Lot owners banking on Hokuli'a

By Andrew Gomes
Advertiser Staff Writer

There may be a legal cloud hanging over the Big Island luxury residential subdivision Hokuli'a, but some speculators see a silver lining in a judge's 2003 ruling that deemed the million-dollar home lots were not allowed on agricultural land.

Lot owners can golf on Hokuli'a's private course, shown under construction here, but they can't get building permits for homes or hookups to county water, power and sewer lines. Advertiser library photo • Aug. 31, 2002

The recent buyers expect that Hokuli'a lot values, which haven't appreciated as much as the rest of the market, will shoot higher if a pending appeal of Ibarra's decision is successful at the Hawai'i Supreme Court.

It's a high-stakes gamble that could leave such buyers with drastically devalued property if Ibarra's ruling is upheld.

But with most recent buyers paying close to $1 million per lot, the pot is growing in this big-money bet that the September 2003 lower court ruling will be overturned.

"They're taking a chance that justice will come," said Dean Gilpin, a principal with real-estate brokerage firm Ross Gilpin & Associates Inc.

The firm has handled most Hokuli'a resales after Ibarra's decision, and Gilpin and some partners joined in to buy four lots themselves. "I believe in it," he said. "I know that it's going to get fixed. It's a question of time."

As it is, lot owners can golf on Hokuli'a's private course, which was completed and is an allowed use on agriculture-zoned land. But they can't get building permits for homes or hook up to county water, power and sewer lines.

There are about 160 lot owners, most of whom bought their Hokuli'a property from 1999 to September 2003 from developer 1250 Oceanside Partners, which hasn't been able to sell lots at the planned 750-lot subdivision since Ibarra's ruling.

Ricky Cassiday, a local residential real estate analyst, said speculators are aiming to make money trading Hokuli'a property, but the resales also indicate how much demand there is for luxury residential property on the Big Island.

"It shows just how strong the demand is for golf-front lots," he said.

Recent buyers include individuals who want to build homes for themselves at Hokuli'a, home developers who want to build then sell homes in the subdivision and speculators who anticipate reselling lots for more later.

Gilpin said Hokuli'a prices are relative bargains because of the risk. "It's a good deal," he said. "Everything else in Kona has gone through the roof."

Raw land prices have risen about 40 percent over the past two years in the area, Gilpin said. Hokuli'a lot prices, however, have largely been sluggish. For instance, one lot bought for $750,000 in 1999 sold last year for $825,000. A $950,000 purchase in early 2001 sold last year for $1 million.

Meanwhile, somewhat comparable lots at other Big Island projects like Kuki'o might sell for $2 million.

Gilpin said most Hokuli'a sellers are either recovering their costs or making money on their sales. A few of the earliest original buyers who got deals on lots for around $500,000 are reselling at close to double their purchase prices.

The first resale after Ibarra's ruling happened after one lot buyer learned about the judge's decision and threatened to sue the developer for a refund, according to Gilpin, who heard about the situation and offered to find a buyer for the lot.

The disgruntled owner, who paid $550,000 in early 2001, sold the lot for $810,000 in late 2003. The lot last year resold for $1 million.

The market for Hokuli'a resales took root last year, and continues to expand. Four sales are in escrow, and another 19 lots are on the market for prices from $950,000 to $3 million, which doesn't include a $150,000 membership fee.

Gilpin said a stack of disclosure documents two feet high was burned onto compact discs for prospective buyers to make sure they are clearly aware of the project's legal trouble.

But that hasn't dissuaded buyers that include veterans of Hawai'i's real estate industry, such as Schuler Homes founder Jim Schuler and the owners of Clark Realty Corp.

John Stevens, chairman of luxury home builder Aloha Aina Development LLC that bought two Hokuli'a lots before Ibarra's ruling and two after, said he believes that Hokuli'a's developer, which obtained Hawai'i County approvals for the project, didn't violate land-use laws.

He said one way or another — either through the high court, a mounting effort to sue the county and state or a settlement with project opponents — Hokuli'a lot owners will win out.

"I figure they got to fix it one of these days ... there's way too much at risk not to fix it," Stevens said.

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