Kauai Beach Villas Seeks Sale After $70M Repair Bill
ElevenFlo Research
March 6, 202620 min readUpdated July 25, 2026
Key points
Kauai Beach Villas filed Subchapter V after a flood exposed $70M-plus repair needs, pushing the timeshare association toward a liquidating plan and contested resort sale.
A March 2020 flood at a beachfront Kauai timeshare resort exposed construction defects that have pushed roughly 6,900 interval owners and 45 whole unit owners into chapter 11. The Association of Apartment Owners of Kauai Beach Villas filed a Subchapter V petition on December 5, 2025 in the U.S. Bankruptcy Court for the District of Hawaii (Case No. 25-01103), reporting that two of its eight buildings are already unoccupied because of compromised post-tension steel cables and that the remaining buildings require remediation the association says it cannot finance. With estimated repair costs exceeding $70 million and a 16% default rate on its last special assessment, the Board concluded that levying the full assessment would leave at least $14 million uncollected and voted to pursue a Section 363(h) sale of the entire resort to a single buyer, free and clear of nearly 7,000 fractional ownership interests. The Association has since filed a Subchapter V Plan of Liquidation and a section 363(h) adversary complaint seeking court authority to complete that sale; a separate adversary proceeding removed from state court, brought by minority whole-unit owners, is scheduled for trial on August 11, 2026.
Section 363(h) lets a trustee or debtor sell the estate's interest together with co-owners' interests when partition is impracticable and the benefit to the estate outweighs the detriment to co-owners. The Association's notice and marketing motion invokes the provision to unify disposition of a property burdened by thousands of deeded intervals, an approach now appearing in similar Subchapter V filings at PTVO-affiliated timeshare properties where aging infrastructure, , and owner delinquency drive the restructuring.
105 timeshare units (~6,893 interval owners); 45 whole units
Estimated Repair Costs
$70+ million
Cash and Reserves
~$3.29 million
Secured Creditor
Bank of Hawaii (~$446,341)
Plan/Sale Status
Plan of Liquidation filed March 5, 2026; section 363(h) sale adversary (26-90012) pending; Minority Owner Litigation adversary (26-90003) trial set for August 11, 2026
Case Snapshot
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The Kauai Beach Villas resort sits at 4330 Kauai Beach Drive in Lihue, on the eastern shore of Kauai. The property was built in the early 1980s under a Declaration of Horizontal Property Regime dated June 5, 1981, which still governs the condominium ownership structure, and comprises eight three-story buildings designated A through H containing 150 apartments of 803 to 1,401 square feet. Club Wyndham maintains the timeshare marketing relationship; the property is known historically as PAHIO at Kauai Beach Villas. The resort underwent renovations between 1996 and 2004.
The membership reflects the split between timeshare and whole ownership that complicates the current restructuring. Of the 150 apartments, 105 operate as timeshare properties with approximately 6,893 individual interval owners holding deeded fractional interests, while the remaining 45 units are owned by whole owners who hold full apartment ownership. Every apartment owner—interval or whole—is a member of the Association of Apartment Owners. PAHIO Resorts, Inc. has managed the property under a Management Agreement that, after an April 14, 2025 non-renewal notice, terminates effective December 31, 2025, creating an operational transition concurrent with the bankruptcy. Larry D. Warner has served as President of the Board of Directors since 2021 and submitted the declaration in support of the petition.
Construction Defects and the March 2020 Flood
On March 20, 2020, ground floor units in Buildings A through E flooded, according to the Warner Declaration. Remedial work on that water damage uncovered systemic construction deficiencies tied to the original 1980s development—waterproofing failures throughout all buildings, mass corrosion of structural support columns, and compromised post-tension steel cables—and the assessment expanded to cover the entire property.
Wiss, Janney, Elstner Associates (WJE) inspected the Project on September 4, 2025 and issued a report dated September 19, 2025 concluding that mitigation was recommended for structural safety concerns across the residential buildings. The findings confirmed that the defects were not isolated: every building required remediation rather than targeted repairs. The two beachfront structures closest to the ocean, Buildings G and H, are presently unoccupied because of compromised post-tension cables, and the Board has prohibited access to second- and third-floor lanais and balconies across the property.
