A Denver-based company is taking over the partially developed Kukui‘ula luxury resort housing subdivision on Kauai from a partnership led by local firm Alexander &Baldwin Inc.
The $183.5 million acquisition, announced Friday, ends A&B’s epic role stretching back at least 35 years to develop the 1,000-acre property once planted in sugarcane.
A&B and its Arizona-based partner, DMB Development LLC, sold the project to Brue Baukol Capital Partners, a real estate investment firm.
Kukui‘ula is slated for 1,200 homes, and includes an 18-hole Tom Weiskopf golf course, a $100 million private club and spa, as well as a retail center that is being retained by A&B.
About 280 house lots have been sold to date, or 23% of the planned total, and around 125 homes have been built since construction began in 2006.
Chris Benjamin, CEO of Honolulu-based A&B, said in a statement that the company is proud of what its Kukui‘ula Development Co. partnership produced since being formed in 2002, and thanked the more than 200 employees working on the joint venture.
“A&B and DMB have partnered for nearly 20 years in pursuit of our shared vision for Kukui‘ula,” he said.
Over the last two decades, Kukui‘ula has been a challenging project for A&B that followed difficult earlier efforts by the company to develop the sloping area between Poipu and Lawai Valley on Kauai’s southern shore, where A&B had long grown sugarcane.
A&B began to seek approvals for its initial vision for the property in 1985 and a decade later obtained a key state land-use approval allowing for 3,400 homes, a golf course and a marina.
Because Hurricane Iniki devastated Kauai’s tourism industry and economy in 1992, A&B mothballed Kukui‘ula until 1998, and a revised vision emerged with 700 hotel and timeshare units along with fewer homes and no marina.
Sales began in 1999 for an initial 32 residential lots referred to as Koloa Estates and had sold out by 2002, when the equal partnership was formed with DMB, a developer of master-planned communities in Arizona, California and Utah.
The partnership estimated that Kukui‘ula could be finished in 15 to 20 years. But the pace proved far slower.
Early construction involved infrastructure, the golf course and club. The partnership had good house lot sales until the 2008 U.S. recession triggered by real estate and financial market meltdowns that prompted a halt in Kukui‘ula sale efforts for all of 2009 and part of 2010.
Through the end of 2010, 81 lots had been sold for an average price of $1.4 million. The slowdown created financing trouble for DMB, which led A&B to take on a greater partnership stake and share of what at the time was estimated to be a $900 million project development cost.
In 2017, A&B converted itself from a traditional corporation to a real estate investment trust, or REIT, and that created an incentive to get rid of Kukui‘ula because real estate development activities don’t qualify for a tax break afforded to REITs, which are required to convey at least 90% of their taxable income to shareholders.
Most of A&B’s business since its REIT conversion has been earning income from shopping centers it owns in Hawaii. The company is the second-largest retail landlord in the state.
“The sale of Kukui‘ula is an important step forward in the simplification of A&B’s business model and positions us to expand our Hawaii commercial real estate portfolio,” Benjamin said.
A&B expects to receive $110 million to $118 million for its 69% stake in the Kukui‘ula joint venture, after factoring costs and other payments related to the deal, plus $4.7 million as a debt repayment.
Drew Brown, chairman of DMB, said in a statement called Brue Baukol a respected firm to carry on development of a community DMB was proud to start with A&B.
A predecessor to Brue Baukol was established in 2011, and the private equity real estate investment company said it has acquired and developed more than $1.1 billion in real estate assets to date, including residential, retail, hotel, office and industrial property alone or with partners.
