An arbitrator has ruled that the state Aloha Tower Development Corp. owes a Texas developer $1.2 million in damages, in addition to attorneys' fees, due to its failure to negotiate in good faith.

Kenneth Hughes of Hughes Development LP had a development agreement with the state for a $300 million mixed-use project near Aloha Tower.

After a dispute with the state about lease terms for Piers 5 and 6, negotiations between Hughes and ATDC broke down, and went to arbitration last year.

After 19 hearings between Aug. 11 and Jan. 5, arbitrator Keith W. Hunter awarded Hughes about $903,000 in damages, plus interest, for a total of $1.2 million. Attorneys' fees have yet to be settled.

“;It's just a pity that the ATDC allowed this kind of thing to happen,”; said Hughes by phone from Texas. “;This is a project that we put our heart and soul in, and it was completely financeable at the time we needed them to act three years ago.”;

In 2002, Hughes Development was the only developer to submit a proposal to the state.

The state agency selected Hughes' proposal the next year, footing $200,000 in due-diligence costs, and entered into a development agreement with the company in July 2006.

But Hughes and Aloha Tower failed in 2007 to agree over the project's 65-year ground lease. Hughes offered $10.5 million, but the ATDC board sought $58 million and terminated its agreement in February 2008 before both parties went to arbitration.

Also in dispute was whether Hughes was obligated to solve longtime parking problems by setting aside 750 spaces for Aloha Tower Marketplace.

Hughes alleged the terms of the development agreement changed so substantially, including restrictions, that the project spiraled downward and was no longer economically feasible.

Karin Holma, an attorney for ATDC, said, “;We're disappointed that any amount has to be paid to Mr. Hughes. Overall, it's a win, because Mr. Hughes had asked for more than $23 million.”;

Holma noted the arbitrator also ruled Hughes has no vested rights to the property, as well as that the proposed project would not have been commercially viable even if an agreement on the rent had been reached.

The arbitrators also concluded that there was no evidence Hughes could have secured adequate financing.

ATDC's counterclaim seeking to recover the more than $200,000 it footed, however, was denied.

Hughes, who is best known for his Mockingbird Station project in Dallas, had ambitious plans for the Aloha Tower waterfront.

At one time, Hughes' plans called for removing visual problems, such as Hawaiian Electric Co.'s power plant. He also wanted to add a streetcar to connect downtown and the waterfront.

Eventually, he revised his vision to focus on just Piers 5 and 6 for a 300-unit leasehold condo (some of which would include time shares), a parking garage and retail space.