Developer cries foul in Aloha Tower spat

A dispute over control of Aloha Tower Marketplace has escalated between the developer who bought the downtown waterfront retail complex about a year ago and his financial partner, Hawaii Pacific University.

Developer Ed Bushor retained high-profile Hawaii criminal defense attorney Michael Green and is alleging that the largest private university in the state fraudulently seized control of the marketplace.

Green made the allegations Thursday at a meeting of the Aloha Tower Development Corp., a state agency that owns the land under the 165,000-square-foot open-air retail center fronting Hono­lulu Harbor.

“They just stole this project from us,” Green told agency board members. “It’s called fraud.”

Bushor, through Hawaii Lifestyle Retail Properties LLC, negotiated to buy the marketplace for $14 million in December 2011. HPU put up the money for the purchase. Bushor’s plan was to renovate the property, which last year was 70 percent vacant, and fill up large amounts of empty space with new retail tenants as well as student dorms and other amenities for HPU.

The plan envisioned that students and faculty would help generate business for commercial tenants in the complex, which is anchored by Hooters and Gordon Biersch Brewery Restaurant but has struggled with poor occupancy for most of its roughly 20-year history.

Bushor crafted the redevelopment plan with HPU as financing partner, occupant and 80 percent owner. But HPU executed a contract provision to buy Bushor’s interest for $5 million in October, and in November removed Bushor as project manager.

Bushor has objected to both moves, and the dispute is in arbitration.

Meanwhile, HPU wants to proceed with redevelopment but needs consent from the state agency to assume management and ownership.

The agency deferred action on the request after Green argued that the agency has not been made aware of all the facts surrounding the takeover.

In a Jan. 2 letter sent to deputy attorney general Gregg Kinkley representing the agency, Green said the agency approved Bushor’s redevelopment plan partly based on his experience and expertise as a developer, and that HPU shouldn’t be allowed to proceed.

Green told agency board members that HPU broke a commitment to finance Bushor’s plan last year and now intends to convert the shopping center into a second campus.

Alan Goda, an attorney representing the university, called Green’s assertions unsubstantiated, and said HPU isn’t going to convert the marketplace into a campus. “The retail component of Aloha Tower is not going to change substantially,” he said. “It’ll be enhanced.”

HPU has previously said that thriving retail tenants are essential to support debt financing for the project.

The university told the agency Thursday that it retained Scott Higa­shi to manage the project. Higa­shi has 20 years of experience in Hawaii’s real estate industry, including AS asset manager for Koko Marina Center and Royal Hawaiian Center.

Carl Strouble, who has been working for a year to establish a sports bar at the marketplace, told the agency that he is concerned about whether HPU’s plan aligns with Bushor’s.

“I have a lot riding on it,” he said.

Under HPU’s $32 million plan, the marketplace would get a new name, possibly Tower District, as well as new retailers and restaurants, dorms for 320 students and a sports and entertainment complex.

Dorms would be created from the mall’s mostly vacant second-story space.

The ground floor would keep its retail focus but also include some classroom space and HPU’s business school.

A sports and entertainment complex, dubbed the Aloha Cultural Theater, would have a spectator capacity of 1,000 to 2,000 indoors and potentially 4,000 using an outside promenade. The facility would feature a basketball court for the university and also serve as a venue for concerts, performing arts and other community events.

The former Hawaii Maritime Center at Pier 7 would be converted to an HPU faculty club and alumni center.

A new parking lot at Piers 5 and 6 is also part of the plan.

Financing HPU’s plan is based on selling tax-free bonds through the state.

The Legislature approved up to $120 million in special-purpose revenue bonds issued by the Department of Budget and Finance on behalf of HPU last year through House Bill 2248, which Gov. Neil Abercrombie signed in July.

HPU plans to spend $32 million on the marketplace project and $28 million on its Hawaii Loa campus in Kaneohe, other downtown facilities and its affiliate Oceanic Institute.

Janet Kloenhamer, HPU general counsel and vice president, explained in November that bond financing will save the university about $60 million in debt payment costs over 30 years.

But to tap tax-free bond financing, HPU as a nonprofit university can’t have a for-profit partner like Bushor, which is why the university elected to buy out the developer’s 20 percent interest.

Green in his letter said Bushor would never have agreed to partner with HPU if the university had disclosed its plan to rely on bond financing. HPU countered that it is exercising options allowed in its contract with Bushor.

The agency has asked for more written documents from Bushor and intends to hold another public meeting on the plan in about two weeks.