KOLOA — After five years on hold, the fate of the planned development of The Shops at Koloa Town may now reside with the courts.
Food Pantry Ltd. and Coffee Pacific LLC have filed a complaint against Koloa Marketplace LLC in state circuit court claiming a breach of their lease agreements and requesting to be unbound from The Shops project.
“We were on the verge of starting construction,” said Stacey Wong, trustee for Eric A. Knudsen Trust, which owns the land and is in joint partnership with lead developer David Nelson of Detroit in the Koloa Marketplace venture. “Now, we’re hanging out there and can’t move forward.”
Without lease agreements in place, Koloa Marketplace cannot receive financing to build, Wong said, even though in his estimation there are 15 other businesses with leases for The Shops. According to its brochure, they include an ABC Store, an American Savings Bank and a U.S. Post Office. However, Malama Market was by far the largest.
“What makes it very difficult for me,” he said, “is large tenants aren’t easy to replace. We customized a space for them.”
During the summer of 2006, Food Pantry signed two lease agreements with Koloa Marketplace: one lease for 12,000 square feet for a Malama Market grocery store, and another for 1,000 square feet for a Surf City store. Coffee Pacific entered into a lease agreement for a 2,350-square-foot space for a Coffee Bean and Tea Leaf store. The minimum rent, the lease states, is $4.50 per square foot for the first two years and increases gradually thereafter.
Now, they want out.
“What the lease says is the developer estimated construction would begin in September 2006,” said Andrew Beaman, a lawyer with the Honolulu law firm Chun, Kerr, Dodd, Beaman and Wong, representing the plaintiff. “During the last four and a half years, there have been any number of broken promises about when ground would be broken.”
The leases “provide that the delivery was to occur no later than a date ‘TBD,’ or ‘to be determined,’” Beaman wrote in a Nov. 2 letter to Koloa Marketplace. “In all three leases, the developer estimated that construction of the center would commence in September 2006 — approximately six to 10 weeks after execution.”
Wong argues that the lease contains no “drop-dead” date to start construction and delays have been due to unforeseen circumstances.
“The reason for the delay is we had problems getting the project permitted,” Wong said. “In 2006, Kaua‘i was antigrowth and we and some other projects were illegally denied our permits.”
Koloa Marketplace filed a complaint against the county in October 2006 asserting various claims related to its application for use and zoning permits. In September 2007, the parties settled. Koloa Marketplace agreed to issue plans that comply with county requirements and, in turn, the county agreed to expedite the issuance of permits.
“In 2008, the economy fell apart,” Wong said.
Beaman said in 2009 Nelson told Food Pantry that Koloa Marketplace had obtained its permits to build and the financing for the project was in place, but it turned out not to be true.
Wong said Nelson’s “well-intentioned” correspondences with Food Pantry in 2009 merely communicated “we believe we will be able to start construction soon.”
“Food Pantry did not ask for fixed deadlines from us,” Wong said. “Other tenants did. I’m offering one now. I need to sit down with (Food Pantry) and work on a settlement.” He added that Knudsen Trust is working to have Nelson separated from the project, and he is not actively involved anymore.
Even without a lead project developer, Wong insists Koloa Marketplace is ready to start construction within a few months of a settlement agreement and is willing to set a drop-dead date with Food Pantry.
“The permits are ready for pick-up,” he said. “They’ve been reviewed and approved and are subject to payment . . . technically, they’re not issued yet.”
Beaman said Koloa Marketplace’s permit agreement with the county expired three weeks ago, and the county is no longer required to expedite their requests.
“(Food Pantry) is extremely frustrated with delays,” Beaman said. “We’re in a position now where there are questions whether we should continue to be tethered to this project. (My clients) want to free themselves to become involved in other projects.” He said there were none in particular that Food Pantry is considering at this time.
Beaman also questioned how the project could commence without a lead developer.
Wong said he is ready to take the lead and is not shopping for someone new to bring on board. “I’ve done development,” he said, “and I’ve been active on this project from the beginning.”
But nothing will happen until financing for the project is in place, and they won’t receive financing without Food Pantry’s commitment, he said.
“We have a loan commitment letter from First Hawaiian Bank and started the loan closing process when we found out about (the claim),” Wong said, “so we thought it would be better to hold off until this is settled. Technically, do we have signed loan documents? The answer is no . . . They are our largest tenant and the bank will not count them, because they won’t count any leases where there’s a dispute.”
On Jan. 13, attorneys for both sides met in court for the beginning of the discovery phase. The judge recommended mediation, but did not order it.
“Food Pantry has a strong desire to bring Malama Market to the community,” Beaman said. “Over the last four years, time has languished and the chances to succeed have become remote, especially without a lead developer.”
He cited the downsizing of the project from 76,000 to 71,000 square feet, inexcusable delays in performance, a lack of credibility, and the opposition toward the project expressed by people in the community during 2006 and 2007 as additional reasons his client wants out.
“If they had shown their willingness to be a part of the project,” Wong said, “we would be under construction as we speak.” He estimates construction could be completed in as little as 12 months for The Shops and 18 months for the grocery store, if Food Pantry is on board.
If the case goes to trial, litigation could last most of the year, he said.
Friday, Wong had the 16-foot dust screens removed from the Koloa Road side of the property, which had been in place since the spring of 2006.
However, the county has asked that both the screens and the posts be removed because of numerous community complaints. In September, Wong told the county both would be removed by Jan. 15.
Wong now says the posts will remain, because removing them and eventually replacing when construction begins would be too cost prohibitive.
