Pacific Quay owner files for arbitration
STORY SUMMARY »
The developer of the planned $300 million mixed-use project near Aloha Tower is demanding arbitration in a dispute with the state over lease terms.
Under a development agreement reached in 2004, the Pacific Quay project at Piers 5 and 6 is to include a residential tower, parking garage and 80,000 square feet of retail space.
But Texas developer Kenneth Hughes and the Aloha Tower Development Corp. board are $47.5 million apart on terms of a 65-year ground lease at the piers, and also disagree on who should provide more parking at the Aloha Tower Market Place.
Hughes' demand for arbitration says that complying with the state agency's requirements would mean the project is no longer economically feasible. Delays have cost at least $40 million, Hughes said.
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By Nina Wu
nwu@starbulletin.com
Texas developer Kenneth Hughes of Hughes Development LP says he has run out of patience.
Hughes yesterday filed a demand for arbitration with the state Aloha Tower Development Corp. in a dispute over the lease terms for the planned $300 million Pacific Quay project at Piers 5 and 6.
The claim was filed with the Dispute Prevention & Resolution Inc. of Honolulu. Hughes is being represented by Jeffrey S. Portnoy of Cades Schutte LLP.
Troubled development
2002: The Aloha Tower Development Corp. put out a request for proposals.
2003: As part of a Pre-Development Agreement, ATDC accepted Hughes proposal, agreed to $200,000 to fund development and feasibility studies.
2004: Both ATDC and Hughes entered into a Development Agreement.
2005: ATDC board approved the Pacific Quay detailed project plan.
January 2007: Zone change granted to allow residential/commercial uses on industrial-zoned land.
October 2007: Hughes seeks arbitration.
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"Negotiations were going nowhere," Portnoy told the Star-Bulletin. "They were going backwards. Deals that had been made had been taken back. The hope still is that reasonable minds will be able to reach some kind of resolution."
Portnoy said he would like to move as quickly as possible, but that the arbitration process could take as long as six months.
Sandy Pfund, Aloha Tower's CEO, declined to comment because the board has not received the request yet.
Portnoy called the demand for arbitration a "wholly avoidable culmination of over five years of mismanagement -- or worse -- by a public agency."
Hughes and Aloha Tower are at loggerheads over the project's 65-year ground lease. Hughes in July had offered $10.5 million as his best and final offer, but the ATDC board was seeking an amount closer to $58 million. He had been waiting for a copy of the ground lease, but never got it, he said.
But the dispute also involves Hughes' parking obligations.
He says he never agreed to solve the longstanding parking problems of ATDC and the Aloha Market Place operator, but rather to pay $50,000 per year for temporary parking during construction.
Other terms of the development agreement deal, entered in 2004, also changed substantially, says the claim, including: a new review process, restrictions on developer profit and giving ATDC complete control over construction, marketing and operation of the project.
With these changes, Hughes says the project is no longer economically feasible.
The ATDC, which oversees the redevelopment of state property around Aloha Tower, approved plans for the project's first phase in July of last year and even approved a zone change early this year.
Hughes outlined a mixed-use waterfront project featuring a 130-foot tower with up to 300 time-share and conventional condominium units, a parking garage and 80,000 square feet of retail space.
The project should have been ready to break ground in early 2007, said the claim, which added that delays have cost an extra $40 million. Portnoy said at least $2 million was spent out-of-pocket for engineers and consultants.
Hughes is seeking a ground lease, with delay costs deducted from the rent, and attorney's fees and costs, or damages for breach of contract, breach of good faith and fair dealing.
