market rents when evaluating income-producing real estate. The market doesn’t just ask what the rent is; it asks what the rent is compared to what the space could reasonably command, and when that gap can change.

For example, if your tenant occupies 10,000 square feet at $4.50 per square foot, but the market commands $6.00, that is a $1.50 monthly difference—or $180,000 a year in lost revenue. If that lease expires in six months, a buyer sees a near-term opportunity. But if there are seven years remaining with predetermined options, that upside is locked in long-term storage. Remember: a loyal tenant is lovely, but buyers still own calculators.

Looking to buy, sell, or evaluate commercial property in Hawaii? With excellence since 2004, we connect global investors with unparalleled local properties.

📱 Connect with Jason Wong (PB, MBA):
Website: https://jasonwong.us
Firm: https://islanddragonfly.com

Disclaimer: Real estate and lease laws evolve. This video is for informational purposes.

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