Mall opening pushed back

It will be up to another year before construction starts on a long-planned and delayed regional shopping center in East Kapolei, but the state agency that owns the mall site remains committed to the project.

The Hawaiian Homes Commission voted 7-0 Thursday to give the developer of the project called Ka Makana Ali’i an additional year to execute a lease with the state Department of Hawaiian Home Lands for the 67-acre mall site.

The commission had its commitment for the 1.4 million-square-foot mall tested by some in the community who complained recently that there have been too many delays for the $500 million project announced in 2006 and that the developer, Florida-based DeBartolo Development, should be cut loose.

Six months ago DeBartolo announced that it was increasing the size of an initial phase because of the improving economy and said that if permitting work proceeded smoothly, construction could begin in January on a first phase with a department store, cinema, hotel and 75 retailers and restaurants.

Permitting, however, along with tenant leasing and financing, hasn’t progressed as anticipated, leading DeBartolo to seek more time before executing a lease that would start paying DHHL $3.5 million to $4.7 million a year over the first 10 years of a 65-year lease.

Now DeBartolo expects to start construction on the mall’s first phase by mid- to late next year and have initial retailers open in fall 2015. Full buildout would make Ka Makana the third-largest shopping center in the state, after Ala Moana Center and Pearlridge Center.

Given its size, Ka Makana could become the single largest job center in the Kapolei region, with 8,000 long-term jobs created by businesses at the complex. But realizing the vision has been set back by the economic downturn and other challenges that led to postponing a lease and paying rent to DHHL.

The one-year extension of what is called a lease option followed a two-year extension granted early last year that expires at the end of this month. An initial three-year option period began in 2008.

The latest extension, being called the last and final one by DHHL, drew opposition from some agency beneficiaries living in homestead subdivisions near the mall site, a state lawmaker representing the area and even a competing shopping center owner.

Rep. Sharon Har (D, Kapolei-Makakilo) urged the commission not to accept another extension and to have the developer start paying lease rent.

"This project is seven years late," she said at Thursday’s meeting. "I have seen a lot of waha nui (big talk) on this project. This project is not pono (right or fair). This developer is not pono."

Hawaiian musician Owana Sala zar put her concern in musical terms. "The song that I’ve been hearing has been going on since 2006."

Russell Kaupu, an attorney representing local developer and Kapolei Commons owner The MacNaughton Group, disputed suggestions that the rival mall owner has opposed DeBartolo’s proposed extension so it can steal retail tenants or take over the Ka Makana project.

"If you are committed, sign a lease," he said.

DeBartolo, which said it has spent $14 million on Ka Makana development work to date, appeared concerned — so much so that it mailed fliers to area residents asking them to testify in favor of the extension.

Before Thursday’s meeting started, the developer also passed out vibrant green shirts that said "Vote ‘ae (yes)" and urged commissioners to approve the extension.

Most public testimony at Thursday’s meeting supported DeBartolo, and much of it came from construction industry representatives and hotel management firm Aqua Hotels and Resorts.

Dan Nishikawa, president of Hawaii operations for San Diego-based developer OliverMcMillian, told commissioners that the economic downturn a few years ago has had lingering impacts on big retail projects, including one by his company in Atlanta that took four years to regain tenant leasing and financing momentum.

"The development industry is fragile," he said.

Commissioner Kama Hopkins asked who else would step up to pay DHHL $1 billion in land rent over 65 years if the deal with DeBartolo is killed.

Lease terms with DeBartolo call for base rent totaling $600 million over 65 years plus tenant percentage rent that could amount to another $400 million. The lease also could be extended to 85 years, putting DHHL revenue well over $1 billion.

Such revenue would be the single biggest source of income for the agency, which is tasked with providing homes for Native Hawaiians and is scheduled to have annual $30 million payments from the Legislature end in 2015.

Under the extension, DeBartolo agreed to pay $1.8 million on Dec. 1. DHHL can keep that money if a lease isn’t executed before the option expires. If a lease is executed, the payment would be adjusted to $100,000 for each month of the option period used.

Previously, DeBartolo has paid DHHL $922,581 for its rights to a lease.

The developer also tentatively agreed to provide money to benefit Kapo lei homesteads as a community benefits package equivalent to 4 percent of base lease rent. DHHL estimated that would amount to $5.5 million over an initial 25 years.

Furthermore, DeBartolo agreed to construct a community park in the nearby Hawaiian homestead community of Kane hili.

Once a lease starts, DeBartolo would pay $3.5 million in annual rent for the initial phase on 50 acres for the first three years. A second phase on 17 acres would add $1.2 million more annually if developed.

The commission agreed to a request by DeBartolo to defer $9.1 million in rent between the fourth and 10th year of the lease and repay it with interest over the following 15 years.

Jobie Masagatani, commission chairman and DHHL director, said in a statement that commissioners showed thoughtful stewardship in their action.

"I’m optimistic about this project and the positive impacts it will have on our programs and our ability to place native Hawaiian families on the land," she said.

Ed Kobel, DeBartolo president, said he was greatful for the commission’s decision and support from DHHL staff and community members.

"A billion dollars to the department is a paradigm shift," he said after the meeting.