Work on Coco Palms project could be halted by mortgage broker seeking ‘owed’ $1 million commission for securing funding

An upcoming court hearing about the ownership of a prime property on Kauaʻi could lead to another setback for the Utah-based developer who is building a controversial 350-unit hotel on the site that once housed the iconic Coco Palms Resort.

In June, a three-judge panel of the Hawaiʻi Intermediate Court of Appeals canceled the 2021 foreclosure sale of the property that had been abandoned for 30 years after it was destroyed by Hurricane Iniki in 1992. The case was sent back to the circuit court for further proceedings.

On Sept. 16, Honolulu-based attorney Keith Kiuchi — who is representing a mortgage broker who claims he’s owed $1 million by previous developer Coco Palms Hui  — filed a motion asking Fifth Circuit Court Judge Randal Valenciano to grant a preliminary injunction ordering current developer Reef Capital Partners to stop all work at the property.

It also asks for the judge to cancel the transfer of ownership from Coco Palms Hui to Utah investment firm Private Capital Group, an agent of Reef Capital Partners, and vacate the prior foreclosure judgment, per the appeals court’s June decision.

Private Capital Group began foreclosure proceedings on Coco Palms Hui in 2019 because it had defaulted on more than $11 million of a $22 million mortgage. In 2021, the circuit court allowed the 2021 foreclosure sale in which Private Capital Group purchased the property for $22 million when it was the only bidder in a public auction.

A hearing on Kiuchi’s motion has been scheduled for Oct. 31 at 1 p.m.

Shane Peters, the communications adviser for Reef Capital Partners, did not reply to multiple email requests, beginning Sept. 20, seeking comment about the foreclosure case and its potential impact on the hotel development. 

But representatives for Reef Capital Partners have previously maintained that the foreclosure case will not affect the ongoing hotel project, including in August 2023, when Jon Day, the chief financial officer for Reef Capital Partners, said the lawsuit appealing the foreclosure “will have no impact.”

While opponents of the $400 million project, including the non-profit group I Ola Wailuanui, see the ruling to cancel the foreclosure sale as an opportunity to halt the work for good on a sacred site, Kiuchi said his client doesn’t care if the project eventually is built.

“My client wants to get paid,” he said.

Kiuchi said his client, California mortgage broker Paul Honkavaara (doing business as Chartered Financial Group), is owed about $1 million in commission for securing a loan for Chad Waters and Tyler Greene, who owned the property from 2016 to 2019 as Coco Palms Hui.

Honkavaara had filed a lawsuit seeking payment in 2017, when the Fresno Superior Court of California ruled he was owed $521,879 from Coco Palms Hui (Waters and Greene) on Oct. 26 of that year.

According to the complaint, Honkavaara had been hired by Waters and Greene to find financing for the purchase and renovation of the property in March 2016. He secured the financing from Private Capital Group, a loan originator and loan servicer, who had obtained $22.2 million in funding from private equity firm Crestline Investors in May 2016.

The parties had agreed Honkavaara would be compensated a “finder’s fee” equal to two percent of the total financing, but he was never paid.

Kiuchi said court judgments in Hawaiʻi have an annual interest of 10%, putting the current amount owed at just over $1 million.

In June 2024, the same month as the appellate court’s foreclosure decision, Reef Capital Partners partnered with global hospitality company Kimpton to revive the historic resort, bringing both visitors and the local community “unique, culturally respectful experiences all within an inspiring boutique luxury setting,” according to a Kimpton press release.

In July, Day responded to the foreclosure ruling in a statement to Hawaiʻi News Now. It said that while the ruling shifted ownership of Coco Palms from RP21 Coco Palms back to Coco Palms Hui, both companies are 100% owned and controlled by Reef Capital Partners.

“Therefore, the ruling has no impact on Reef’s ability or commitment to restore the historic Coco Palms Hotel in a sustainable and culturally responsible manner,” Day said. “Reef remains on track to welcome the local community and guests to the restored property in late 2026.”

Kiuchi attached the news article, and specifically the above statement, as an exhibit in his 120-page motion seeking to stop all work at the site.

Kiuchi disagreed with Day’s statement that the foreclosure cancellation would not impact the project moving forward, saying the development will not proceed unless his client is paid off or a motion for summary judgment is filed.

“I suggest they read their law. That’s what I suggest,” he said. “If their assumption is that Coco Palms Hui and PCG (Private Capital Group) are one and the same. Well, we’ll see if the judge agrees with that.”

Kiuchi said that Reef Capital Partners/PCG was not interested in settling with his client, and that the decision from the appeals court means Reef Capital Partners will “have to start the foreclosure process all over again.”

According to the appellate court’s order, as well as Kiuchi’s motion, the original foreclosure was permitted because it was based on the premise that the lender who provided the more than $22 million loan to Coco Palms Hui was Private Capital Group.

However, the documents state the lender was five different entities: WCMF, Coco Lenders Partnership, Blue Glacier Fund, Crestline AK Opportunistic Fund, and Private Capital Group Credit Partners. 

