`Aina Le`a Update: A Settlement, An Overdue Note, and a Possible Suitor

posted in: March 2017 | 0

Not much has been happening on the land proposed for the Villages of `Aina Le`a, consisting of about 1,100 acres lying between Waikoloa town and the Mauna Lani resort in the South Kohala district of the Big Island.

In the courts and in the world of finance, however, there’s been a flurry of action in recent months.

The Bridge Lawsuit

Perhaps most important from the perspective of the state of Hawai`i, a long-simmering legal dispute over the right to develop the land has been settled. Back in 2011, Bridge `Aina Le`a, which then owned almost all the land as well as another 1,900 acres surrounding it on three sides, sued the state Land Use Commission following the LUC’s decision to revert the 1,100 acres from the Urban District to the Agricultural District in the wake of failures by Bridge and/or its development partners to meet deadlines for affordable housing on the property.

In a federal lawsuit brought in 2011, Bridge claimed an unconstitutional taking as well as damages in the tens of millions of dollars. Named as defendants were the individual commissioners in addition to the state.

Last summer, the Department of Attorney General and Bridge reached an out of court settlement, but it wasn’t until February that the deal was signed, sealed, and delivered to the court.

As Environment Hawai`i reported last August, terms call for the state to pay Bridge $1 million and for the Department of Attorney General to support any “legally sufficient” petition that Bridge or its successors might bring to the LUC to reclassify the 1,900 acres surrounding the Villages of `Aina Le`a area into the Rural District from the Agricultural District.

Other provisions of the agreement are that the state agrees that the land that was the subject of the LUC reversion in 2010 “cannot be reverted to its former land use classification.”

The Legislature must still appropriate the funds, but otherwise, the Bridge lawsuit seems to be a settled matter.

The `Aina Le`a Foreclosure

The company that now owns the bulk of the land in the Urban District is `Aina Le`a, Inc. It and its predecessor company, DW `Aina Le`a, have devised several innovative ways of raising money to pay for the infrastructure and construction costs associated with carrying out plans to build nearly 400 units of affordable housing and also financing the purchase of land from Bridge.

One means of raising funds has been through the sale of undivided land fractions, or ULFs, to Asian investors. In return for a promised high rate of return (12 percent), the investors were granted undivided percentage shares in two parcels having a total area of about 60 acres. More than 1,000 investors ended up owning a piece of the action, each having invested a minimum of around $9,600.

In addition, `Aina Le`a took out loans amounting to several tens of millions of dollars from, among others, a Chinese investor named Libo Zhang. That $6 million loan was secured in November 2015 by a mortgage on a 23-acre parcel where the company has said it plans to build Whale’s Point village, a luxury condominium development. The note held by Zhang came due on November 12.

On December 30, with `Aina Le`a having failed to pay back the loan or extend the terms, Zhang brought a foreclosure action in 3rd Circuit Court. `Aina Le`a and Emerald Hawai`i Services, which represents the interests of the Asian investors (whose collective share of the parcel comes to about 15 percent), were served in January but had not filed a response with the court by press time.

A Merger Agreement

In its search for financing, `Aina Le`a had attempted a public offering of up to 2 million shares, hoping to raise at least $17 million. When the hoped-for sales had not materialized by the end of last July, `Aina Le`a withdrew the offer and set its sights on another means of raising capital.

In December, the results of that effort were heralded in a press release the company issued, announcing that it had entered into a merger agreement with Origo Acquisition Corporation, a company based in the Cayman Islands. The advantage for `Aina Le`a in such a merger is that it will allow company shares to be publicly traded. Following the merger, Origo would cease to exist, with its investors now becoming holders of shares in `Aina Le`a. Origo’s cash holdings, of roughly $43 million, would then become available to push the `Aina Le`a project forward.

Origo, formerly known as CB Pharma Acquisition Corporation, was organized in 2014 as a “blank check” company and has no business activity of its own, other than to identify a company for acquisition. It originally sought to acquire a bioscience firm, but that fell through and the company changed its name. The company was to dissolve by December 12, 2016, if another acquisition target was not identified by then.

Days before that deadline rolled around, and with the `Aina Le`a merger agreement on the horizon, Origo shareholders approved extending the acquisition deadline to March 12, 2017. Following that, on December 19, the merger agreement was announced.

On February 16, Origo informed the Securities and Exchange Commission that the merger would not be completed by that deadline and that it would be calling a shareholder meeting on March 10 to seek approval for yet another extension. This time, the extension would be indefinite, for as long as the company directors determine it is warranted. If the extension were not to be approved by two-thirds of the shareholders, the company’s SEC filing states, then the company will liquidate.

— Patricia Tummons

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