A California-based investment firm keen on acquiring distressed real estate in Hawaii has bought most of a nearly empty luxury residential subdivision in foreclosure on Kauai.

Kennedy Wilson of Beverly Hills, Calif., acquired 63 lots and six model homes at the Wainani at Kiahuna subdivision spread around five holes of the Kiahuna Golf Club on Kauai’s South Shore.

The subdivision is one of Hawaii’s starkest examples of how hard the real estate market downfall hit developers of luxury residences largely aimed at wealthy second-home buyers.

Wainani was planned by local development firm Maryl Group in partnership with an affiliate of insurance giant American International Group, or AIG.

The roughly $60 million project was in the early stages of development in 2006 near the height of Hawaii’s real estate frenzy, and plans called for selling 70 homes for about $2 million each.

But after subdivision infrastructure and model homes were completed, only one home was sold for $1.65 million in mid-2008, according to property records.

Central Pacific Bank filed a foreclosure lawsuit against the developer a year later, and the property was auctioned earlier this year.

According to public records, Kennedy Wilson paid about $12 million for the property. Central Pacific was owed about $27 million on its loan.

Kennedy Wilson plans to sell the model homes individually at an auction later this year. The lots are expected to be made available for sale later, though some might be included in the auction.

Mary Ricks, executive vice chairwoman of Kennedy Wilson, said the developer created an attractive, high-quality product that just missed the market.

"They just got caught in a downward-trending market," she said.

Kennedy Wilson is an investment and brokerage firm that has acquired more than 7,000 acres in Hawaii, often from financially troubled owners, over the past two decades.

The company’s holdings include the roughly 2,700-acre Dillingham Ranch on Oahu’s North Shore, parts of which are being converted for sale as residential ranch lots.

Maryl, founded in 1986 as a custom-home builder based on the Big Island, is one of Hawaii’s most active developer and construction companies involved in residential and commercial projects statewide.

Residential projects by Maryl include the Villages at Mauna Lani, Waiulaula at Mauna Kea, Wailuku Parkside, Na Hale o Makena and Hualalai Palms & Fairway Villas.

Wainani was one of several residential projects around Kiahuna Golf Club and the greater Poipu resort area to have been hit by the market slowdown.

The area’s largest project, a 1,200-home luxury resort community called Kukuiula, had no sales last year after halting marketing efforts. That project, led by local development firm Alexander & Baldwin Inc., had 13 lot sales in 2008.

Earlier this year, A&B said it planned to finish construction of a golf course, clubhouse and other amenities at Kukuiula and resume home lot marketing efforts later this year.