Distressed Property

Developer owes money to Hawaii hotel’s high bidder

The connection between Unity House and developer Brian Anderson goes deeper than its high bid this week of $8.5 million at a foreclosure auction for The Lotus at Diamond Head hotel.

Anderson owes the nonprofit organization several million dollars from a 5-year-old loan, and Unity House was in talks earlier this year to buy the former W Honolulu hotel from Anderson as a means to settle the debt.

“We initially got onto this because Brian owed us money,” said Unity House Chairman Jim Boersema. “We considered a number of options and one of them was the W hotel.”

The money owed is more than $4.5 million, according to documents from a lawsuit Unity House filed in June 2008 that is still pending in 1st Circuit Court.

Unity House was unable to work out a final agreement between Anderson and First Hawaiian Bank and Central Pacific Bank, which held mortgages on the property totaling more than $10 million.

After the first foreclosure auction, scheduled for June, was delayed, Unity House took another look at attempting to acquire the hotel.

“We basically decided a few weeks ago,” Boersema said. “We’ve liked the property; we think in the long run it’s going to be a good investment.”

Anderson’s company, Anekona W, purchased the hotel, which sits on leased and fee-simple land on Kalakaua Avenue’s Gold Coast, from Colony CSR Investors LP on Aug. 17, 2004, nearly five years to the day before Tuesday’s auction.

First Hawaiian Bank filed for foreclosure on the property in October, saying it was owed more than $4.9 million in principal, fees and interest from a $5 million loan. Central Pacific Bank also is owed about $5 million on a second mortgage. The sale to Unity House must be confirmed at a hearing in about 30 days, at which time other parties could still outbid the nonprofit.

The hotel was worth between $10.2 million, according to an appraisal ordered by Central Pacific Bank, and $16 million, the figure in an appraisal ordered by Unity House, which assumed the conversion of the 51 rooms into condominium hotel units.

Unity House had loaned Anderson $2.5 million in 2004, with an interest rate of 30 percent, due in March 2006, according to court documents.

In March 2008, the two sides had reached a settlement agreement, but the lawsuit said that Anderson, identified in the original complaint as John Doe, and his wife, Joan, had “failed and refused to pay the principal and all the accumulated interest” to Unity House.

In November 2008, the two sides reached a settlement compromise in which Anderson would turn over six condominium units on the 25th floor of the Ilikai by March 31 in lieu of paying back the loan. If the condos were not conveyed by that date, then Unity House would seek a judgement against the Andersons for $4.5 million plus 10 percent interest, according to court documents.

But the Ilikai itself was in foreclosure, and in May, New York lender iStar Financial took back the 203 residential units and the 16 commercial units after bidding $51 million at a confirmation hearing for the foreclosure auction. Anderson also lost the Kauai Beach Resort to iStar Financial through foreclosure a couple of weeks later.

Unity House did not receive title to the Ilikai units, and in June, the Andersons were named in the lawsuit, replacing the unnamed John Does.

Last week, the Andersons were named in an unrelated lawsuit filed by Pacific Rim Bank alleging they, one of their sons and a company called Lanihau Properties LLC owe nearly $1.6 million in principal, interest and fees from a $2 million line of credit opened on Aug. 25, 2006.

Anderson said Tuesday he had not seen the lawsuit and could not comment on it. He did not immediately return a call Wednesday seeking comment on the Unity House bid and lawsuit.

Anderson’s company, Anekona W, filed for Chapter 11 bankruptcy in June in an effort to prevent the Waikiki hotel from being sold at a foreclosure auction that same month. In July, he retained a broker to market the property for $14 million, but the Chapter 11 case was dismissed a week and a half later after the U.S. Trustee argued that the two mortgages on the property would leave little for other creditors.

Earlier this month, Anderson hired a new bankruptcy attorney and, less than two hours before the auction’s scheduled time on Tuesday, attempted to have the Chapter 11 case reinstated and the auction halted, claiming there was a buyer interested in purchasing the notes from the two banks

After a brief deliberation, U.S. Bankruptcy Judge Robert Faris declined to grant Anderson’s motions, saying that the time between the foreclosure auction and the confirmation hearing would give an interested buyer plenty of time to step in and purchase the hotel.

Unity House, which was founded in 1951 by Arthur Rutledge, has approximately 10,000 beneficiaries, mostly members and retirees of the UNITE H.E.R.E. Local 5 hotel and restaurant workers union and the Hawaii Teamsters, Local 996.

