Town-home project in Hawaii County has lender prob­lems

An in­vestor wants to fore­close on part of the Big Is­land res­i­den­tial project

Honolulu Star-Advertiser - - FRONT PAGE - By Andrew Gomes agomes@starad­ver­

For the last six years there have been some nearly fin­ished twos­tory town-home build­ings over­look­ing dis­tant ocean views on Hawaii is­land, but com­plet­ing and sell­ing them has been an or­deal that re­cently be­came more chal­leng­ing.

The roughly 40 town homes are part of a project called Vil­lages of Aina Lea led by a de­vel­oper that ex­pected to cinch a busi­ness merger that would have helped fi­nance com­ple­tion of a stalled ini­tial phase that in­cludes the long-empty homes.

In­stead, a lender is try­ing to fore­close on part of the more than $1 bil­lion planned res­i­den­tial com­mu­nity.

A Chi­nese in­vestor filed the fore­clo­sure law­suit in Jan­uary against Aina Lea Inc., which has four loans in de­fault and needs more cap­i­tal to com­plete its ini­tial phase of hous­ing.

The law­suit was cited re­cently by an­other com­pany as a rea­son it called off a merger that would have pro­vided Aina Lea with money to pay off debt and ad­vance the project, which has been mired in dif­fi­cul­ties for three decades.

Bob Wes­sels, Aina Lea’s CEO, dis­putes that the fore­clo­sure was an is­sue in the failed merger, and said he ex­pects to re­solve the fi­nan­cial dif­fi­cul­ties soon and de­liver the first homes in about six months at the mas­ter­planned com­mu­nity slated for 2,300 homes, a golf course, a lodge and a shop­ping cen­ter on 1,099 acres in South Ko­hala mauka of Mauna Lani Re­sort.

“We will get it re­solved here shortly,” he said.

Libo Zhang, a Chi­nese na­tional, filed the law­suit after Aina Lea failed to re­pay a $6 mil­lion loan that ma­tured in Novem­ber and is se­cured by part of a 61-acre first phase that is to in­clude

384 af­ford­able town homes called Lu­lana Gar­dens, 48 lux­ury con­do­mini­ums and 70 sin­gle-fam­ily house lots. So far, much in­fra­struc­ture work has been done, but only 40 of the town homes are un­der con­struc­tion and close to com­ple­tion.

The de­vel­oper also plans 1,807 lots for lux­ury homes on an­other 1,011 acres.

Zhang’s loan is se­cured by 23 acres slated for the 70 home lots, ac­cord­ing to Wes­sels. “It’s some­thing we need to ad­dress, but it’s not tied to the town houses,” he said.

Be­sides Zhang’s loan, three other Aina Lea loans

are in de­fault, ac­cord­ing to a re­cent fi­nan­cial re­port filed by the de­vel­op­ment firm, which is in­cor­po­rated in Delaware and based in Hawaii. The three oth­ers are a $490,000 loan from Amer­i­can Sav­ings Bank, a $12 mil­lion con­struc­tion loan from a Cana­dian lender and

$14 mil­lion owed to a com­pany that pre­vi­ously owned the de­vel­op­ment site.

This is the sec­ond time the project has been in fore­clo­sure, and presents an­other chal­lenge for the de­vel­oper, which said it has spent $116 mil­lion to date and raised money from more than 1,000 for­eign in­vestors

who were given own­er­ship stakes in the land.

Vil­lages of Aina Lea started off as a res­i­den­tial com­mu­nity planned by Cal­i­for­nia de­vel­op­ment firm Sig­nal Puako Corp., which en­vi­sioned build­ing

2,760 homes along with a golf course and re­tail cen­ter. In 1989 the com­pany re­ceived state ap­proval to con­vert the land from agri­cul­tural to ur­ban use.

In 1991 Ja­panese de­vel­oper Nansay Hawaii Inc. ac­quired the project and re­cast it for six golf cour­ses and 1,550 homes be­fore fal­ter­ing amid Hawaii’s flag­ging econ­omy in the early 1990s and los­ing the prop­erty through fore­clo­sure in 1998.

Bridge Aina Lea, an af­fil­i­ate of U.S. Vir­gin Is­lands­based real es­tate and lend­ing com­pany Bridge Cap­i­tal, bought the project site in 1999 and worked to amend the de­vel­op­ment plan along with an af­ford­able-hous­ing con­di­tion.

The state re­quired that 60 per­cent of all homes be af­ford­able to mod­er­ate-in­come buyers. But Bridge Cap­i­tal said that wasn’t achiev­able for its 2,300home plan, and was able to ob­tain a re­vised 20 per­cent re­quire­ment from the state Land Use Com­mis­sion in 2005, which meant build­ing 385 af­ford­able homes in­stead of 1,300.

