News Column

Waikiki Landing project adrift after losing loan

July 2, 2014

By Allison Schaefers, The Honolulu Star-Advertiser

July 02--The Waikiki Landing, a controversial public-private partnership to develop a commercial and boating-services complex at the Ala Wai Small Boat Harbor, has lost its major funder, leaving developers scrambling to find 11th-hour financing to meet contract obligations.

Supporters herald the proj­ect, which has been touted as potentially generating more than $900,000 a year for the state and more than $200,000 in annual city property taxes, as the pilot for privatizing state harbors to raise money for deferred maintenance and needed upgrades. New city zoning and state legislation paved the way for the planned $33 million complex designed to serve as a hub for boating and ocean activities.

But Keith Kiuchi, a Hono­lulu attorney and proj­ect developer, told the Hono­lulu Star-Advertiser last week that a $25 million loan commitment has fallen through and that the developers are a month behind on their lease rent to the state. Still, he remains hopeful that the proj­ect will proceed.

Waikiki Landing, a partnership between the state and Honey Bee USA Inc., had a bumpy start in Wai­kiki, with some boaters criticizing the impact on their community and some residents questioning the extreme mixed-use concept: a boat repair facility and fuel dock combined with restaurants, entertainment venues, wedding chapels and space for the U.S. National Kayak Team. But most objections seemed to dissipate by March when the company unveiled its latest plan to construct three buildings, including 44,153 square feet of leaseable space and a 17,000-square-foot boat repair dock with parking.

"People hated the project at first, but they made changes and once the company started clearing land, the community seemed to accept it," said Wai­kiki Neighborhood Board member Jeff Merz, an urban planner who lives near the proj­ect. "The area is run-down and there's been crime. People understood that we needed something to energize the location.

"Now to be told that it could stay a big empty construction site for a longer period ... the community won't like that."

Kiuchi said he believes the proj­ect is still viable even though construction has yet to start on a fuel dock and boat repair facility that the master lease requires Honey Bee to complete by June.

Kiuchi began as the proj­ect's legal representative and became its primary driver after learning in March that a Singaporean-based hedge fund had breached a $25 million loan commitment to his client, former Honey Bee principal Hide­­aki Shi­ma­­kura, a Kyoto-based developer and yacht racer. Kiu­chi said Thursday that Shi­ma­­kura is "still interested in the proj­ect and trying to do what he can on his end to find financing." Kiu­chi said he has four solid loan prospects and hopes to have a $24 million loan commitment by the second week of July.

"The brokers are optimistic and so am I," Kiu­chi said, adding that he is relying on boat slip rentals and about five equity partners, including himself and Shi­ma­kura, to meet current costs. If lenders come through, Kiu­chi said construction could begin in mid-August, giving developers enough time to meet master lease deadlines. In the meantime he's working to keep the 65-year ground lease that the state Department of Land and Natural Resources issued in December.

"At that point we'd only be about three months behind our most recent schedule," he said.

Kiuchi said he and other minority investors are serious and have been paying the state around $37,000 a month in land and water rent since January. However, he acknowledged that Honey Bee missed its June deadline when monthly rent rose above $70,000.

"We're planning to make the payment as soon as we get our new loan," Kiu­chi said. "DLNR wants us to get our financing in place sooner rather than later."

DLNR officials said they have been meeting weekly with Honey Bee, which has made substantial investments, to move toward setting a proj­ect start date. "Honey Bee spent approximately $3 million on entitlements, and it took about five years to get to this point," said Debo­rah Ward, DNLR spokes­woman.

She said Honey Bee has told DLNR it plans to pay its back rent by next week. She said the state does not have the right to terminate the lease as long as Honey Bee complies with the terms. However, Ward said, if the lease has to be terminated, DLNR could issue another request for proposal quickly.

"If another (request for proposal) were to be issued, actual development could occur in a much shorter time period since the land use entitlements and approvals have already been obtained, the property has been cleared and graded, environmental issues have been addressed, foundation testing has been done and the parcels have been legally subdivided," she said.

Ward said that DLNR has benefited regardless of whether the proj­ect can be saved. Since 2010, Ward said, Honey Bee has paid the state more than $865,000 in rent and development fees, which alone exceed the previous rent from boatyard repair and fuel dock sites. She said the company also cleared the property, removed contaminated soil, razed a dilapidated boatyard building, secured various land use entitlements and approvals, and obtained city permits.

"All of this was done at Honey Bee's expense ... and at no cost to DLNR, the state or the taxpayers," she said.

Some members of the neighborhood board and boaters say they still want to know why the proj­ect has dragged while the state's largest recreational harbor has been without boat services for five years and without fuel for about a year.

"There shouldn't have been any loss of economic opportunities for local businesses, including jobs that provided essential services to recreational boaters -- given the fact that the boatyard's 35-year lease that ended in 2004 was no sudden surprise," said Bruce Lenkeit, who lives in a condominium near the site. Instead, former Gov. Linda Lingle's goal to upgrade the Ala Wai Harbor into a world-class facility has turned into a lost decade, he said.

Critics note that the Honey Bee proj­ect appeared shaky from the start. Indeed, everything from its name to its size, delivery date and even its principals has changed since Honey Bee filed a draft environmental assessment in 2010 with details of its original $9.7 million plan to develop two parcels by March 2013.

As time passed and costs went up, it likely became more difficult for Honey Bee to sell financiers on the proj­ect, said Wai­kiki-based retail analyst Steph­any Sofos.

"When you are dealing with a hedge fund, it's all about the bottom line. You've got a situation where globally a lot of people are pulling back on investments, and this one has a lot of onerous requirements and a pretty steep ground lease, meaning that the developer has to charge pretty hefty rents," Sofos said.

Kiuchi said he has a long list of tenants, including food concepts Hawaii Nui and Mehana Brewery, Luna Kai steakhouse and Tiki Town; activity providers such as Roberts Hawaii and Hawaiian Surf Adventures; and retailers including the Desigual clothing line. Gloria Bridal and Tutu USA will run wedding chapels, he said. "I've only got one space left, the second floor of our Net House," Kiu­chi said.

Given market conditions, Sofos said, the state should compel Honey Bee to get the proj­ect done quickly or find another partner. "The market is hot right now, but it appears that it could be softening. They need to get a strong anchor tenant and move before everything changes," she said.

Moving forward also is in the community's best interest, said Jeffry Hossellman, a retired attorney and longtime Ala Wai boater. "This strikes me as a real big mess. The fuel dock is vacant and the weeds are growing up. People are getting angry. You've got old retirees lugging fuel cans and lots of visitors and residents who have been inconvenienced," he said.

Ward said DLNR tried to bring in a fuel truck, but sales were too marginal for the vendor.

Kiuchi said he hopes to have the fuel dock operable and its second-floor wedding chapel by June. The boat repair facility, which would be run by Herb Fuller of 808 Boats, and the restaurants and activities should open in August or September 2015, with the Ala Moana wedding chapel coming later, he said.

However, Merz and Sofos, who are familiar with Hawaii's real estate and building industries, question whether Kiu­chi's expectations are realistic given the tight construction market and the complexities of his deal.

"You'd have to assume that everything is going to go as planned, and that generally doesn't happen in Hawaii," Merz said.

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(c)2014 The Honolulu Star-Advertiser

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Source: Honolulu Star-Advertiser (HI)


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