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The Honolulu Advertiser
Posted on: Wednesday, January 23, 2008

Turtle Bay buyout surprises developer

Gov. Linda Lingle's State of the State address
Photo galleryPhoto gallery: Governor's State of the State Address
Video: Lingle delivers State of the State speech
 •  Lingle's State of the State priorities
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By Derrick DePledge
Advertiser Government Writer

Hawaii news photo - The Honolulu Advertiser

In her State of the State speech yesterday, Gov. Linda Lingle raised eyebrows by proposing that the state acquire Turtle Bay Resort, an idea that was met with questions about financing and future operations.

GREGORY YAMAMOTO | The Honolulu Advertiser

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In a bold idea that stunned preservationists, Gov. Linda Lingle yesterday said the state should buy the 880-acre Turtle Bay Resort to help preserve O'ahu's North Shore from further development.

The announcement was a surprise to Turtle Bay's developer and to the activists who have fought the expansion of the resort and other projects in a region known for epic surf breaks and country charm.

State House and Senate leaders questioned how the state would finance such an expensive purchase and where the idea fits within other proposed spending this session on infrastructure improvements at the University of Hawai'i, K-12 public schools and public housing projects.

Lingle, who made the proposal in her State of the State speech, described the North Shore as an important escape valve for urban O'ahu and a refuge for residents who prefer a slower, more rural lifestyle.

She did not explain how the state would purchase the resort, which could cost about $500 million, but suggested a mix of state and federal funding sources and even a worldwide Internet fundraising campaign to "Save Hawai'i's North Shore."

Lingle cited the state's previous role in preserving Waimea Valley and Pupukea-Paumalu on the North Shore and in keeping Kukui Gardens in Chinatown as affordable housing as examples. She said the idea began in conversations surrounding her second inaugural address in 2006, when she said the state's economy had to shift away from real-estate development.

"I have thought hard about what I am proposing, and I believe in my heart that this is the right thing to do for those of us living today, and for those of us who will be born in the decades ahead," Lingle said. "And I believe this will be a defining moment for all of us a moment that communicates to young people that we care more about their future than about our present."

Turtle Bay has the only resort-style hotel on the North Shore, along with condominiums, restaurants and two golf courses. Kuilima Resort Co., which is developing the resort for the Los Angeles private equity firm Oaktree Capital Management, has plans to build up to five new hotels with 3,500 rooms and condominium units and four public parks on the Turtle Bay footprint.

1986 AGREEMENT

The expansion plan was agreed to by developers, the city and the state in 1986. For the past two years, Kuilima Resort has been looking for a buyer or partner to help with financing. The city in October gave Kuilima an additional six months to meet conditions required for the expansion.

Credit Suisse, an international lender, filed a $283 million mortgage foreclosure lawsuit against Kuilima Resort in December for late principal and interest payments. The lender has asked the court to appoint an outside receiver to take control of the resort property and operate it while the foreclosure case is pending. Kuilima Resort has opposed that request.

Nathan Hokama, a spokesman for Kuilima Resort, said yesterday that the developers "were caught off guard" by Lingle's announcement but would be open to speaking with the governor about a possible state purchase. He said Kuilima Resort continues to move forward with the development of the resort as planned.

"It's hard to say at this point what (Lingle's) plan would be, because we just don't know all the details," Hokama said of Lingle's idea. "I don't know if the governor knows all the details either what does it mean when the state takes over the property? Do they go into the development business? Do they operate the hotel? I think that her speech mentioned that she was going to consider selling the resort. So, what does that mean to the employees who are out there?

"So I think there are so many ramifications that need to be considered."

Lea Hong, Hawaiian Islands program director for The Trust for Public Land, a preservation group, said the state should look at creative and strategic ways to purchase the resort.

"I do think it's possible," Hong said. "It's a big, big task and certainly we need to think of ways to raise the money for this. Nobody wants this to fall on Hawai'i taxpayers."

SURPLUS EXPECTED

Lingle, in her speech, mentioned the slower state revenue growth projections that have led to budget restrictions and talk by lawmakers of fiscal restraint this session. Lingle said revenue estimates have been off by $353 million since the Legislature adopted its two-year budget last spring. But the state's economy remains fairly strong, she said, and her administration still anticipates a healthy budget surplus at the end of the fiscal year in June.

The governor acknowledged that her Turtle Bay idea was only a first step to start the discussion and she invited House and Senate leaders to assign lawmakers to work with her and preservationists toward a purchase plan.

"I think this is something the whole island will get behind. And, actually, I think the state will understand, as Maui and Kaua'i, in particular, increasingly become more congested," said state Sen. Clayton Hee, D-23rd (Kane'ohe, Kahuku), chairman of the Senate Water and Land Committee.

State Rep. Michael Magaoay, D-46th (Schofield, Mokule'ia, North Shore), who supports Lingle's idea, said the future of Turtle Bay is pivotal to other long-term development plans for the North Shore. Seven other developers have ideas for new housing, a hotel and a wind farm between Kahuku and Punalu'u over the next decade, as residents decide how much growth is appropriate in a region already bustling with locals and tourists.

Magaoay said people came together last year to help save Kahuku Hospital, which is now part of the state's public hospital system, and are ready to help plan their future.

"Basically, we're starting from ground zero and we will need to talk with the community about exactly what people want," he said of Lingle's Turtle Bay idea.

But state Sen. Robert Bunda, D-22nd (North Shore, Wahiawa), said he doubted the Legislature is ready for such a purchase. He asked why Lingle would announce the idea without first talking with North Shore lawmakers and without more specifics about financing.

"I don't think it can fly," Bunda said.

State Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), warned North Shore lawmakers to be prepared for the community reaction. "We're pretty certain we will have positive community interest in this, for them, they really need to brace themselves," she said. "Rep. Magaoay, Sen. Hee and Sen. Bunda are up for re-election this year. They're going to need to find a way to discuss with their community what can and cannot be done."

Three years ago, state lawmakers increased the conveyance tax on higher-end properties and used some of the proceeds to fund land conservation. Lawmakers also discussed protecting important agricultural lands.

"We've got to be sure that this is where people want to be, that this is what people want to preserve," Hanabusa said of Turtle Bay.

Privately, several lawmakers said they thought Lingle's proposal was an effort to add some punch to her speech in a year when the governor and lawmakers will be handcuffed on spending for new initiatives.

If Lingle were serious, some said, she would have done more to flesh out the idea and brief community leaders before announcing it publicly. There is no money in Lingle's supplemental budget for the purchase and the idea is not in any of the 180 bills the governor will submit.

SIXTH ADDRESS

Lingle's address, her sixth since taking office, was largely thematic, focusing on concepts such as personal responsibility, innovation and energy. She had previewed some of her initiatives when she released her budget proposal in December, such as infrastructure investments at state harbors and airports, and outlined $102 million in tax relief last week.

Her new initiatives include:

  • Creative academies in public schools to nurture artistic talent.

  • A commission on higher education made up of the presidents of major universities and business and community leaders.

  • Re-establishing an energy division within the state Department of Business, Economic Development and Tourism.

  • A Hawai'i Clean Energy Initiative in partnership with the U.S. Department of Energy.

    Lingle's speech was the most forceful when she came back to the theme she first hit during her second inaugural address the fundamental transformation of the economy away from land development.

    "It is as certain as night follows day that we cannot speculate or sell ourselves into prosperity," Lingle said. "Instead, we have to be willing to invest in those education and workforce programs that will prepare people to succeed in an increasingly competitive world."

    Advertiser staff writers Jim Dooley, Will Hoover and Treena Shapiro contributed to this report.

    Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.

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