The Lotus at Diamond Head, which is managed by Castle Resorts & Hotels, is a non-union operation.

Boersema said the hotel likely would continue to be managed by Castle, but it’s unclear whether the hotel’s employees would become organized under Local 5 if Unity House prevails at the confirmation hearing.

“We have to actually obtain title to it and then look at all the various options for that property,” he said.

Source: PBN

Hualalai home developer files for bankruptcy

Sunra Coffee LLC, developers of a subdivision offering 5-acre lots on Hawaii island, has filed for voluntary Chapter 11 bankruptcy.

Sunra Coffee, which does business as Royal Hualalai Gardens, listed between $10 million and $50 million in estimated assets and liabilities in its filing Friday.

The subdivision, set on the slopes of Hualalai above Kailua-Kona, was selling 39 5-acre estate lots and one 10-acre estate lot while setting aside about 5.6 acres for coffee production.

Don Gelber, Sunra Coffee’s attorney, said the developers won subdivision approval last year, invested about $29 million in improvements, and had three potential buyers at one time. But the sales did not go through due to foreclosure proceedings.

Gelber said his clients are filing for bankruptcy in order to resume new sales efforts.

In a mid-August special meeting, according to court documents, members of the limited liability company unanimously voted to file for Chapter 11 bankruptcy. Majority members listed include Toshio Masuda and Mariko Ejiri.

The largest creditors include two landscaping companies (which are owed more than $350,000), along with a construction company, and a coffee plantation management firm based in Jamaica. Sunra Coffee also owes more than $88,000 in Hawaii County real property taxes.

Various real estate companies, including Island Land Co. Inc., have listed the 5-acre lots for $750,000 each.

The Royal Hualalai Gardens subdivision is off Mamalahoa Highway, about half an hour from several golf courses.

It has roads, underground utilities, landscaping and a gated entry, along with a sales office and model home, according to its Web site, which features a photo gallery.

Source: SB

Bay View Golf Park Facing Foreclosure

Central Pacific Bank is pursuing foreclosure against a local partnership that bought Bay View Golf Park three years ago, though the owners of the Kane’ohe golf course hope they can resolve the loan default and retain the property.

The financial trouble has hurt plans by owner KBay LLC to redevelop half of the 18-hole course with a mix of 300 affordable and market-priced homes, a bowling alley, batting range, lodge and community center. But the golf course, driving range, restaurant and miniature golf facilities remain open.

Greg Hong, one of KBay’s principals, said he couldn’t comment about the mortgage troubles or development plan because the owners are trying to work with Central Pacific to avoid foreclosure.

The bank filed its foreclosure suit last month against KBay and its principals Hong, Michael Nekoba and Thomas Enomoto.

According to the suit, KBay borrowed nearly $6.9 million in March 2006 that helped the group buy the property for $11 million. The loan, Central Pacific said, matured on March 15 and wasn’t paid off by KBay, which owes nearly $7.1 million, including unpaid interest.

The suit is part of a wave of foreclosure cases imperiling commercial property owners who couldn’t refinance their debt in the past year or so because of the financial crisis constraining global credit markets.

KBay’s purchase came near the height of Hawai’i's last real estate investment boom, and three years after another hui of local investors — The Shidler Group, J.D. Watumull and Joe Leoni — bought the distressed golf course for $3.4 million and restarted play there after paying a $1 million property tax delinquency.

KBay’s plan was to spruce up facilities and increase kama’aina play. But the initiative faltered as a series of upgrades, including opening a new restaurant, failed to reverse financial losses and resulted in temporary closures and layoffs.

In a move to salvage the investment, KBay late last year unveiled a proposal to redevelop nine holes for other uses.

The plan, which the developer said had some community support but drew none at a November Kane’ohe Neighborhood Board meeting, involved developing 150 affordable multi-family rental homes for seniors earning between 80 percent and 140 percent of O’ahu’s median income, and 149 market-priced homes.

Though Bay View land is primarily zoned for preservation, the developer sought to use a state law that allows exceptions to zoning controls for housing projects where at least half the units are affordable to moderate-income buyers.

Other parts of the development plan include a 40-lane bowling alley replacing Bay View’s miniature golf course, a multipurpose senior community center, walking trails and a 60-unit lodge for sports teams. Part of Bay View’s two-story driving range was slated for conversion to a baseball batting range.

