A 4-year-old plan for a private developer to build condominiums, a hotel and retail space on state land at Honolulu Harbor Piers 5 and 6 has run into trouble over how much the developer should pay to lease the property.

The state Aloha Tower Development Corp. and Texas developer Ken Hughes are $47.5 million apart on what the one-time payment should be for a 65-year lease on the property diamondhead of Aloha Tower.

Hughes, of Dallas-based Hughes Development LP, has offered $10.5 million for the lease. The state agency determined the lease was worth $58 million.

Yesterday, the agency's board of directors voted unanimously to reject the developer's offer, and also authorized retaining a lawyer in response to Hughes recently retaining a litigation attorney.

Ted Liu, an agency board member and director of the state Department of Business, Economic Development and Tourism, said the agency, which has afiduciary responsibility for public assets, didn't consider the Hughes offer as a fair value for the property.

"We have found it to be unacceptable," he said.

Hughes said the state's value is "crazy."

"I am really sorry and exhausted about this," he said. "We are like Mars, and they aren't even on Venus — they are in another constellation."

Sandy Pfund, Aloha Tower Development executive director, said the agency intends to make a counter offer.

"We still want to move forward with the project," she said.

Hughes, who did not attend yesterday's meeting, said in a phone interview that he intends to force legal arbitration to determine a lease value.

"I want to develop this project," he said.

The impasse comes a year after agency directors voted to begin negotiating detailed lease terms for the $300 million project, dubbed Pacific Quay. Hughes had hoped to begin building early this year.

Hughes initially got involved with the state's redevelopment effort by responding to the agency's 2002 request for proposals to develop the site, which mostly serves as a parking lot.

Agency directors embraced an initial plan by Hughes that called for leasehold rental apartments and a hotel. Over the next three years, however, Hughes modified his plan, which at various times included selling state land for fee-simple condos, removing the neighboring Hawaiian Electric Co. power plant, creating a bypass tunnel under Nimitz Highway, starting a downtown streetcar system and building at piers 10 and 11.

As tentatively approved, Pacific Quay is designed as a 130-foot-high complex with 300 condos, retail and restaurant space, 850 parking stalls and a public pedestrian promenade around the water's edge.

Nearly 500 of the 850 parking stalls would help cure a shortage plaguing the Aloha Tower Marketplace, a retail complex developed on state land in the early 1990s. It is the only piece completed of a larger failed private redevelopment plan for piers 5 to 14.

Possibly 60 to 80 of the Pacific Quay condos would be dedicated as a boutique hotel, with the balance proposed as a mix of residences and upscale time-shares where owners typically have use of a unit for four weeks to three months.

Both the residential and time-share condos would be sold as leasehold property, meaning the state would reclaim ownership after 65 years.

Hughes said his valuation of the lease is based on the financing he can get to pay for it, which he said he helped document through local appraisal firm Hastings Conboy Braig & Associates Ltd.

The state's lease valuation, Hughes said, is based in large part on the fee-simple value of the land.

Agency officials declined to comment on the state's valuation saying the agency doesn't want to negotiate through the media. However, they said two local appraisal firms — Lesher Chee Stadlbauer Inc. and John Child & Co. — helped produce the agency's valuation.

Hughes said he questions whether the agency intends to negotiate further, and said he's frustrated that he hasn't been able to get a lease allowing him to obtain financing and move ahead with more detailed planning.

"It's been almost five years, and I'm just disgusted with the whole thing," he said. "But when we're disgusted, we don't walk away. We get the deal done. All we are seeking is a ground lease."

Pfund said the agency has tried to produce a conditional form of a lease or development rights document that lets the state retain some control of the property until key details such as the lease payment are resolved.

"It is frustrating on both sides," she said.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.