The state is moving to terminate its lease with Honey Bee USA Inc., the developer of the Waikiki Landing, a controversial public-private partnership at the Ala Wai Small Boat Harbor, for nonpayment of more than a quarter-million dollars in back rent.
The state Department of Land and Natural Resource’s Division of Boating and Ocean Recreation entered into a development agreement in 2009 with Honolulu attorney Keith Kiuchi and his former partner, Kyoto-based Hideaki Shimakura.
The agreement was for the redevelopment of two parcels at the Ala Wai Small Boat Harbor covering 53,568 square feet. Shimakura is a developer who races yachts in Hawaii and Japan.
Honey Bee was issued a 65-year lease, which commenced on Jan. 1, 2014, for an annual minimum base rent of $821,652 per year, with periodic rent increases through the first 30 years.
But the project has been fraught with difficulties.
According to a 2010 draft environmental assessment, Honey Bee orignally planned to spend $9.7 million constructing two buildings that would put two wedding chapels at the harbor, add commercial space and replace an existing fuel dock, convenience store and a boat repair business formerly operated by Ala Wai Marine Ltd. That plan met with opposition from surrounding Waikiki residential and boating communities and the Waikiki Neighborhood Board, which questioned whether a wedding chapel was the right fit for the maritime neighborhood and sought more resources dedicated to improved boating facilities and services.
The developer introduced several mixed-use concepts before finally settling on one in 2012 that more than doubled the original cost. The expanded project would include a boat repair facility and fuel dock combined with restaurants, entertainment venues, wedding chapels and space for the U.S. National Kayak Team. The three-building plan, which included 44,153 square feet of leaseable space and a 17,000-square-foot boat repair dock with parking, increased development costs to about $33 million. This more popular development was expected to begin construction in May 2012 with a targeted opening of March 2013.
Nearly two years later, with 96 percent of the development leased to retailers and other businesses, construction still hasn’t started and Honey Bee owes the state $280,719 in past-due lease rent.
Keith Chun of the Division of Boating and Ocean Recreation said in an email on Tuesday that the division plans to present its recommendation for ending the lease to the Board of Land and Natural Resources at an upcoming meeting.
"While termination of the lease would certainly be unfortunate, the development agreement and lease were mutually beneficial to both (the boating division) and Honey Bee until Honey Bee encountered its financial difficulties."
The project had been touted as having the potential to generate more than $900,000 a year for the state and more than $200,000 in annual city property taxes — a pilot for privatizing state harbors to raise money for deferred maintenance and upgrades.
New city zoning and state legislation paved the way for the planned complex, which was designed to serve as a hub for boating and ocean activities. Since 2010, Honey Bee has paid the state more than $1.1 million in rent and development fees. The company also cleared the property, removed contaminated soil, razed a dilapidated building, secured various land-use entitlements and approvals, and obtained city permits.
But the project has been adrift since Kiuchi missed his June 2014 lease payment, subsequently informing the state that his equity partner had reneged on a $25 million loan commitment. In July, Kiuchi told the Honolulu Star-Advertiser that his principal investor, Shimakura, had failed to secure the financing, but he was relying on boat slip rentals and five smaller equity partners to meet costs.
Kiuchi said he had four solid loan prospects and hoped to begin construction in August. While Kiuchi was able to clear the June debt, he again fell delinquent on his lease rent in October.
Chun said the boating division has met regularly with Honey Bee to discuss the developer’s efforts to secure funding. Honey Bee provided information on several potential investors and lenders, he said, "but since there were no firm written commitments between Honey Bee and the investors/lenders, there were no firm proposals for (the boating division) and the Board of Land and Natural Resources to approve or disapprove."
After Honey Bee failed to make its November 2014 lease rent payment, Chun said, the boating division issued a notice of default, demanding that Honey Bee settle all defaults or face termination of the lease.
Dale Rak, a consultant for the Honey Bee project, said the debt should be resolved by Tuesday or Wednesday, with full project financing forthcoming.
"He’s got several interested lenders, with one particularly attractive offer for a $34.5 million loan from a fiscally strong lender who is willing to do the deal without taking an equity position," Rak said.
Kiuchi said Wednesday that he had talked with Chun and that the boating division would not pursue lease termination if he were able to clear his debts.
"They haven’t put it on the BLNR agenda so at this point, this is a non-story," Kiuchi said.
But many in the surrounding community say that’s simply not the case, as uncertainty over the project has left them without a fuel dock or boat repair service and with a perpetually ugly construction site.
"Right now what are we left with? Fewer facilities than when this project started," said Waikiki Neighborhood Board member Jeff Merz, who is an urban planner. "We’ve got no fuel dock, less shoreline and a big vacant lot. At least before we had marginally functional facilities."
Merz said the state should take swift action to sort out its partnership.
"Going back to the drawing board could mean years of suffering through the status quo," he said. "If they put the project through another (bid) process, it could easily take two or three more years. This is a matter that they shouldn’t delay."
Rick Egged, president of the Waikiki Improvement Association, said he hopes the state realizes the urgency of getting the issue resolved.
"The Ala Wai Small Boat Harbor is in such poor shape. I’m a big supporter of making improvements," he said. "While I’m not advocating that they yank the lease, I hope that they will consider the boating committee and Waikiki and get this resolved quickly."
Jeff Hossellman, a 30-year boater and retired attorney, questioned the state’s competence in choosing to partner with Honey Bee, an unknown Japanese corporation, when other local developers with maritime experience were interested and available.
"All I can say is our state government is incompetent. Unfortunately, next time they’ll probably pull out some clown from China. If we continue on the same path, they’ll get the same results and we’ll be without services indefinitely," Hossellman said.
The continued absence of a fuel dock and boat repair services, he said, is an embarrassment for the state’s largest recreational harbor and a safety concern for its boating community.
