Kapono's, the waterfront restaurant and live music club at Aloha Tower co-founded by musician Henry Kapono Ka'aihue, will shut down on Jan. 1.

Kapono, his wife, Lezlee Ka'aihue, and co-partner John Bilgrave decided against renewing the venue's current lease when they were unable to agree on terms of a new one with landlord Aloha Tower Marketplace. The closing will affect more than 30 Kapono's employees.

Negotiations between Kapono's parent company Lokahi Ekolu Corp. and marketplace management broke down primarily over the time period of a new lease. Lokahi Ekolu wanted a one-year lease with an option to extend; Aloha Tower Marketplace wanted a five-year commitment.

"We were willing to commit to five years, but everything would've had to be in line for us to do business the way we've learned (Kapono's) works now," said Henry Kapono Ka'aihue. "Our philosophy has always been win-win. And to try and get a lease where everybody wins was the difficult part.

"Closing was a very difficult decision."

Kapono's opened in June 2001, its large outdoor amphitheatre-style stage, ample seating and harborside location specifically designed by Ka'aihue to advertise the fact that "unlike most restaurants, music wouldn't be an afterthought here." It became a respected home for live local music. Traditional Hawaiian, contemporary Hawaiian, jazz, blues, rock, reggae, swing and pop acts all found gigs there.

After 4 1/2 years in operation, Ka'aihue said the business "was just starting to turn the corner," doing well and finally turning a profit. A decision earlier this year to host more one-off reggae fests and concerts by Mainland acts such as Lifehouse, Ozomatli and Alien Ant Farm had boosted patronage and revenue. The venue's roster of nightly local musicians — Henry Kapono included — remained a solid, if not always large, draw.

Marketplace general manager Floyd Williamson confirmed that Kapono's opted against a five-year extension of its lease. He also said the marketplace is in lease talks with another tenant to take over the 12,000 square-foot space in its entirety. He declined to identify the name of the company, or to say whether it was a local or offshore entity and what kind of business it would operate in the space.

Kapono's employees were informed of the venue's fate on Friday.

"That was the hardest part, because we've got a great staff now," Ka'aihue said. "We've been through hundreds of people just to get to this core group of great team players. It was hard for us to make this decision because we felt like we'd be letting them down."

Ka'aihue's day-to-day focus will shift toward his music and entertainment company Kapono Inc. and building up its recording, merchandising and talent management efforts. He's looking forward most to working on his own music and producing up-and-coming talent.

"I'm really excited about having time for my music again," Ka'aihue said. "I've kind of been doing it between the club work. I enjoy being in the studio (and) working with musicians in making and creating music."

Another nightclub may eventually become part of the plan. But Ka'aihue has no current plans to relaunch Kapono's at another location.

He will continue his popular Wednesday and Friday night performances until Kapono's closes. "Life goes on. The best is yet to come," he said. "Our saying now is, 'We came. We rocked. We had a good time.' "

Reach Derek Paiva at dpaiva@honoluluadvertiser.com.