A wedding chapel and pet mausoleum also were elements in the draft plan that KBay said was subject to change based on public input.

KBay previously said one major benefit to developing half the golf course would be creating a safe public access to an adjacent city sewage treatment plant being taken out of use, allowing the city to convert the property to a dog park or other recreational use.

Another benefit would be expanded access to Waikalua Loko Fishpond, which KBay owns and seeks to sell to the nonprofit Waikalua Loko Fishpond Preservation Society that manages the pond.

KBay had planned to publish an environmental impact statement to address traffic issues, water use, storm water runoff and flooding, but the mortgage troubles have hung up the project.

Source: HNA

General Growth Properties hammered by rising vacancies

General Growth Properties posted a 2.1 percent drop in earnings, dragged down by the retail slump, rising vacancies and costs tied to its Chapter 11 reorganization efforts.

In its second-quarter earnings release, the Chicago-based real estate investment trust (Pink Sheets: GGWPQ) posted operating income of $615.8 million, down from $629.1 million last year.

Its funds from operations fell 74 percent to $58.1 million, or 18 cents per share, down from $221.6 million, or 69 cents per share. Funds from operations, which show how much money investment trusts generate from their properties, is the standard performance measure for real estate investment trusts.

The debt-laden mall owner attributed much of that decline to the sagging retail industry and its reorganization efforts. The company posted a $13.3 million drop in net operating income due to rising vacancy rates, $33.7 million in reorganization costs, and $27.9 million in additional restructuring costs including general and administrative expenses.

General Growth filed for Chapter 11 bankruptcy protection April 16. The company owns or manages about 200 malls in 44 states, some master-planned community developments and commercial office buildings. In addition to owning and managing the Ala Moana Center and the Ward Centers in Honolulu, General Growth also manages Windward Mall and Kapolei Commons on Oahu; King’s Shops at Waikoloa Beach Resort and Queens’ Marketplace on the Big Island; and Whaler’s Village and Queen Kaahumanu Center on Maui.

Source: PBN

New Law Makes it Easier For Brokers to Help Distressed Property Owners

Governor Lingle has a signed a bill into law that excludes real estate salespersons and brokers from the definition of distressed property consultant. This is great news for agents who are actively involved in both residential and commercial short sales.

If you would like more information about buying or selling distressed properties please contact us.

Lehman loan jams up Big Island project

A $105 million loan by Lehman Brothers to pay for development of 5,700 acres of former sugar plantation land on the Big Island is the latest financial deal ensnarled by the Lehman bankruptcy.

With the job unfinished and Lehman’s assets in limbo, the developers have asked a New York bankruptcy court to make a decision on assuming or rejecting the loan.

The borrowers are led by Massachusetts resort developer Alan Worden. If the loan is rejected, Worden wants to be able to seek alternate funding, according to a motion filed Friday in the U.S. Bankruptcy Court in New York. The court has set an April 7 hearing on the matter.

Worden’s group purchased the land in the Big Island’s Kau district in 2006 and had projected it would take three to five years to build out the infrastructure and secure approvals and permits to build a high-end residential development consisting of large homes on “farm” lots. They planned to subdivide and sell the land, which would have an average density of one home per 20 acres.

Lehman Brothers stopped funding the loan after it filed for Chapter 11 bankruptcy protection on Sept. 15, 2008, disrupting the project. Up to that point, the developers had borrowed $43 million of the $105 million, according to the motion.

The motion said that Lehman Brothers, in discussion with the Hawaii borrowers, had indicated that it would reject the loan, but has not done so. That inaction has adversely affected dozens of contractors and other employees who cannot be paid without the Lehman funding, the document said. The project owes at least $335,000 to local workers, according to a declaration filed by Worden.

“Those contractors’ work is essential to obtaining permits for the acquired land necessary to realize its full value,” the motion said. “Lehman’s failure to fund the project’s operating costs has thus severely disrupted the project’s ability to obtain necessary permits and has been so devastating that the Hawaii borrowers’ damages may exceed the amount borrowed.”

Worden is the managing member of Windwalker Hawaii, which is the managing member of WWK Hawaii Holdings, which owns all the interests in the borrowers, WWK Hawaii-Waikapuna, LLC, WWK Hawaii-Moaula, LLC, WWK Hawaii-Honuapo, LLC, WWK Hawaii-Little Honuapo, LLC, WWK Hawaii-House Parcel, LLC, WWK Hawaii-House Parcel 2, LLC, and WWK Hawaii-Naalehu Parcel 1, LLC.

