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Condo dispute boils over common areas

Developer Jeff Stone and a homeowners association at Ko Olina find themselves at odds

By Rob Perez

POSTED:
LAST UPDATED: 01:36 a.m. HST, Feb 27, 2011


A luxury Ko Olina condominium project has become the setting for a nasty legal fight, triggering multiple lawsuits, allegations of fraud and mismanagement, anonymous threats and the closing of the upscale property's fitness center, lounge and beach bar.

A clear indication of the animosity between some well-heeled homeowners and Ko Olina's master developer, Jeff Stone, is evident next to the lobby : The main bathrooms are locked and roped off, not even available to people swimming in a nearby pool.

The controversy engulfing the Beach Villas at Ko Olina, where buyers paid an average of $1.4 million per condo, is becoming the talk of local real estate circles and recently prompted a Catholic priest to ask his Nanakuli parishioners to pray for justice at the project.

The nastiness escalated this month when a manager for Stone abruptly quit — she had no other job lined up — after she said she received two anonymous threats, one in a cryptic note left on her car at the villas and the other in an evening phone call at home.

"You do not want to work for Jeff Stone," the note warned. "Return to Waikiki before you get hurt. You have 1 week."

The woman, who asked not to be named, reported the incident to police. Stone said he also received an anonymous letter threatening him and his 73-year-old mother, and police were investigating.

Homeowners told the Star-Advertiser they had no idea who was making the threats and said they've tried to be cordial and respectful in their dealings with Stone.

But it's clear that neither side has much aloha for the other, judging by court documents and correspondence between the homeowners association and Stone, whose company managed the project until it was forced out recently.

The association has accused Stone's Resort Management Co. of fraud, misusing association funds and charging two to four times market rates for certain services, often using other Stone companies to do the work, according to court documents. An auditor the association hired found more than $750,000 in questionable charges, the documents show.

"Unfortunately, this pattern of behavior — misinformation, distorted suggestions and outright lies — from Mr. Stone's companies is common," the association wrote in one court filing.

Stone denied the allegations, saying in an interview and in correspondence with homeowners that the project's budgets were approved by the developer, Centex Homes, that all expenditures have been accounted for, and that a group of disgruntled owners has been attacking his character and misrepresenting facts in a smear campaign.

"This dispute really boils down to a difference of vision and intent of the project: a run-of-the-mill condominium or a first-class luxury resort operated by professional management," Stone said in an e-mail to the Star-Advertiser.

The ugliness punctuating the ongoing fight belies the opulent, tranquil image that officials are trying to nurture for the entire Ko Olina development, one of the more exclusive resort destinations in the state. It already has a top-flight hotel, championship golf course and other high-end amenities. Walt Disney Co. is scheduled to open a luxury project across from the Beach Villas this year.

"This would be a dream place — if not for this (controversy)," said Wlodek Bugajski, a Boston stockbroker who owns a unit at the Beach Villas.

AT THE HEART of the dispute are the facilities designed to serve the Beach Villas' 247 residential units, split between two mid-rise buildings just off Ko Olina's second lagoon. Lush grounds connect the two structures.

Many residents who bought into the condo project, touted as a world-class luxury development when it opened in 2008, said they believed the swimming pools, fitness center, lounge, lobby, gardens and other common facilities would be owned by the homeowners association, much as they are in most other condo complexes.

More than a dozen homeowners told the Star-Advertiser that the sales people representing Centex never indicated that those facilities could be owned by a commercial operator someday. Several buyers said their sales person specifically told them that Centex eventually would turn over the common grounds to the homeowners association.

But late last year, after a judge ruled on a federal lawsuit filed by Stone's Ko Olina Resort Development LLC against Centex, the builder sold the lobby, lounge, fitness center and beach bar to Stone's company for $1.

Stone is appealing to gain even more assets.

The association was left with ownership of the pools, gardens, open space and parking lots.

"We all pretty much feel deceived by what's occurred," said Colorado resident Veronica Grier, who along with her husband, Sam, purchased a Beach Villas unit in 2008.

"Basically, we've been duped," agreed California resident Amy Sue, who with her husband, Ed, owns one unit outright and a second one with a partnership.

The Sues, like many other owners the Star-Advertiser interviewed, said they never would have bought into the project had they known the association would not own and control the common areas.

"Why would you pay over a million dollars to just get that little apartment?" Ed Sue said.

But Stone said the sales documents the buyers received from Centex clearly stated that the so-called limited common areas could be turned over to a commercial operator, and that the plan all along was for his company to get ownership.

Controlling those assets was essential to bringing in a brand-name company to operate the property as a world-class luxury resort, consistent with the rest of the Ko Olina community, Stone said. At one point, Ritz-Carlton was planning to do that, he said.

Stone dismissed the owners' claims of being misled as buyer's remorse, saying they were embarrassed because they hadn't carefully read the sales documents.

"They don't seem to want to acknowledge that they bought something and they might not have done their homework," Stone said.

After a group of homeowners threatened to sue Centex for fraud, the builder reneged on the agreement to sell Stone the limited common areas, he said, prompting his company to file its lawsuit.

Asked whether buyers were fully informed about their purchases, Jacque Petroulakis, a spokeswoman for PulteGroup, parent company of Centex, said, "We believe there were appropriate disclosures in sales documents and public reports for the community." She declined further comment, citing the litigation.

Since Stone's company took over ownership of the open-air lounge, fitness center and beach bar, the association has removed its furniture from those areas, and Stone has closed off access while he determines his next move.

He said he is willing to lease those facilities to the association for about $750,000 a year or would consider a purchase offer. If neither of those options pan out, Stone said he would come up with a new use — something homeowners fear could result in a commercial enterprise open to the public.

The association also cleared its furniture from the lobby, also owned by Stone, and homeowners no longer have access to concierge services there.

More than 200 of the 247 units' owners voted to make changes to the project's governing documents to give owners more say in future plans, according to those pushing for the amendments. But the changes are on hold because of a pending court case.

Some homeowners support Stone's plans and say they were aware of them, including the commercial operation of limited common areas, when purchasing their units.

"Nobody kept any secrets from us," said California resident Steve Polito, who with his wife, Sara Carter, owns two units at the villas. "A lot of us knew what we were buying into."

No matter what side they're on, Beach Villa owners are hoping for a rebound in their condo values, dragged down by the sluggish real estate market and discounting by Centex. Some units last year sold for well under $1 million. When the development first went on the market, a few units commanded prices as high as $3 million.

The longer the Beach Villas dispute continues, the more it will cast a cloud over the project, potentially affecting values, real estate professionals say.

"It has a really negative impact," said Realtor Pat Choi, who specializes in high-end deals but does not handle Ko Olina properties.

Choi said she was familiar with what's been happening at Beach Villas because people in the industry have been talking about it.

Homeowners interviewed by the newspaper said they enjoy living at their condos — many part-time — despite the ongoing controversy.

"If the legal issue wasn't there, we'd be tickled pink," said California resident Wallace Woo, who bought a unit in 2009.

Until the fighting ends, though, Beach Villa owners are bracing for more frustration.

"It doesn't give you a warm and fuzzy feeling," Woo said.






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