A U.S. Bankruptcy Court judge confirmed a plan Monday to restructure massive debts on the stalled Hokuli’a luxury home subdivision on Hawaii island, clearing the way for sales and development to resume at the $1 billion project.
Bankruptcy Judge Robert Faris confirmed a plan by Hokuli’a developer 1250 Oceanside Partners and two affiliates to emerge from Chapter 11 and reorganize nearly $670 million in debts.
Most of that sum — $627 million — stemmed from loans made by the Bank of Scotland and was secured by subdivision assets that include hundreds of unsold lots at the oceanfront project on 1,540 acres anchored by a Jack Nicklaus golf course.
Two investors, one of whom is the chairman of Walmart, acquired the Bank of Scotland debt in late 2012 for an undisclosed price and initiated the bankruptcy case in a move to take ownership of Oceanside.
Under the reorganization plan, the former Bank of Scotland debt is reduced to $40 million.
Sun Kona Finance ILLC is the investment partnership that holds this debt and will emerge as Oceanside’s new owner. Sun Kona is owned by William Pope, of California-based real estate investment firm SunChase Holdings Inc., and Rob Walton, chairman of Walmart and son of the retailer’s founder, Sam Walton.
Other creditors including Hokuli’a lot owners and trade vendors claimed that they were owed $40 million but settled for $1.55 million.
Fourteen lot owners had opposed Sun Kona’s reorganization plan but agreed Monday to withdraw their objections and support the plan under the settlement that resolved litigation issues.
"This is a very reasonable resolution," Faris said in court. "I’m very glad to see this matter resolved."
Jim Wagner, a local bankruptcy attorney representing Sun Kona, said the lot owners and vendors stood to get far less than $1.55 million if Oceanside was liquidated because the former Bank of Scotland debt was a priority claim secured by nearly all the developer’s assets.
"There was very little that was not covered by our mortgages," he said.
Another major creditor in the case was Hawaii County, which was supposed to be paid $20 million to finance an extension to a Mamalahoa Highway bypass road.
The county is scheduled to receive the payment a day or so after June 15, when the reorganization plan is expected to become effective. Wagner said development would resume after that and include implementation of plans to build a golf clubhouse and sewage treatment plant.
Development of Hokuli’a in South Kona near Kealakekua Bay has been stalled for six years amid financial difficulties that were preceded by even more years of conflict.
The project was initiated two decades ago by Arizona developer Lyle Anderson in partnership with Japan Airlines to create 730 homes around a golf course and other amenities that included a members lodge, a spa, tennis courts, a beach activity center and a shoreline park.
To permit the project on land classified by the state for agricultural use, Anderson included 200 acres of coffee trees leased to a farm operator for the benefit of Hokuli’a residents.
Hawaii County granted subdivision approval in 1999, and construction began that year.
However, community members sued to stop the project a year later after soil runoff from a rainstorm fouled nearby coastal waters and drifted toward the state marine conservation district at Kealakekua Bay.
In addition to the pollution issue, project opponents alleged that the subdivision violated Native Hawaiian burial law and state land use law governing homes on agriculture land.
A state judge halted construction and three years later issued a decision that called Hokuli’a an inappropriate project on agricultural land.
At the time, in 2003, Oceanside had completed an 18-hole golf course and sold 243 house lots for a collective $223 million.
Oceanside appealed. But before the appeal was decided, the developer settled with plaintiffs in 2006. The settlement let the project move forward in return for a package of community benefits that Oceanside estimated was worth more than $100 million.
The benefits included 168 affordable homes, $3.2 million for local nonprofits, expanding conservation and park areas, reducing the number of house lots to 665 and eliminating plans for the members lodge.
Some lot sales were made in 2007, but then the economic downturn took hold and sales were suspended in January 2008 after the Bank of Scotland declared that about $950 million it had loaned to Oceanside and other Anderson projects outside Hawaii was in default. Anderson was later ousted from control of Oceanside.
Oceanside’s bankruptcy ranks as one of the largest Chapter 11 cases in Hawaii history, based on total debt. By comparison, claims grew to $573 million in the 2003 bankruptcy of Hawaiian Airlines. Other big cases included the 2002 case of development firm Amfac Hawaii LLC where estimated debts totaled $325 million, and the 1998 case of Hawaii department store chain Liberty House with $248 million in debts.