Worden is also founder and CEO of Scout Real Estate Capital, which is based in New York City and Nantucket, Mass., and president of Windwalker Real Estate in Nantucket.

Source: PBN

General Growth Properties struggling to avoid bankruptcy

General Growth Properties Inc. said its Rouse Co. LP subsidiary has extended a deadline that could allow it to skip payments on more than $2 billion of debt.

General Growth Properties (NYSE: GGP) is the second-largest U.S. shopping mall owner. The Chicago-based company, which owns or operates more than 200 U.S. malls, is struggling with $1.18 billion of past-due debt.

In Hawaii, General Growth manages Ala Moana Center and Ward Centers.

The Rouse Co. has extended the expiration date for its previously announced consent solicitation to 5 p.m. on March 27.

General Growth lost a Louisiana shopping mall to foreclosure by Citigroup Inc. (NYSE: C) and two other investors on March 20.

The Wall Street Journal reports General Growth missed a payment on $395 million in bonds last week. The report says General Growth is planning to stop paying interest and principal on existing bonds and asking holders to accept a fee in return for not demanding payment this year.

Source: PBN

General Growth reports $1.2B in overdue debt

General Growth Properties Inc., the owner of major retail destinations in Hawaii and the nation, had a grim showing last year.

The Chicago-based owner and manager of more than 200 malls and other developments reported about $1.18 billion in past-due debt and about $4.09 billion of debt that could be accelerated. Its lenders, however, haven’t taken action yet on that debt.

General Growth owns Ala Moana Center and Ward Centers in Honolulu.

General Growth (NYSE: GGP) also has $1.44 billion of consolidated mortgage debt and about $595 million of unsecured bonds that will mature this year that it needs to repay, refinance or extend. But “the refinancing market remains at a standstill,” the company noted in a news release.

General Growth said it is “considering all strategic alternatives” and is still talking with its lenders.

“In the event that we are unable to extend or refinance our near and intermediate term loan maturities, we may be required to seek legal protection from our creditors,” General Growth said.

The company is trying to cut costs. It has “suspended our cash dividend, halted or slowed nearly all of our development and redevelopment projects, systematically engaged in certain cost reduction or efficiency programs, reduced our workforce by over 20 percent and sold certain non-mall assets,” the release said.

As for results from retail operations, General Growth reported:

* Comparable tenant sales decreased 3.8 percent in 2008 compared to the previous year.
* Sales per square foot decreased 4.2 percent compared to 2007.
* Occupancy decreased to 92.5 percent as of Dec. 31, 2008, compared to 93.8 percent a year earlier.

General Growth’s funds from operations were $222.2 million in the fourth quarter of 2008, compared to $190.4 million in the same period a year earlier, an increase of approximately $31.8 million.

The results don’t look as good excluding funds from real estate, income from the master planned communities and benefit from income taxes. With those excluded, General Growth posted $231 million for the quarter, down from $271.2 million. Cost reductions in marketing, supplies, personnel and the like did not offset its decline in revenue, the company said.

Source: PBN

General Growth gets another loan extension

General Growth Properties, a Chicago-based real estate trust that owns Ala Moana Center and Ward Centers, has received an extension on some of its debt through March 15.

The company (NYSE: GGP) made the debt agreements with its lender syndicates for both the 2006 senior credit agreement and its secured portfolio facility, whose forbearance agreements expired Monday.

It agreed to certain additional restrictions and covenants, which the company did not identify, while the lenders agreed that other company defaults would not cause a termination of the new forbearance agreements before their expiration.

In mid-November, General Growth warned that it might seek bankruptcy protection if it couldn’t restructure of refinance its heavy debt load.

On Dec. 10, Fitch Ratings downgraded the company and warned that a default on nearly $900 million in debt was likely. Two days later, General Growth said it had borrowed $896 million, which it used to retire a $58 million bond issued by the Rouse Co., as well as refinance $814 million of mortgage indebtedness that was originally scheduled to mature in 2009. The new mortgages mature in 2013 and 2015.

The new agreements give General Growth a bit of breathing room to reschedule or refinance its heavy debt load. The company owns or manages about 200 malls in 44 states.

Source: PBN

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