A state agency is considering writing off an $805,000 debt from a local company that attempted to manufacture low-cost steel framing for affordable housing with state assistance.
The debt stems from unpaid rent on a state-owned warehouse in Kakaako leased to Rosette Steel Hawaii LLC in 2005 and 2006.
Officials with the Hawaii Community Development Authority, which owns the warehouse, deem the debt uncollectable given that Rosette is out of business and without assets. The agency is seeking approval from its board of directors to write off the debt at a meeting today.
HCDA asset manager Richard Kuitunen said the move is part of normal accounting, but the agency opted to seek board approval given the size of the debt.
Rosette, headed by local businessman Kevin Andrews, began leasing the warehouse in August 2005 with plans to produce steel framing. The company bought a computerized machine to produce framing materials but was counting on $10 million in low-interest revenue bond financing arranged through the state to help fund operations.
Legislative committees in the House and Senate passed a bill in early 2006 authorizing Rosette to use the state’s power to float low-interest bonds for sale to private investors, but House Bill 3077 was derailed toward the end of the session.
Andrews said he tried to raise replacement financing but failed. "They shelved the revenue bond bill, and we were stuck," he said. "We begged and pleaded with the state, but nobody wanted to help."
Delays in obtaining orders also contributed to the company’s failure, but Andrews said the bond sale would have sustained Rosette through its rough start.
Kuitunen said Andrews had a good idea and even produced a prototype cabana-style building for homeless transition housing, but that the agency had a fiduciary responsibility to collect rent.
Rosette paid rent for roughly seven months, which at about $47,000 a month generated $350,000 for HCDA, according to Kuitunen. But then the company ran into financial trouble. HCDA agreed to a promissory note for $341,000 in rent in the hopes of Rosette rebounding, but the company racked up another $116,000 in unpaid rent before filing for bankruptcy in September 2006, according to the state.
The balance of the $805,000 – $348,000 – is interest and penalties.
No debts were forgiven or repaid through bankruptcy, because Rosette didn’t file required documents and the bankruptcy case was terminated.
HCDA repossessed the warehouse in October 2006 and since then has leased it to other users.
Kuitunen said the agency considered trying to collect the debt from Andrews, who owns Plant Research Corp., a Waimanalo-based company that produces swizzle sticks and other products made from sugar cane. But the state Attorney General’s Office advised against that.
Andrews said he lost a personal investment of $3 million in Rosette. He said he still believes in the idea and had hoped to try again through a company he formed in June 2007 called Blue Star Steel Corp. to manufacture framing in China, though Blue Star isn’t operating.
"I’m going to focus on the sugar business," he said.