1 Hotel Hanalei Bay project site becomes legal battleground

PRINCEVILLE — When the 1 Hotel Hanalei Bay is complete, it will be a luxury resort that caters to the upper crust of the upper crust — with typical rooms priced at between $1,500 and $2,000 a night and premium lodging going for more than $20,000.

Branded as “sustainable luxury,” the 252-room hotel on the former site of the St. Regis Princeville Resort will feature restaurants stocked with locally-sourced food, a spa offering beach yoga and an infinity pool overlooking Hanalei Bay.

The $155 million project to remediate the old hotel was supposed to be completed by February 2022, but for a variety of factors, the opening has been delayed until early 2023.

Contributing to the delay is the fact that the 1 Hotel site has become a hotbed of conflict between the owners and contractors, with allegations of mismanagement, undisclosed pre-existing issues, wrongful contract termination and unsafe working conditions put forward by those working the site.

Now, the problems are going to court.

The primary contractor is suing the owners for $58 million in damages, the owner has announced they intend to submit counterclaims, and a subcontractor has filed a lien for $3.5 million from both parties.

Layton Construction

A lawsuit filed last week by the primary contractor, Utah-based LLC Layton Construction, details the deterioration of the relationship between contractor and owner.

Layton was hired by owners — Delaware-based SOF-XI — in October 2020 after the exit of a previous contractor, under the assumption that the project would be completed in February 2022.

Construction began in earnest in August 2020, when Layton claims they began to discover pre-existing conditions adding to the cost of the project, including the deterioration of guestroom floors, a dilapidated fire sprinkler system, plumbing and sewage issues and warped termite-infested doors.

“Layton and its subcontractors spent significant amounts of time, focus and manpower dealing with and resolving these issues, which were known or should have been known by the Owner,” the lawsuit states.

Layton alleges that the previous contractor exited specifically because of these pre-existing issues which were not disclosed to them.

The relationship really began to collapse following the March 2021 flooding and landslide, which Layton claims caused $18 million in water damage to the property and slowed the construction process by limiting access to the North Shore.

Along with the rain damage came the appearance of mold, which according to the other suit filed by subcontractor Island Glass, was still present a year later in April 2022.

The owners did not grant an extension or agree to cover water damage remediation costs following the event, stating that Layton “failed to adequately protect the asset” — a decision Layton objected to in the court filing.

Layton alleges the owners failed to procure certain materials or purchased materials that were substandard, causing delays.

This July, the Owner informed Layton they were terminating the contract “for cause” effective Aug. 1, 2022, citing “delays in completion of work and in complying with approved project schedule and inadequate manpower commitments.”

“Layton is a building contractor that has been in business for almost 70 years. It takes its obligations with respect to the buildings it constructs very seriously,” said Charles Gall, a Honolulu-based lawyer who filed the complaint on behalf of Layton. “In this case, as set forth in our Complaint, the Owner has made certain decisions that Layton does not agree with and can’t control. Layton is taking the steps necessary to protect its legal interests and those of its subcontractors.”

Mark Deason, Head of Asset Management for Starwood Capital Group involved in the ownership of the property, fiercely rejected the claims made in the lawsuit, calling them “completely without merit.”

“We intend to vigorously defend our position and assert counterclaims against Layton for damages,” said Deason. “We believe we were well within our rights to terminate the construction contract for cause and we stand behind the decision. Our focus is to move forward with the completion of the resort and we are excited to welcome our guests soon.”

Island Glass

Meanwhile, subcontractor Hawai‘i-based Island Glass filed a lien this May for $3.5 million against both Layton and the owners — accusing the companies of nonpayment, mismanagement, and unsafe work conditions.

“IGH is a small family business that is now, due to impacts and non-payment, leveraging forms of business and personal assets to finance the project team’s goal to finish this project,” wrote consultant Joshua Berlien on behalf of Island Glass in a May 22 letter to Layton. “Please take this final note into parallel account of Layton’s creed – Constructing with Integrity – as the Island Glass Ohana is being tarnished both reputably and financially.”

The letter criticizes Layton’s management style for slowing down the construction and calls out the presence of mold as an unsafe work condition. They also reiterated some criticisms Layton levied including that the owners procured defective Arcadia windows and doors for the project, which added to delays.

Layton lawyer Gall reported that he was still evaluating Island Glass’s claims and did not issue a response.

The Island Glass case is set for a probable cause hearing Nov. 14 2022, and the Layton suit is yet to have received a court date.

Six months after its initial projected date of completion, the 1 Hotel site remains active, with a crew of laborers working on the project Wednesday afternoon. The walls of the hotel are lined with scaffolding and one outlying structure still appears unfinished.

When asked about the opening of the hotel in July, SOF-XI reported that it would now be opening in November, and attributed delays solely to “supply chain issues.”

Now the website says they are planning a January 2023 opening.