Big Island

Big Island Foreclosure Auction: 7,000 Acres in North Kohala

I’ve written before about oceanfront foreclosures, auctions and foreclosure auctions from Kukio to Kohala on the Big Island of Hawai’i. But there has never been a foreclosure auction like the one set to take place on Wednesday, August 22, when over 7,000 acres encompassing 51 parcels near Hawi, North Kohala will be auctioned.

Six parcels between oceanfront Mahukona harbor and Kapa’a Beach Park will be included in auction. (Photo courtesy of Rosa Say)

What Property is For Sale at Auction?

When the coconut wireless reported the auction announcement published in the Honolulu Star-Advertiser, a bunch of individuals showed up at the first public tour of the properties hoping to get their hands on an individual parcel at a foreclosure price. However, the auction is for all parcels as a single sale of approximately 7,260 acres.

That includes:

  • Eleven parcels with improvements (read on for more about those improvements) in the area between Mahukona Boat Harbor and Kapaa Beach Park (the two oceanfront access roads just south of the Ranch at Puakea and Puakea Bay Ranch subdivisions), both makai (ocean side) and mauka (mountain side) of the highway, for a total of 642 acres.
  • Forty parcels located mauka of Akoni Pule Highway, from the Halaula area just past the town of Kapaau all the way out to Niulii, just before the road dead-ends at Polulu Valley. These contiguous parcels total 6,618 acres.

The mauka lands range from waterfalls to cattle pasture

A Brief and Oversimplified History of Land Sales in Kohala

When I’m showing larger lots or acreage in the Kohala area…or even showing homes on acreage near Hawi…I end up explaining that when the sugar production shut down in the 1970’s, the land and other assets were sold to a company called Chalon International (later renamed Surety Kohala).  

Most of the real estate makai of Akoni Pule highway from where it turns the corner east towards Hawi…and all the way out to Niulii…consists of parcels that were created when Chalon/Surety consolidated and resubdivided their holdings. Sometimes they created “subdivisions” (groupings of parcels with minimal infrastructure); other tracts were sold to bulk buyers, some of whom subsequently develop the land for sale.

Among the assets acquired in the original sale were the oceanfront parcels at Mahukona, and the Kohala Ditch which brought water to the sugar plantation from the higher elevations where rainfall is plentiful (and which still serves agricultural customers as well as providing eco-tourism in the form of Kohala Ditch Adventures.)

A highly over-simplified version of what happened to the Mahukona parcels is that despite strong public opposition to development of its historically and culturally sensitive areas, Chalon/Surety received approval to change the zoning and was granted a special use permit to develop a resort. 

In its most ambitious version, this northernmost Kohala Coast resort would have consisted of a boutique oceanfront hotel of over 200 beds; 100-125 one-acre lots for luxury residences, and an 18-hole golf course.

Why the Property is Going to Foreclosure

Special use and building permits expire if construction does not take place within the allotted time frame. Four years ago time was running out. Surety Kohala restructured the Mahukona and mauka land assets into Kohala Preserve Conservation Trust, LLC – leaving around 2,000 acres within Surety.

KPCT then submitted a significantly downsized version of the development plan for approval, and borrowed funds to build “temporary resort buildings” in order to comply with the minimum requirements to keep its permits alive.

KPCT has been unable to service the debt, and the lender filed for judicial foreclosure. Last spring it looked as though one large current landowner (who already owns thousands of acres previously acquired from Surety Kohala) had emerged as a white knight to buy both KPCT and Surety Kohala’s land assets. However, that deal fell apart at the eleventh hour, and so the foreclosure auction is going forward.

The Kohala Ditch passes through dozens of parcels that will not be part of the auction

How Does the Auction Work and Should I Bid?

As with any judicial foreclosure, the Kohala property is for sale “as is” and “where is”. For any prospective buyer other than the “white knight” whose advisers have already studied inches of paper in their due diligence, the unknowns make it extremely difficult to value the property being sold. You’ll need a cashier’s check for 10% of your bid price in hand on Wednesday…plan to bring a check on the order of $3 million to be in the game.

The most likely outcome of Wednesday’s auction is that the bank’s credit bid will win the auction.

However, that is not the end of the story. The reason agents at Hawaii Life do not represent buyers in judicial auctions is that even this result is subject to a confirmation hearing that will occur within the following month; and then to an appeal period of another 30 days.

The bigger unknown is what happens after the sale is closed. If a private buyer does end up with the Kohala property, most likely chunks of the assets will be listed for sale. (When the “white knight” was in escrow, selected agents were being given previews of the assets in hopes of arranging some back-to-back closings).

What the lender will do if they end up with REO (real estate owned) of this magnitude is unknown – and this is the Big Question for prospective buyers, the ecotourism businesses operating on the lands, users of the Kohala Ditch, the stewards of the navigational heiau at Mahukona, and the community as a whole.

If you are a buyer with the financial and professional resources – and the reserves of patience and humility – required to not only purchase the property, but also invest in its management and development or conservation, feel free contact me directly for more information and progress reports.

A hui hou,

Beth Thoma Robinson, R(B)
Direct: 808.443.4588

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