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The Honolulu Advertiser
Posted on: Sunday, November 17, 2002

Two developers offer plans for aquarium

By Andrew Gomes
Advertiser Staff Writer

The proposal last week to develop an aquarium and marine research facility at Kaka'ako Waterfront Park is heating up decades of efforts to build a world-class aquarium in Hawai'i, with two developers now vying to make the concept a reality.

The plan by Japanese construction company KUD International comes less than a year after developer Jeff Stone proposed constructing an aquarium at Ko Olina Resort & Marina, and both projects already have gotten further than many in the past.

The proposals vary widely, however, with each not only seeking differing locations, but also projecting to generate vastly different levels of economic benefits such as job creation, tourism development, tax revenue, scientific research and education.

The proposals also carry potential financial risks, seek to claim millions of dollars in state tax credits, and appear to be in danger of becoming caught in a political tug of war between a new Republican governor and a Democrat-controlled Legislature trying to influence which project advances.

And while neither developer last week wanted to characterize their efforts as a race, no one disagrees that there is not enough room on O'ahu for two world-class aquariums.

"There really only can be one," Stone said.

For its plan, KUD proposes replacing the Waikiki Aquarium with a 150,000-square-foot aquarium that could be enlarged by one-third for future exhibit expansions on 10.4 acres on the 'ewa corner of Kaka'ako Waterfront Park, adjacent to John Dominis restaurant and Point Panic, about two miles from Waikiki.

KUD is asking for a 50-year lease with negotiated rent for all property except parts used by UH, which would pay $1 a year under KUD's proposal.

Linked to the aquarium would be about 250,000 square feet of research buildings to expand the University of Hawai'i Kewalo Marine Lab and house a separate UH Kewalo Basin Marine Mammal Lab. Other potential tenants include a private research institute and the National Oceanic & Atmospheric Administration.

Stone proposes building a 75,000-square-foot aquarium, a "marine village" for retail and research use, and an open-ocean pen for the UH marine mammal lab, which expressed interest in moving to Ko Olina, about 25 miles from Waikiki, on land at the resort donated by the Weinberg Foundation.

KUD said its entire project would cost between $200 million and $250 million, with financing from a combination of equity investors, possibly venture capitalists, a "small amount" of private long-term debt and donations. Marvin Suomi, KUD president and chief executive, estimates tax credits of perhaps $10 million to $15 million would also be sought under the state's high-tech business development incentive, Act 221.

KUD also may arrange for a similar amount of privately placed revenue bonds, which Suomi said would be guaranteed by KUD, an affiliate of Japan's $15.5 billion Kajima Corp. construction company. The research space would generate revenue to help pay off the project's debt.

"We are not looking to the state or the city for money," he said. "We won't ask the Legislature for anything."

Stone's aquarium and marine village project would cost significantly less at about $75 million, financed by $75 million in special-legislation tax credits to refund the development cost shared by companies that have or plan to build hotels and timeshare projects at Ko Olina, including Marriott, Hilton and Intrawest Corp.

Ko Olina Co. and The Harry & Jeanette Weinberg Foundation, which owns land at the resort, also would contribute to building the aquarium.

But even if financing can be obtained, operating multimillion-dollar modern aquariums is risky business.

Nationwide, many aquariums have been built in efforts to jump-start development in areas but have quickly turned into money-losing endeavors. In some instances, plans have worked well — as in Monterey, Calif., where an aquarium revived an abandoned Cannery Row — but in other places such as Tampa, Fla., and Camden, N.J., expensive new aquariums have struggled with poor attendance.

In Long Beach, Calif., the Aquarium of the Pacific was developed in 1998 by Kajima, which used a nonprofit to own and operate the $120 million privately financed facility. But after years of soft attendance, the city, which had agreed to help pay for debt-service shortfalls, bailed out the aquarium by refinancing the private debt with municipal bonds. The city also has had to tap tax revenues to cover a shortfall since taking over, and faces a possible $2 million taxpayer obligation next year.

KUD's Suomi emphasized that only a small portion of the Kaka'ako aquarium would be financed with private debt. A nonprofit agency, possibly the University of Hawai'i, would be found to operate the facility. Stone's aquarium, as proposed, would be built debt-free and after 10 years, the Weinberg Foundation would give the state a half-interest in the aquarium. An international firm, OLIO, would operate the facility.

Economic benefit

Still, if one of the developments gets off the ground, it could offer a significant economic boost, providing a new attraction to help Hawai'i tourism, especially in drawing repeat visitors.

KUD's aquarium project would also help attract a critical mass of retail and restaurant development envisioned for Kaka'ako makai, where such efforts by the state over the years have failed. UH marine lab director Michael Hadfield projects that expanding the lab under KUD's proposal would at least double the current $9 million in annual grant money the lab attracts. Other areas of marine research also are expected to benefit.

According to a 1998 Kaka'ako aquarium market study commissioned by the state from private consulting firm The Lyon Group, an aquarium with average annual attendance of about 775,000 could generate nearly $12 million a year in revenue and a $3 million operating surplus, which was projected to grow to $5 million after 10 years.

At Ko Olina, the aquarium project was coupled with commitments to build a 340-room Hilton hotel and 500 units of time-share condominiums by Intrawest and Ko Olina Co. Although not directly tied to the tax credit bill, the visitor lodging projects were committed to being built within 10 years, Stone and senior Hilton and Intrawest executives assured Gov. Ben Cayetano.

In all, Stone said the aquarium and related projects created $700 million in development, which in 10 years would generate $186 million in tax revenue, 10,000 construction jobs and 2,000 permanent jobs. Stone said his plan helps one of the most economically depressed areas of the island, and would further the state's mission to make Kapolei a self-contained "second city" to ease density growth in Honolulu.

"What does this state want?" Stone asked.

Politics are expected to play a part in that determination. For his proposal, Stone is relying on a tax-credit bill that had broad bipartisan support but was vetoed this year by Cayetano who said it was wrong to give tax credits to a group of developers in one area. Gov.-elect Linda Lingle helped craft the legislation, however, and has vowed to sign it if it passes again.

Bill sponsor Sen. Coleen Hanabusa said she plans to reintroduce the bill without changes early next year and doesn't foresee less support for the bill even with a competing aquarium proposal.

Still, others have not been so supportive. Besides the governor, the state tax department opposed the bill and public watchdog organization Tax Foundation of Hawaii criticized it as a bailout of the largely undeveloped Ko Olina resort.

Meanwhile, KUD needs a lease from the state and has support for its proposal from the university, which is developing a medical school and biomedical research facility nearby. The outgoing governor also wants to see the aquarium built in Kaka'ako, and he or his administration appointed eight of 11 members on the board of the Hawaii Community Development Authority, the agency that last week agreed to negotiate a ground lease with KUD.

Four board members are up for replacement by Lingle when she takes office, while the others are on staggered terms. Lingle officials last week were unable to say what Lingle's position is on the Kaka'ako aquarium deal, or make her available for comment.

Some lawmakers also questioned last week whether Cayetano vetoed the Ko Olina tax bill only to help realize his vision for an aquarium in Kaka'ako. KUD first had offered to build a publicly financed aquarium in Kaka'ako in 1996, flying the governor on a private jet to visit four aquariums on the Mainland.

Cayetano did not comment on the inference last week, but said he continues to believe Kaka'ako is the appropriate site for an aquarium.

Suomi said KUD's renewed interest in developing a privately financed aquarium in Kaka'ako is not related to the governor's vision.

"That the governor has had the same dream that we have is one thing, and it's not surprising that the governor supports the project," Suomi said. "But I'm not doing this for Gov. Cayetano."

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.