Almost three years ago, a Chicago real estate development firm thought it was riding the dot-com boom to a quick sellout of a small enclave of oceanfront home lots on Maui for more than $100 million.
But the high-tech industry bust in 2001 led the developer of Maluhia, a 14-residence community carved out of the last available beachfront site in Wailea, on an unintended journey — to art houses in China, on elephant treks in Java and into the custom interior design business.
The improvised strategy emerged after all but three sales contracts and numerous backup offers for 14 lot-and-home packages at Maluhia fell through two years ago, as instant dot-com millionaires lost their wealth in the industry implosion and the tech stock crash.
The plan shifted from selling lot-and-home packages based on conceptual designs, to building and selling speculative homes stocked with expensive collections of modern art, ancient pottery and custom furniture.
In the process, Chicago developer PRM Realty Group LLC and project architect Group 70 International of Honolulu formed a joint-venture interior design firm now doing work in New York, the Caribbean and Monaco.
The setback and slow recovery of Maluhia runs counter to the general trend of waiting lists and sales backlogs for new homes fueled by record-low interest rates, as more than half of Maluhia's ultra-high-end lot-and-home packages are still available after nearly three years. Yet despite the delay, the fate of Maluhia appears to be moving toward fortune.
In 2001, it was a stroke of bad timing as contract cancellations for $6 million to $14 million lot-and-home packages added up.
"I was receiving calls on a weekly basis — one by one (buyers) would call and say, 'I'm putting everything I can to save my company, and the last thing I can think about is my fourth home,' " said Lawrence Frej, PRM senior vice president. "The tech market just blew up."
Roughly $80 million to $180 million in total sales evaporated. Yet the losses, according to Frej, didn't come as a terrible shock. "An investment like this is not about a quick return," he said. "We took a deep breath. What we did was turn it into an opportunity."
Frej and PRM principal Robert Harte, whose firm had spent $15 million buying the property and more on infrastructure work, came up with the idea to spend more money to build one-of-a-kind homes designed in elaborate detail.
Frej toured Javanese quarries and factories to find building materials and interior furnishings of high quality at affordable costs.
Other trips followed, including visits to art studios in China where he bought about 30 contemporary paintings, and follow-up visits to Java where he bought 200 pieces of coral-encrusted Ming, Sung and Han Dynasty pottery recovered from shipwrecks.
PRM also turned to local resources, commissioning a $60,000-to-$70,000 copper-and-bronze sculpture by Satoru Abe to grace the entrance of Maluhia, and hiring an expert in Hawaiian patterns.
To coordinate interior design, PRM partnered with project architect Group 70 to create a specialized interior design firm, Crisscross, co-founded by Group 70 vice chairwoman Sheryl Seaman.
The company was incorporated last year and is in the process of doing work on other projects for clients of PRM, Group 70 and others, Frej said.
"It was not a plan that was conceived, set out and implemented," Frej said. "Sheryl and I conceived of the company more or less out of need. We couldn't find interesting and unique enough materials that are affordable even in a super-high-end product."
Seaman said she had wanted to start such a boutique firm for a decade and that Frej and Harte had the perfect opportunity. "Being the entrepreneurs that they are, they gave us a kick in the butt and said, 'Let's do it,'" she said. "The business is sort of now developing on its own, which is what we wanted it to do."
At Maluhia, construction on two homes broke ground last year. In one, furnishings included more than 100-year-old carpets from Turkistan, tribal art from New Guinea, custom furniture including pieces to hold the shipwreck pottery, and mahogany stair railing panels carved in a hala pattern — with no furnishing to be repeated in any other home.
"We just about designed and made everything in the house," Seaman said.
It was an intellectual experiment, according to Frej, a former objects conservator at the Metropolitan Museum of Art in New York.
The first home was finished in October. The second was finished last month. Both sold in a few days of showing.
Frej said the museum-like collection of art in the homes attracted the interest of wealthy buyers who tended to view the properties as a collective piece of art that would appreciate in value.
"These people — no matter how much money they have — want to know that their home is going to appreciate," he said.
Harte said six sales to mostly billionaires or near billionaires are worth almost $70 million.
Ricky Cassiday, a local residential real estate market researcher, said other super-luxury home projects in Hawai'i, such as Kukio on the Big Island's Kohala Coast, were substantially less affected by the dot-com bust.
"Maluhia might have just been in the right place at the wrong time," he said.
PRM is still competing for a relatively small number of customers among the superrich, Cassiday said, though the developer has created more of a unique position for itself.
"The level of the finishes, the thoughtfulness, is just radical," he said. "What Maluhia has is golden."
Harte said PRM plans to begin construction on two to four more "spec" homes this summer if the lot-and-home packages aren't sold earlier.
Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.
