Kmart abandons plan to purchase 'superblock'
By Andrew Gomes
Advertiser Staff Writer
Kmart Corp. has pulled out of its deal to buy 11 acres near Ala Moana Center on which it planned to build its largest store in the state, leaving the future of the long-vacant property in urban Honolulu once again in question.
The beleaguered retailer trying to reorganize under Chapter 11 bankruptcy said in a court filing that it would not be in the best interest of the company and its creditors to spend $38.8 million to buy the site known as the "Ke'eaumoku superblock" from the Wichman Family Trust.
Kmart attorneys made a motion to terminate the purchase agreement with the local family trust earlier this month, and it was granted by an Illinois bankruptcy judge last week.
The pullout by Kmart is the latest in a string of attempts during the past decade to redevelop one of the best large pieces of vacant property in Honolulu's urban core. Wal-Mart and Home Depot both have negotiated to buy the site in the past two years but also eventually abandoned plans.
A Wichman Trust spokesman said yesterday that the family is disappointed, but is confident that another retailer, most likely a big-box discounter, will sign a purchase contract soon and take Kmart's place.
The spokesman would not identify what companies continue to express interest in the Kapi'olani Boulevard property.
According to the bankruptcy record, Kmart agreed to buy the site last August and began making escrow payments to be applied to the purchase price.
At the end of last year, $1 million in deposits became nonrefundable, according to court documents.
Kmart filed for bankruptcy protection in January, sometime after which the company decided not to complete its purchase of the superblock as it moved to reorganize and cut costs by closing hundreds of stores nationwide.
"In an effort to maximize the debtors' recoveries for creditors, the debtors evaluated the opportunity to terminate the purchase agreement," Kmart said in its filing, adding that Kmart advisors who studied the deal felt that backing out was best despite the costs.
As part of the contract termination agreement, Kmart leaves $800,000 in deposit money to the Wichman Trust. Kmart officials were able to negotiate a $200,000 refund from the trust.
The retailer also noted in its termination request that it has decided not to go forward with plans to build new stores at other locations since filing for bankruptcy. While closing stores nationwide, and abandoning its plan to buy the superblock site, the retailer's seven Kmart stores in Hawai'i have been spared.
A Kmart store at the superblock, analysts said, would have been one of the most expensive of all of the retailer's new store plans. The project, including land acquisition and store design and development, was estimated to cost around $50 million.
Jeff Arce, chief financial officer for Honolulu-based development firm The MacNaughton Group, which was going to develop the planned superblock store for Kmart, said he knew it was going to be a challenge for the retailer to finance the purchase given its bankruptcy reorganization process.
He said the MacNaughton Group would not try to buy the property itself and develop it in hopes of leasing it to another user or users.
"The property is back into play now, and it's first come, first served," he said.
The superblock — bordered by Sheridan, Makaloa, Rycroft and Ke'eaumoku streets — has been vacant since 1990.
Previous proposals to develop the site have included a massive residential high-rise/office/retail complex, a shopping center, double-decker Wal-Mart/Sam's Club stores, and a Home Depot.
Local retail analysts say factors making the superblock's sale difficult have been high land values around the Kapi'olani Boulevard corridor, the superblock's large size, and a patient seller that does not need to accept discounted offers.
"It's a great property," Arce said. "It's just hard for some of these big guys to make it pencil out. It's very expensive. That's why it's a tough one."
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