Post-tension cables are high-tensioned steel strands running through concrete floor slabs, typically tensioned to roughly 33,000 pounds each, a construction method common in coastal condominium buildings since the early 1990s. Hawaii's climate accelerates corrosion in such systems: constant salt-air exposure, high humidity, temperature cycling, and volcanic gases all stress corroding steel components. The Post-Tensioning Institute released repair guidelines in 2019 acknowledging widespread deterioration in coastal post-tension construction. For Buildings G and H, the cable compromise drove the closure decision, and the Board concluded that a sale, rather than remediation, would be pursued.
Project Reoccupy, Repair Estimates, and the Assessment Math
The Association's repair-cost estimates hardened across three analyses. A current cost estimator places the figure at $70 million or more to remediate all eight buildings; the Board's Project Remediate special-assessment modeling cites a $67.2 million estimate; and a reserve study by Vertical Hawaii Home Inspections & Reserve Studies LLC dated January 1, 2025 assumed $56 million would be collected from owners by special assessment.
To fund full remediation through special assessments, the Association would need to levy per-unit amounts that exceed the value of many interval interests. The Warner Declaration puts the Project Remediate assessment at roughly $311,808 for a one-bedroom, one-bath apartment and $548,352 for a two-bedroom, two-bath (Type 5, 6) apartment.
The Association had already tested owner willingness to pay through Project Reoccupy, a $4.1 million special assessment approved by Board resolution in December 2023 to repair Buildings G and H. The Association collected $3,488,098 of the $4.1 million—an approximately 16% default rate—with the interval owners' share 18.57% past due and the whole owners' share 6.68% past due. Projecting that default rate onto a $70 million Project Remediate assessment, the Board warned the deficit would reach at least $14 million, and likely more once owners faced $300,000-to-$500,000 per-unit bills.
The delinquency pattern extends beyond Project Reoccupy. The Association suspended its Deed Back program, through which owners could surrender their interests, and owner discussions report that roughly 45% of timeshare owners are not current on annual maintenance fees. The pattern tracks industry-wide data: Hawaii timeshares regularly carry annual maintenance fees above $2,000, 66% of owners seeking to exit cite high fees as the primary reason, and timeshare maintenance fees have risen about 42% over the past decade.
Subchapter V Filing and First Day Relief
On September 19, 2025, the requisite number of Association members voted at a special meeting to authorize the chapter 11 filing and a sale of the entire Project, according to the Warner Declaration. The Association filed its Subchapter V petition on December 5, 2025, and Wayne K.T. Mau was appointed Subchapter V Trustee on December 8, 2025.
Subchapter V offers a streamlined small-business path: the debtor remains in possession while a standing trustee oversees operations, no creditors' committee is required, no lengthy disclosure statement is needed, and the plan deadline runs roughly 90 days. Those features let the Association move quickly toward a sale while limiting case costs that would otherwise erode owner recoveries. The First Day hearing on December 8, 2025 produced interim approval of Choi & Ito as counsel and Stretto as claims and noticing agent, with the cash collateral motion taken up under U.S. Trustee and Bank of Hawaii objections. A February 18, 2026 order set April 6, 2026 as the general claims bar date and denied, without prejudice, approval of the debtor's proposed member-consent form.
The Association told the court in a January 12, 2026 status conference report that the case is "not the typical Subchapter V case," previewing that minority-owner litigation and a forthcoming section 363(h) adversary proceeding would need to be resolved before confirmation rather than a straightforward small-business reorganization.
The Association entered bankruptcy with about $3.29 million in liquid assets—$629,678 at First Hawaiian Bank and $2,658,551 in Merrill Lynch reserves—according to its filed financial reports. Bank of Hawaii holds the sole secured claim, with a current balance of roughly $446,341 against the original $1.9 million loan; Bank of Hawaii filed a limited objection to the cash collateral motion on December 18, 2025.
The professional roster reflects the case's sale-and-litigation posture. The Association's October 2025 board minutes show it authorized $50,000 retainers for Choi & Ito and K&L Gates for the bankruptcy before the petition. Choi & Ito serves as lead counsel; K&L Gates LLP, with Eliades, Peterson, and Westbrook seeking pro hac vice admission, acts as special counsel for the sale, 363(h), and related litigation work; Porter Kiakona Kopper LLP serves as special corporate and litigation counsel; the Law Offices of Bruce H. Wakuzawa serves as special litigation counsel; and Stretto, Inc. acts as claims and noticing agent. For the December 5, 2025 through April 30, 2026 period, the court awarded first interim compensation of $167,418.77 in fees and $4,136.86 in expenses to Choi & Ito, $198,484 in fees to K&L Gates, $37,268.65 in fees and $30 in expenses to Porter Kiakona Kopper, and $8,685.85 in fees to the Wakuzawa firm.