Private Capital Group was managing the loan as the “loan servicer” but needed a servicing agreement with the actual lender to be able to enforce the loan, Kiuchi said. 

Despite Private Capital Group alleging it held the right to foreclose because it was the “disclosed agent” of all the payees named, the appellate court agreed with Kiuchi that Private Capital Group did not have the authority to enforce the loan because it did not prove it was the lender or had a power of attorney from the lender to foreclose.

With the decision, Kiuchi’s new motion claims any demolition or construction activities at the site are not legal because the permits are in the name of RP 21 Coco Palms, an entity of Reef Capital Partners that no longer owns the property.

“Whoever they call themselves, PCG or Reef Capital Partners, needs to comply with the law,” Kiuchi said.

In his Sept. 16 motion to vacate, Kiuchi attached an Aug. 7 letter from Russell Tsuji, land division administrator for the state Department of Land and Natural Resources, that said Coco Palms Hui has the current right to the property.

The letter said that Board of Land and Natural Resources Chair Dawn Chang transferred lease and easement rights from RP 21 Coco Palms to Coco Palms Hui on April 2. It also states that Chang signed an amendment on that date to allow the easements to “run with the land,” meaning they remain valid despite any changes in ownership. 

In an email response, Tsuji said he “cannot comment” on Kiuchi’s claim that current developer Reef Capital no longer has ownership rights to the property and should not be doing construction work at the site. 

He said that as far as the Department of Land and Natural Resources knows, the existing building and zoning permits are valid because they also believe that they “run with the land.” 

However, he did not say who the permits are valid for and who has the right to use them. 

“In this case, the building permits apply to the private lands and not the state lands,” he said. 

In addition to the 20 acres of private land that makes up the Coco Palms property, the resort also occupies 14.8 acres of state land, which has been leased by Coco Palms owners since 1983, as reported by The Garden Island.

In an email response, County of Kauaʻi Public Information Officer Alden Alayvilla declined a request to interview Planning Director Kaʻaina Hull about the foreclosure case.

“With this in litigation, the County of Kauaʻi cannot comment at this time,” he wrote. 

In a later email, Alayvilla said that “the building permits are all still active,” but he did not clarify ownership or who has rights to them.

Meanwhile, opponents of the project argue the property is not suitable for a resort due to the lack of infrastructure, limited sewage capacity, and its location across the street from Wailua Beach and a major highway, making it vulnerable to climate change and natural disasters. 

“I don’t see that the circuit court judge has any choice but to reverse his findings of fact, conclusions of law and decision and final judgment,” said Teresa (Teri) Tico, an attorney and legal consultant with I Ola Wailuanui. 

“After all, the appellate court vacated it,” she said. “So what is he going to do? He can’t stand up and go against them, right? He just basically has to follow their instructions.” 

After the court hearing, Tico believes that Valenciano will initiate a new foreclosure action and a new foreclosure auction will be conducted. She says the auction will give the community a chance to purchase the property. 

“I hope it gives the community an opportunity to be a part of what happens to this property,” she said. “And the organizations I’m working with would like to see a park.”

For years, I Ola Wailuanui has advocated for the site that had sat abandoned for 30 years to be restored as a Hawaiian cultural center and agricultural park. Tico previously said donors had promised up to $10 million for their efforts of a historic restoration at one point. 

Another nonprofit organization also is trying to put a stop to the development. Friends of Maha’ulepu had filed a petition with the Planning Department to revoke Reef Capital’s zoning and variance permits, but the seven-member board denied the petition in March, stating the group lacked standing. 

Friends of Maha’ulepu, including its president Bridget Hammerquist, appealed the decision in civil court in April, and the matter was last heard on Sept. 25. According to court records, Judge Kathleen Watanabe is expected to make a decision on the appeal within two weeks.  

“I think they’re going to win,” Tico said. “I just can’t believe that the planning commissioners would say that this organization, thatʻs so invested in environmental issues, would not have standing.”

Tico said I Ola Wailuanui also has filed several legal actions against the county’s Planning Commission to revoke the permits, which have all been denied. 

“We’ve all tried to go to the planning commission and have the commissioners revoke these permits because of all the violations that have been ongoing,” Tico said. 

In April 2023, the state Department of Land and Natural Resources issued a notice to the developer, asking that they stop all work at the site due to allegations of several land use violations, including failure to maintain the premises, cutting down palm trees without consent, and conducting work without proper permits in a state land use conservation district.

At the time, Reef Capital’s Managing Director Patrick Manning said the allegations were “an innocent mistake” and said the project was on track to be completed in three years.  

“Reef Capital has the resources, experience and expertise to finally fulfill the promise to complete the restoration of this historic landmark after 30 years of failure by previous owners,” Day said in a statement in August 2023.

Demolition has been ongoing since March 2024 and construction has been ongoing throughout the restoration process, communications adviser Peters said last month.

However, Kiuchi remains skeptical about Reef Capital being able to fulfill its commitment to restore the site. 

“They screwed up the first foreclosure, and I’m looking forward to them trying to do it again,” he said.