The main finance partner in the $900 million Kukui'ula residential resort project on Kaua'i envisioned by Alexander & Baldwin Inc. is considering whether it can continue funding development of the master-planned community.

Scottsdale, Ariz.-based DMB Associates Inc. last month notified A&B that it was evaluating its future ability to fund the joint venture that requires DMB to pay at least 60 percent of capital expenses.

A&B, one of the state's largest developers, disclosed the news in a paragraph of its annual report released late last month.

Richard Holtzman, a DMB executive and general manager of the Kukui'ula Development Co. LLC partnership, said that despite difficult conditions in the housing market, " we have continued to move the project forward."

"As the economic crisis has deepened in recent months, we have recognized we must plan for an even more protracted downturn," Holtzman said in a statement.

"The total capital needed to sustain the project will obviously be affected by the length and severity of the current recession. Thus, we are evaluating the long-term outlook, refining financial planning assumptions and discussing the best approach to meeting the growing capital needs."

A&B, in its annual report and a supplemental report released this week, said it engaged DMB in discussions to renegotiate terms of the joint venture, but that no agreement had been reached as of last Thursday.

It appears the trouble between the partners is related to an expectation that proceeds from Kukui'ula residential lot sales would be high enough by now to fund development capital needs for the project, which had expected to be completed over 10 to 15 years.

The result of negotiations stands to affect one of the premier real estate development projects for A&B — a massive plan that has been in the works for more than 20 years and was once before stalled by a downturn in the economy.

Kukui'ula, which covers 1,010 acres between Po'ipu and Lawa'i Valley on Kaua'i's southern shore, is a luxury community planned for 1,200 homes, an 18-hole golf course, a resort spa, 75,000-square-foot commercial village and a 31-unit boutique hotel.

Described as "Kaua'i's Living Garden," the plan also includes $85 million in landscaping, a 20-acre lake, trails, a 5-acre beach park, a 20-acre community park and an 8-acre farm staffed by a resident horticulturist.

But the plan has suffered effects from the severe economic downturn and global financial crisis that began last year and has slowed or stalled a handful of other Hawai'i real estate projects.

At Kukui'ula, sales and infrastructure construction began in 2006. Through the end of last year, 80 residential lots had been sold for an average of $1.4 million, or $112 million in all, according to A&B reports.

However, sales activity has been dramatically weaker than previously anticipated by A&B, which in 2005 said prospective buyers had made more than 300 nonbinding reservations for lot purchases.

The high number of cancellations were attributed to Hawai'i's slowing residential real estate market and permitting delays that pushed back construction. Of the 80 sales, only 13 were made last year.

In response to slow sales, A&B said in its annual report that construction is being phased "to better match the expected pace of growth in the community." The company said the change won't affect the long-term vision and quality of the project.

According to A&B reports, the first three holes of the golf course were completed last year, while a 90,000-square-foot retail complex is slated for completion in the middle of this year.

According to a December story in the Phoenix Business Journal, Kukui'ula Development decided to delay construction of some amenities in a $100 million recreational and dining complex that broke ground in August.

The article said a spa, a second swimming pool and a snack bar would be built later because of the economy and lower projected membership in 2010, when most of the complex is slated for completion.

In October, a story in The Garden Island newspaper reported that Kukui'ula Development was laying off about 20 percent of its staff, or 20 to 24 employees.

The company is a privately held real estate development firm and one of the most active community developers in the western Mainland states.

DMB has developed several master-planned communities in Arizona, California and Utah — mostly resort properties with joint-venture partners. DMB projects include Lahontan in Lake Tahoe, Calif., Santaluz in San Diego, Glenwild in Park City, Utah, and Silverleaf in Scottsdale.

DMB partnered with A&B in 2002 to redesign and relaunch Kukui'ula, which was an A&B project that had gone through a couple of major revisions and long delays because of market changes since initial master planning and permit approvals were initiated in 1985.

Initially, A&B contributed the land to the partnership, and DMB was to provide the financing. Then in late 2004, A&B said it exercised an option to provide up to 40 percent of the project's future capital needs in a move that would also increase A&B's share of returns on Kukui'ula.

At the time, A&B said it anticipated spending $50 million to $75 million through 2007 or 2008, after which property sales at Kukui'ula were expected to fund construction.

In its annual report supplement, A&B said that through the end of last year it had contributed $108 million to the joint venture, including the value of land.