Cash Collateral, Reserve Funds, and Escrow Fights
Liquidity has been contested on three separate fronts since the petition date. On the operating side, the fourth interim cash collateral order authorizes continued use of Bank of Hawaii's cash collateral from May 1 through August 31, 2026 under a second budget, requires monthly $13,030 debt-service payments and replacement liens as adequate protection, sets a minimum $450,000 operating-account balance at Bank of Hawaii, requires an updated budget by August 10, 2026, and sets a further hearing for August 17, 2026.
Separately, the Association moved on February 13, 2026 to tap its own reserves, seeking authority to use up to $2.66 million held in a Merrill Lynch reserve account to pay chapter 11 administrative costs rather than raise maintenance fees further. Owners objected in a February 23 letter and a more formal March 2, 2026 objection, and the court granted the motion in part and denied it in part on June 15, 2026, authorizing use of up to 50% of the Merrill Lynch reserve-account balance as of March 16, 2026 for administrative costs.
The third front involves the Project Reoccupy escrow. The Association filed a motion for relief from the automatic stay on February 9, 2026 to access a First American Title escrow account holding roughly $1.99 million in owner-funded repair money earmarked for reopening Buildings G and H; the court granted that relief on February 26, 2026.
Section 363(h) Sale Strategy
The restructuring centers on Section 363(h) of the Bankruptcy Code, which permits sale of the estate's interest together with co-owners' interests when partition in kind is impracticable, sale of an undivided interest would realize significantly less than sale of the whole, and the benefit to the estate outweighs the detriment to co-owners. The Association's notice and 363(h) marketing motion asks the court to sell the entire project free and clear of all member interests, with those interests attaching to sale proceeds. A December 12, 2025 order continuing the sale and bar-date procedures set the initial marketing track. The bidding-procedures motion as filed in February 2026 proposed stalking-horse protections of up to $100,000 in expense reimbursement and a breakup fee of up to 3% of the stalking-horse bid; the court later approved an amended bidding-procedures order on April 14, 2026 that adopted auction mechanics while denying those stalking-horse bid protections without prejudice. The Association also obtained authority to employ Hilco Real Estate and Summers Realty as exclusive real estate brokers for the sale, with compensation of a 4.0% commission on gross sale proceeds split between the two brokers plus expense reimbursement capped at $25,000. A June 25, 2026 moved the stalking-horse designation deadline to July 15, 2026, the bid deadline to August 13, 2026, and the auction to August 27, 2026.
The debtor filed a section 363(h) adversary complaint on May 14, 2026, opened as Adversary No. 26-90012, seeking authority to sell both the estate's interest and nondebtor co-owner interests, with proceeds to be distributed after sale costs and subject to setoff rights for unpaid maintenance fees and assessments. Defendants have answered and no trial date has been set in that adversary proceeding. The August 11, 2026 trial date instead belongs to a different adversary proceeding: the removed Minority Owner Litigation (Adversary No. 26-90003).
The 12.97-acre, 150-unit property is marketed as a fee-simple offering free of Club Wyndham brand and management agreements, with potential hospitality, extended-stay, condominium-conversion, or hybrid uses subject to zoning and regulatory approvals.
On March 5, 2026, the Association filed a Subchapter V Plan of Liquidation centered on selling the property, resolving the related litigation, determining member interests and unpaid fees, distributing sale proceeds, and dissolving the Association. Secured claims and general unsecured claims are treated as unimpaired and paid in full in cash under the plan as filed, while a separate class of whole-unit owners is impaired and tied in part to an insurance-settlement trust; association members would receive pro rata shares of residual value after claims and reserves are satisfied, subject to offsets for unpaid fees.
