From: http://pacific.bizjournals.com/pacific/stories/2008/11/24/story1.html

Friday, November 21, 2008
"Marriott, Starwood stop big Hawaii projects"
Pacific Business News (Honolulu) - by Janis L. Magin

"Marriott has halted construction at its $1.4 billion Kauai Lagoons resort project, one of the largest Hawaii construction projects to be interrupted by the ailing national economy.

Starwood Vacation Ownership also has put a $304 million Maui time-share project on hold. Construction on the 1,010-acre Kukuiula project also on Kauai has been scaled back, and work on a new high-rise condominium in Honolulu was cut back considerably a couple of weeks ago.

The decisions to stop or slow work on some of the biggest private construction projects in Hawaii will add to the 36 percent decline in the dollar-volume of building permits in the third quarter.

Marriott notified contractors last week that all vertical construction on nearly 400 units planned for the 520-acre Kauai Lagoons project adjacent to the Kauai Marriott Resort & Beach Club would stop, but grading and infrastructure work will continue.

Uncertain economic conditions led the company to reassess its plans, said Ed Kinney, vice president of corporate affairs and brand awareness for Orlando, Fla.-based Marriott Vacation Club International and The Ritz-Carlton Club.

Unlike The Ritz-Carlton projects at Kapalua on Maui, Marriott is financing the Kauai Lagoons project internally.

The Maui Ritz-Carlton project, a partnership between Marriott, Maui Land & Pineapple and Exclusive Resorts, ran into problems with its primary financing after Lehman Brothers declared bankruptcy and failed to release the monthly draw on a $370 million construction loan.

The partnership is making up the difference for the Lehman loan, along with general contractor Nordic-PCL Construction Co., which is carrying some of the construction costs.

Marriott has multiple brands under the Kauai Lagoons banner. Planned were 14 Ritz-Carlton Residences, 46 Ritz-Carlton Residences town homes, 72 Ritz-Carlton Club fractional ownership residences, 78 Grand Residences by Marriott, 200 Marriott Vacation Club villas and 50 custom-home lots.

Prices for the 14 oceanfront Ritz-Carlton Residences — two-, three- and four-bedroom units ranging from 2,519 square-feet to 3,499 square-feet — start at $4.5 million. Prices for the 78 Grand Residences, luxury two- and three-bedroom condominiums, start at $1.7 million.

Kinney declined to reveal the project’s total value, though previous estimates had pegged it at $1.4 billion.

The resort’s first phase of construction was worth some $79 million, and construction was scheduled to be completed in January 2010, according to PBN research.

One building, containing 26 of the Grand Residences by Marriott units, is scheduled to be open by Dec. 18; the shells of two other buildings are completed and the rest are on hold.

Kinney said Marriott, which bought out its Kauai Lagoons development partner, Kevin Showe, in July 2007, intends to continue the project, but said there is no schedule for construction to resume. Sales for the Ritz-Carlton Residences and the Ritz-Carlton Club, which were to have opened in April 2009, began this fall.

“We do want to make sure we’re reassessing the mix of offerings,” he said, adding that the company wants to make sure the project has the right mix of brands. “As the economy starts to improve and we can continue to make sales, which is our intention, we’ll revisit the schedule.”

Sales at Starwood’s third time share at the Kaanapali Resort on Maui were supposed to have started in mid-2009, but have been pushed back to early 2010 because of the economy, according to David Matheson, vice president of corporate communications for Starwood Vacation Ownership Inc., which also is based in Orlando.

Site and infrastructure work at the 390-unit Westin Nanea Ocean Resort Villas already has started, but the vertical construction has been delayed indefinitely, Matheson said. According to PBN research, the building permit value of the project was $304.5 million and construction was to have been completed in March 2012.

Starwood is self-financing the 26.7-acre project, Matheson said.

Starwood’s Westin Kaanapali Ocean Resort North, the company’s second time-share product on Maui, opened earlier this year.

In its third quarter report last month, Starwood Hotels & Resorts Worldwide blamed a 29.5 percent decrease in time-share sales in part on the sellout of the Westin Kaanapali Ocean Resort North, as well as an overall decline in demand for time shares.

“The overall sales pace in Hawaii has slowed considerably due to the global economic conditions,” Matheson said. “The company has made the decision to adjust our capital investment in new projects until conditions improve.”

In August, Kukuiula broke ground on the $100 million clubhouse, spa and Tom Weiskopf-designed golf course that are part of the development of 1,500 luxury vacation homes outside Koloa on Kauai. Kukuiula is one of the largest residential projects under way in Hawaii.

But the work has been scaled back considerably, and last month management said it would lay off between 20 to 24 employees in its administration, marketing and planning departments.

Construction on the clubhouse and other amenities was to have been completed in late 2010.

Kukuiula is a joint venture between Honolulu-based A&B Properties and Scottsdale, Ariz.-based DMB Associates, Inc., which has had to revise completion dates for several major projects on the Mainland and has laid off staff because of the economic slump.

Richard Holtzman, president of Kukuiula Development Co., did not return calls seeking comment,

The economic slump also has caused some hotel owners in Waikiki to put off major renovations.

Last month, Outrigger Enterprises stopped work on its 285-room Ohana Islander at the corner of Kalakaua Avenue and Lewers Street, which was getting a $40 million makeover into an upscale boutique hotel. Outrigger said it wanted to preserve cash, so the rooms will remain unfinished and empty until the economy improves.

In Honolulu, work on the Moana Vista condominium under construction on Kapiolani Boulevard slowed down several weeks ago, when 53 craftsmen, about half the workers on the job, were laid off.

Although work on the external shell of the building is continuing, finish work on the interior has been delayed.

“We’re trying to study the market conditions and will probably come out with a new marketing plan in about 30 days,” said Allen Leong, director of operations for KC Rainbow Development, which also built the twin Moana Pacific towers.

Sales have been slow at the project, which was one of the last high-rises to rise as part of the Honolulu condominium boom. Prices start at $480,000 for a one-bedroom unit and about 160 of the project’s 360 units have been sold."