A creditor in the controversial and incomplete $1 billion Hokuli‘a luxury home subdivision on Hawaii island has put the project in bankruptcy with the aim to repay other debts and restart development.
Hokuli‘a’s developer, 1250 Oceanside Partners, was placed into Chapter 11 reorganization Thursday by a California investment firm that recently acquired the bulk of Oceanside’s debts, which total at least $685 million.
The investment firm indicated in the bankruptcy filing that it intends to pay at least partial claims of other creditors who are owed at least $57 million, and restart sales and development at Hokuli‘a.
The move stands to revive the roughly 700-unit residential project, which has been idle for five years and has a tortured history that includes lawsuits filed by project opponents, Hokuli‘a homeowners and creditors.
Exactly how Hokuli‘a debts are reorganized will be determined in U.S. Bankruptcy Court in Honolulu.
Some of the largest creditors with claims not secured by Oceanside assets include Hawaii County with a $20 million claim, Ackerman Ranch in Kealakekua with a $13.4 million claim and several Kailua-Kona companies and family trusts owed between $500,000 and $3.5 million.
The case stands among one of the largest bankruptcy cases in Hawaii history, based on total debt.
By comparison, some other big cases included Liberty House in 1998 with debt of $248 million, and Hawaiian Airlines in 2003 where debt claims grew to $573 million.
Oceanside’s assets are somewhere between $10 million and $50 million, according to the filing.
The bankruptcy filing, which also involved two companies related to Oceanside, said a reorganization plan will propose paying creditors more than the liquidation value of their claims and allow development to proceed on Hokuli‘a and a neighboring project called Keopuka.
“The debtors intend to restructure and resolve their secured and unsecured debt … so that development of the Hokuli‘a project can proceed to completion and to enable the future development of the Keopuka property,” the filing said.
Hokuli‘a was initiated two decades ago and was led by Arizona developer Lyle Anderson, who partnered with Japan Airlines to develop 1,540 acres of land zoned for agriculture along the West Hawaii coast with 730 homes, a 27-hole golf course, a members’ lodge, a spa, tennis courts, a beach activity center and a shoreline park.
Anderson attempted to gain a permit for the project on land classified by the state for agricultural use by including 200 acres of coffee trees leased to a farm operator and designated as accessories to the residences.
Hawaii County granted subdivision approval in 1999, and construction began the same year.
But a year later, soil runoff from a rainstorm fouled nearby coastal waters and drifted toward a state marine conservation district at Kealakekua Bay. That prompted community members to sue to stop the project on grounds that included the pollution as well as violation of Native Hawaiian burial law and state land use law.
A state judge stopped the construction, and three years later issued a decision that called Hokuli‘a an inappropriate project on agricultural land.
At the time, in 2003, Oceanside had completed an 18-hole golf course and sold 243 house lots for a collective $223 million.
Oceanside appealed. But before the appeal was decided, the developer settled with plaintiffs in 2006.
The settlement let the project move forward in return for a package of community benefits that Oceanside estimated was worth more than $100 million.
The benefits included 168 affordable homes, $3.2 million for local nonprofits, expanding conservation and park areas, reducing the number of house lots to 665 and eliminating plans for the members’ lodge.
The agreement, along with an OK from the judge in the case, Ronald Ibarra, allowed sales to proceed.
But after some sales in 2007, the economic downturn took hold, and sales were suspended in January 2008 when the project’s main lender, the Bank of Scotland, declared that about $950 million it had loaned to Oceanside and other Anderson projects outside Hawaii was in default. Anderson was subsequently ousted from control of Oceanside.
Amid the ups and downs, Hokuli‘a lot owners sued Oceanside and the county. The county sued Oceanside. The county also sued a neighboring landowner to condemn land for a bypass road in a case that lasted 10 years and produced three opinions from the Hawaii Supreme Court. Yet other lawsuits involved bonds tied to the project and loans connected with lot purchases.
Then in December an affiliate of California-based real estate investment and development firm SunChase Holdings Inc. bought the portion of the bank’s debt related to Hokuli‘a valued at $625 million and assumed control of Oceanside.
A SunChase affiliate proposes lending Oceanside $2.5 million to finance operations.
Craig Pickett, a SunChase executive, is the sole officer of Oceanside and placed the company in bankruptcy. Two companies related to Oceanside, Front Nine LLC and Pacific Star Co. LLC, also filed bankruptcy at Pickett’s direction.
Front Nine’s assets include part of an undeveloped second phase of Hokuli‘a. Pacific Star owns the Keopuka site, which is near Hokuli‘a.
