The 2,000-home second phase of Royal Kunia in Central O'ahu, stalled for more than a decade, may finally proceed following a land auction in bankruptcy court this month.

Up for auction are 161 acres of urbanized former sugar cane fields — the primary asset of original Royal Kunia developer Herbert Horita's Halekua Development Corp., which declared bankruptcy in April 2003.

At least two local developers, Castle & Cooke Hawai'i and Stanford Carr Development, are expected to vie for the property at the Aug. 16 court auction in a bid to develop the homes.

Finishing Royal Kunia would add to a swelling pipeline of more than 40,000 homes planned for Central and Leeward O'ahu over the next 20 or so years, contributing to affordable and market-priced housing opportunities but also to the traffic congestion plaguing the region.

Royal Kunia's second phase didn't break ground in 1994 as planned because of a flagging housing market and Halekua's financial difficulties. In addition to the new homes, restarting the project likely will lead to construction of an elementary school, state agricultural park, county park and private industrial park.

Many Halekua creditors holding roughly $43 million in claims would receive payment from the land sale, while some existing Royal Kunia residents will be pleased to see their master-planned community finished.

"Phase 2 is very important," said Albi Mateo, general manager of the Royal Kunia Community Association. "This community here is basically half built."

Mateo said existing residents have only part of a recreation center that still lacks a pool and multipurpose facility that were supposed to be added with the second phase.

The school also would relieve overcrowding at nearby Kaleiopu'u Elementary School in Village Park.

"It's a mess," Mateo said. "It's not fair for the people in Phase 1."

HURDLES REMAIN

However, several unresolved issues leave some uncertainty over whether the project can be revived and in what form.

Some area residents say Kunia Road, the main artery connecting their community with the H-1 freeway, is already overwhelmed and cannot handle more traffic from several thousand new residents and businesses in a second phase of Royal Kunia.

"The infrastructure part of it has to be addressed before they build more homes," said Linda Dooman, a Royal Kunia resident who bought her home about three years ago not knowing about plans for the second phase.

Horita conceived his master plan for Royal Kunia in the late 1980s as a two-phase development of roughly 4,000 homes, three golf courses, a commercial center, light industrial park, agriculture park and other facilities on about 1,200 acres of mostly farmland owned by the Mark A. Robinson Trust.

Much of the first phase with about 1,900 homes and a commercial center was built by a partnership led by Castle & Cooke, which invested in the project after Horita encountered financing and permitting delays.

The two golf course sites in phase one were sold to Japan-based developers, but only one course was built. The undeveloped golf site was bought last year by a California firm that has floated an idea to build homes on the property, which can't be done without a zoning change.

Royal Kunia's second phase covers 655 acres and includes a public school site, 10-acre county park, 150 acres for farming, a 123-acre industrial park, a potential third golf course site and 2,000 homes, of which 600 must be affordable under county rules.

The land to be auctioned is Royal Kunia's main undeveloped residential parcel, and is zoned for single-family and condominium homes. The developer will be responsible for providing land for the school and county park and for developing some roads and other infrastructure.

How many homes a developer will be allowed to build on the 161-acre site is uncertain.

Halekua previously sold 50 acres of the residential-zoned land in Royal Kunia's second phase to an affiliate of The Harry & Jeanette Weinberg Foundation, which still owns it and is entitled to build 400 to 500 of the planned 2,000 homes.

The balance of 1,500 to 1,600 homes possibly can be built on the 161 acres, though that would be subject to the property's new owner salvaging old agreements with the state and county that conditionally approved Royal Kunia's second phase.

AGENCY MUST OK SALE

Halekua defaulted on several conditions, including transferring land with infrastructure connections to the state for the agricultural park and school. The county also was to receive at least 10 acres for the county park.

The broken commitments led the Land Use Commission in 2003 to consider revoking approval for the project, but Halekua filed for bankruptcy before a decision was made.

Anthony Ching, executive officer for the commission, said the sale of the 161-acre parcel is subject to approval by the agency, which will require a prospective new owner of the property to demonstrate its intent and capability to satisfy Halekua's commitments.

Specific provisions Halekua hasn't met include conveying 12 acres of land to the state for an elementary school, contributing $500,000 for a road to the school site and developing other infrastructure up to the site.

Halekua did convey a 150-acre parcel to the state for a planned farming subdivision, but failed to provide infrastructure to the site as required.

The state leases the land to Larry Jefts Farms. Without water or power connections, the state cannot subdivide the parcel as planned and lease it to multiple small farmers who were supposed to be able to build homes and live on the property.

Another provision Halekua never satisfied was turning over at least 10 acres for a county park. Halekua also has unpaid county property taxes that a new landowner is required to pay.

Several private agreements are also tied to the land sale, including providing infrastructure to the planned industrial park site owned by the Weinberg affiliate, HRT Ltd.

HRT also is owed fill material estimated to cost $6 million, which a buyer of the 161-acre parcel must deliver or pay for.

Jerrold Guben, a bankruptcy attorney representing Halekua, said he expects bids for the property to be more than the $34 million owed to secured creditors in the case, and probably enough to pay off some of the additional $10 million in claims held by unsecured creditors.

Castle & Cooke, according to bankruptcy records, is owed about $25 million, mostly as Halekua's partner in Royal Kunia. Stanford Carr is owed about $5 million via claims the developer acquired from other creditors.

Other local developers have inquired about the property, but as of last week had not submitted a required $1 million deposit to the court to register as a potential bidder.

Mateo of the Royal Kunia Community Association said she is eager to see who buys the land and what their vision is for the property.

"At least we won't be in limbo anymore," she said.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.