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KAPAA, HI-A group of investors assembled by Diversified Equity Investment Corp. has acquired the 110,000-sf Kauai Village retail center in a $40 million deal that includes funds to repair and remodel the property. Diversified, a California and Hawaii-based investment company that is one of the largest shopping center owners in Hawaii, was represented by chairman David Lee and president Richard Walter of Irvine-based Faris Lee Investments.

The Kauai Village center, at 4-831 Kuhio Highway, was built in 1990 and was about 85% occupied at the time of the sale. Lee says the new ownership's remodeling plans are aimed at creating a "resort-style shopping center" to capitalize on both the demand of the local Kauai residents and the increasing tourist base. The buyers acquired the property from Irvine-based Passco, which was represented by the Reza Investment Group of Irvine.

The eight-acre property fronts the Kuhio Highway and is located on east Kauai, an area with the largest population on the island. The center has two primary anchor stores, Safeway and Long's Drugs, as well as a diverse mix of stores and restaurants that appeal to both local residents and visitors.

The property includes an open-air courtyard with a waterfall, landscaped ponds and streams, small walking bridges and walkways, as well as a three-story clock tower and two whale murals painted by the marine artist, Wyland. Despite these features and its location, however, the property posed some difficult challenges, according to the Faris Lee brokers.

Financing was critical, according to Walter, who says that the center didn't qualify for traditional long-term financing because of its combination of a lower occupancy level and the need for major renovations. Faris Lee Capital, the firm's financing arm, arranged a bridge loan to facilitate the closing and provide funds for the rehabilitation and repairs.

In addition, "This property required a unique buyer who was willing to take a risk," Walter adds. After a due diligence of 30 days, the property sold at just under a 5% percent cap rate.

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Diversified Group Invests $40M in Center

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