Financing plan could revive Hokulia
The creditor and debtors of the bankrupt Hokulia luxury development have come up with a reorganization plan they say will revive the long-stalled development and ensure the county gets its $20 million to complete the Mamalahoa bypass.
A hearing on the plan is scheduled for Sept. 16 at U.S. Bankruptcy Court, according to a statement released Thursday.
The investment firm, Sun Kona Finance I LLC, which acquired Bank Of Scotland’s loans late last year, and debtors 1250 Oceanside Partners, Pacific Star Company and Front Nine submitted the joint consolidated plan of reorganization. The debtor entities have $68 million in assets but liabilities of $646 million.
“We have a restructuring plan and financing in place that, once approved by the court, will transform Hokulia,” Craig Pickett, manager of debtor entities for Sun Kona Finance I, said in a statement. “We are anxious to move forward with the development and the completion of the project.”
Pickett said his company is also “keenly aware” of the importance of the Mamalahoa bypass to the Kona community. He said the plan will address Oceanside’s $20 million obligation to the county and assure the funds will be available to complete the road.
Hawaii County Corporation Counsel Lincoln Ashida said the county is “first in line” ahead of other creditors for the money. As a secured creditor for $20 million, it is on the top of the creditor list, with 80 Keopuka lots, valued at more than $20 million, as collateral.
“The commitment of $20 million is exactly what the county has demanded and expected all along,” Ashida said. “The county has made clear at every juncture this issue was not negotiable; we ensured this by acquiring a secured interest in lands to facilitate completion of the bypass.”
“Our earlier acquisition of $12.5 million in cash from Oceanside, together with Oceanside’s reiterated commitment of $20 million is something the county has steadfastly demanded and we expect to receive it,” he added.
In addition to the $20 million pledged for the road, the restructuring plan includes more than $1.5 million in community contributions for affordable housing, drug abuse initiatives and scholarship initiatives.
The plan also addresses protection of cultural and historical sites, access rights and the establishment of agricultural and cultural preserves, said Chief Restructuring Officer G. Rick Robinson.
Phoenix-based developer Lyle Anderson had planned to develop Hokulia in three phases on approximately 1,400 acres. Full build-out was to include about 730 residential lots, a 27-hole golf course and clubhouse, a members’ lodge and spa, a beach activity center, tennis courts and a shoreline park.
Pickett’s 50-page declaration filed with the bankruptcy court outlines the major setbacks to the project from a September 2000 rainstorm that triggered silt runoff into the ocean and the subsequent legal proceedings against Oceanside and the state, referred to as the Kelly litigation, to the September 2003 finding that the county violated state land use law when it approved the project. Parties in the Kelly litigation reached a settlement in 2006, and the 3rd Circuit Court the next year lifted an order that had blocked land sales for four years.
Oceanside was able to sell some lots, court documents said, but worsening economic conditions prompted the primary lender to declare a default in January 2008, which halted sales again.
The restructuring plan includes a $65 million line of credit from Sun Kona Finance to cover debtors’ obligations and operating shortfalls as they move forward to complete the project.
The Hawaii County Council last week learned that the Mamalahoa project, which was supposed to start construction the third quarter of this year, has been delayed until March.
Hawaii County officials have planned for a Mamalahoa bypass in South Kona since the late 1970s. Years of litigation followed when the Coupe family, one of the landowners along the route, sued, saying the county’s condemnation action was illegal because it was done for the benefit of a private developer. Eventually, the county won the lawsuit after the U.S. Supreme Court denied a request to hear the case.