As part of the new agree­ment, the LUC im­posed a five-year dead­line to de­liver the af­ford­able homes, which Bridge Cap­i­tal said would be priced around $200,000 and help sat­isfy heavy de­mand for work­force hous­ing.

Bridge Cap­i­tal ex­pected to fin­ish in three years but en­coun­tered per­mit­ting de­lays, in­clud­ing a new re­quire­ment in late 2007 to pro­duce an en­vi­ron­men­tal im­pact state­ment in the wake of a le­gal rul­ing tied to the Hawaii Su­per­ferry. Then a global fi­nan­cial crisis hung up fi­nanc­ing.

Wes­sels and his firm pre­vi­ously known as DW Aina Lea De­vel­op­ment LLC joined Bridge Cap­i­tal in 2007 to help de­liver the af­ford­able homes, and two years later bought the 61-acre first phase of the project. But the dead­line wasn’t met, and the LUC re­scinded its lan­duse ap­proval in 2011.

At the time, Wes­sels claimed that $25 mil­lion had been spent on de­vel­op­ment, largely on in­fra­struc­ture. Also, about 32 town homes were sub­stan­tially com­plete, though they lacked roads or util­i­ties.

Lit­i­ga­tion en­sued, and the Hawaii Supreme Court ruled in 2014 that the LUC was wrong to re­scind its ap­proval.

Bridge Cap­i­tal had sought $15 mil­lion in dam­ages but ne­go­ti­ated a $1 mil­lion set­tle­ment with the state after the court rul­ing.

Wes­sels said the LUC de­ci­sion stalled con­struc­tion and in­hib­ited the com­pany’s ability to raise fi­nanc­ing. Aina Lea has lodged a more than $200 mil­lion dam­age claim with the state that is out­stand­ing.

In the last two years,

Aina Lea raised new fi­nanc­ing and an­nounced a new timetable for home sales.

The de­vel­oper said in 2015 that it planned to sell over $3 bil­lion of homes over eight to 10 years work­ing with lux­ury home­builders, and that in 2016 it would be­gin com­plet­ing the first sales of its af­ford­able Lu­lana Gar­dens town homes priced from

$375,000 to $409,000.

Much of the com­pany’s early fi­nanc­ing — $44 mil­lion — was ob­tained by sell­ing stakes in the land to more than 1,000 in­vestors from Sin­ga­pore, Malaysia, Hong Kong, Ja­pan, Aus­tralia and In­done­sia.

To fi­nance more re­cent work, Aina Lea raised

$16 mil­lion sell­ing stock in it­self to Shanghai Zhongyou Real Es­tate Group in late 2014. In 2015 the com­pany ob­tained a $12 mil­lion con­struc­tion loan from Cana­dian lender Rom­spend In­vest­ment Corp. and the $6 mil­lion loan from Zhang. The de­vel­oper also ob­tained a $1 mil­lion loan from Whales Point Fund

LLP and bought the 1,011acre balance of the de­vel­op­ment site from Bridge Cap­i­tal in a $24 mil­lion deal that in­cluded a $10 mil­lion pay­ment and a $14 mil­lion loan from the seller.

Some of th­ese loans, how­ever, are now in de­fault.

The de­vel­oper missed an in­ter­est pay­ment on the Bridge Cap­i­tal loan in July, was re­lieved of pay­ing in­ter­est through March 15 but owes Bridge Cap­i­tal about $1 mil­lion in in­ter­est and penal­ties on the loan that ma­tures in Novem­ber 2018. Rom­spend is­sued a no­tice of de­fault on its loan in Fe­bru­ary.

To al­le­vi­ate fi­nan­cial dif­fi­cul­ties, Aina Lea ar­ranged in De­cem­ber to merge with a com­pany called Origo Ac­qui­si­tion Corp., a firm formed in the Cay­man Is­lands in 2014 as a “blank check” com­pany with pub­lic stock and $42 mil­lion to in­vest in other busi­nesses. But last month Origo ter­mi­nated the merger agree­ment, cit­ing the fore­clo­sure law­suit. Wes­sels said fore­clo­sure was not an is­sue and that Origo couldn’t ob­tain share­holder ap­proval for the merger.

Wes­sels said he needs about $20 mil­lion to fin­ish phase one and re­fi­nance debt. Also, the com­pany has a re­quire­ment to pro­duce a sup­ple­men­tal en­vi­ron­men­tal im­pact state­ment, which Wes­sels ex­pects to com­plete in about six months and should al­low com­ple­tion and sale of the ini­tial town homes.


The Vil­lages of Aina Lea, a sub­di­vi­sion de­vel­op­ment on Hawaii is­land, has sev­eral nearly fin­ished twos­tory town homes that can­not be sold yet. At left, the liv­ing room of a four-bed­room unit.


The 2,300-home Vil­lages of Aina Lea project has sev­eral loans in de­fault.

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