An Atlanta developer may abandon plans for a $2.2 billion waterfront resort on state land near Kailua, Kona, on the Big Island after four years of work to advance the ambitious but controversial project.

Jacoby Development Inc. has informed the state that obstacles to land-use and environmental approvals have raised significant doubt about the feasibility of the project on 550 acres owned by the Department of Hawaiian Home Lands and the Department of Land and Natural Resources.

The developer initially indicated it was inclined to quit the project late last year, and formally notified the Board of Land and Natural Resources in June that it was exercising its right to terminate a development agreement for the DLNR parcel.

However, according to DLNR officials, a Jacoby Development representative told state officials at a land board meeting last week that the developer is willing to reconsider its planned pullout under certain conditions that weren't specified at the meeting.

"We are interested to hear from the developer regarding the specific conditions under which they are willing to proceed," Laura H. Thielen, board chairwoman, said in a statement yesterday.

A Jacoby Development representative could not be reached for comment this week.

The project, dubbed Kona Kai Ola, largely emanated from a desire by DLNR to expand North Kona's crowded Honokohau Harbor with an additional 800 slips on 45 acres.

The agency offered 350 acres next to the harbor for lease via competitive bid, and selected the experienced Atlanta developer in late 2004. Jacoby Development earlier that year had been awarded a lease for 200 adjacent acres owned by Hawaiian Home Lands that was viewed as giving the developer an advantage in its DLNR bid by integrating the two parcels.

Through the land lease deals, the state agencies sought to generate millions of dollars in annual income to improve other programs. Public benefits such as the expanded marina, a large new job base, affordable housing, a major new road, a shoreline park and outrigger canoe facilities were other positive public aspects of the plan.

But concerns — chiefly traffic congestion — were raised by West Hawai'i residents who feared such a massive project would worsen already chronic daily gridlock.

Jacoby Development initially proposed 700 hotel rooms, 1,800 time-share units, the 800-slip marina and 51 acres of retail and other commercial space to be developed over roughly 15 years.

But a year ago after completing an environmental impact study and assessing public comments, the developer scaled back its plan to 400 hotel rooms, 1,100 time-share units and a 400-slip marina while expanding commercial space to 143 acres.

ENVIRONMENTAL STUDY

Other elements of Kona Kai Ola included 500 to 1,000 "workforce housing" affordable rental units near the project, and 224 acres of open space devoted to landscaped areas, public trails, lagoons and other features.

The developer also vowed to address traffic congestion by creating an alternate route from the project and the harbor to Kuakini Highway in Kailua, Kona, makai of the area's main artery, Queen Ka'ahumanu Highway.

Still, Jacoby Development faced major obstacles, including a determination by the U.S. Army Corps of Engineers that the project needed a federal environmental impact statement under the National Environmental Policy Act.

A federal environmental impact study would significantly delay project construction that Jacoby Development had hoped to begin next year. A county zoning change also was necessary, and the developer questioned whether the county would allow hotel and time-share use on the property.

In a June 27 letter from Jacoby Development attorney Robert Klein to land board chairwoman Thielen, Klein said the developer expressed its inclination in December to quit the project, but held off at the agency's request.

Klein's letter cited major issues including the federal environmental study and county zoning in concluding that proceeding with the project would be "impractical, uneconomical and otherwise unfeasible."

The letter, which also criticized DLNR for not better assisting Jacoby Development to obtain government approvals, was formal notice that the company was exercising its right to terminate the development agreement effective July 1.

Jacoby Development also refused to pay the agency roughly $51,000 in past due development fee installments for the first half of the year because it was encouraged not to quit the project earlier.

Thielen, in a written response to the developer in August, said the agency provided reasonable assistance to the developer where it could, and noted that project documents clearly say obtaining necessary government approvals is the developer's responsibility and might make developing the property challenging, if not impossible. Thielen also suggested Jacoby Development should pay the past-due fees because DLNR didn't breach terms of the agreement or request that the developer delay a decision on quitting the project.

NO DECISION YET

Agency planning and development manager Keith Chun recently recommended that the land board accept the developer's withdrawal. But the board on Friday voted to defer action for a month to provide agency staff time to talk with Jacoby Development about whether there are acceptable terms under which the project could proceed.

Jacoby Development still has a binding lease with Hawaiian Home Lands. But the developer has failed to pay lease rent for the 200-acre property this year, and owes that agency about $350,000.

Hawaiian Home Lands spokesman Lloyd Yonenaka said the developer has indicated it would like the agency to forgive lease rent but has not made a formal proposal to work out the delinquency.

Yonenaka said Jacoby Development also has indicated that it still wants to develop the Hawaiian Home Lands property, but it's unclear how the project might be reshaped if the makai DLNR land is excluded.

Under Jacoby Development's plan, commercial space and one hotel were planned for the Hawaiian Home Lands parcel. The marina, time share, one hotel and a shoreline park were planned for the DLNR parcel.