To streamline the sale, the Association sought consent from interval owners to avoid adversary proceedings against non-consenting parties. The court approved the form of notice at the First Day hearing, but the February 18, 2026 order denied, without prejudice, final approval of the consent form. The U.S. Trustee objected to the bidding-procedures motion on March 2, 2026, arguing the proposed sale timetable was too compressed, and a group of owners filed a separate opposition the same day contending the Association does not qualify as a co-owner able to invoke Section 363(h) and that partition remains feasible as to the debtor's own interest. At the First Day hearing, Margaret Westbrook of K&L Gates, special counsel for the debtor, told the court that "the maintenance fees are dwindling, the burden on the owners is substantial, the costs of the case and pushing it out and pushing the sale back are going to become more burdensome and less beneficial to those equity security holders as the costs of the case start to erode the recoveries." The treatment of the 45 whole unit owners—whether their interests are included in the sale or the property is sold subject to their ownership—remains unresolved.
The classification of interval owners shapes distribution. At the First Day hearing, the court asked Westbrook to clarify whether interval owners are creditors or equity security holders; Westbrook stated the owners hold deeded interests and are "more akin to equity owners than creditors." As equity holders, they would receive sale proceeds only after creditor claims are satisfied, distributed by ownership percentage. The whole owners, who hold full apartments rather than fractional intervals, carry greater financial exposure: in 2022 a group of whole owners led by Allan Rouhier filed the Minority Owner Litigation (Fifth Circuit Case No. 5CCV-22-0000029) against the Association and others over the alleged uneven allocation of maintenance resources, according to the Warner Declaration. The Association removed that action to the bankruptcy court on January 16, 2026 as Adversary No. 26-90003, and the court has set trial for August 11, 2026.
Comparable Timeshare Bankruptcies and Market Context
Kauai Beach Villas is one of several former Club Wyndham timeshare properties pursuing bankruptcy sales. Hilco's portfolio identifies court-supervised sales for Star Island in Florida, Skyline Tower in New Jersey, Maple Ridge in North Carolina, and The Falls in Missouri; the Kauai sale is proceeding on the same fee-simple, redevelopment-oriented premise. A separate New Jersey liquidation, the Flagship Resort Development bankruptcy, reported timeshare default rates approaching 40% at a 32-story, 440-unit Atlantic City resort.
The broader Hawaii timeshare market added supply in 2024 even as older properties struggled. Honolulu Star-Advertiser reporting notes Marriott Vacations Worldwide opened a new Waikiki resort and Maui Bay Villas by Hilton Grand Vacations began operations; statewide timeshare occupancy was 92.2% in the second quarter of 2024, roughly flat year-over-year. The Transient Accommodations Tax rose to 11% on January 1, 2026, with counties authorized to add up to 3% more.
Construction-defect exposure is not unique to this resort. UHERO research documented 57 distinct defect lawsuits in Hawaii from 2001 to 2024 affecting more than 17,555 homes, with nearly one in four homes built from 2013 to 2023 now in litigation; the Star-Advertiser reports that settlements have reached tens to hundreds of millions of dollars and driven builder's insurance premiums up as much as 500%.
Key Timeline
The chapter 11 commencement notice and Warner Declaration set the case's procedural deadlines and factual chronology; the key milestones are below.
Date
Event
June 5, 1981
Declaration of Horizontal Property Regime recorded
1982
Kauai Beach Villas constructed
1996–2004
Property renovations
March 20, 2020
Ground floor flood in Buildings A–E reveals construction defects
2020–2024
Remedial work uncovers systemic deficiencies across all buildings
Minority Owner Litigation removed to bankruptcy court as Adversary No. 26-90003
February 9, 2026
Escrow stay-relief motion filed to access ~$1.99 million Project Reoccupy escrow
February 13, 2026
Reserve funds motion filed seeking use of Merrill Lynch reserves for administrative costs
February 18, 2026
Bar-date order sets April 6, 2026 claims deadline; denies consent-form approval without prejudice
February 26, 2026
Frequently Asked Questions
What is the Association of Apartment Owners of Kauai Beach Villas?
The Association is a registered not-for-profit corporation that manages the Kauai Beach Villas resort in Lihue, Hawaii. It oversees 150 apartments across eight buildings, with approximately 6,893 interval (timeshare) owners and 45 whole unit owners, all of whom are members of the Association. The resort was built in the early 1980s under a Declaration of Horizontal Property Regime dated June 5, 1981.
Why did the Association file for bankruptcy?
A March 2020 flood revealed systemic construction defects from the original 1980s construction, including waterproofing failures, corroded structural columns, and compromised post-tension cables. The Warner Declaration puts repair costs above $70 million and reports a 16% default rate on the prior $4.1 million assessment, which the Board projected would leave at least $14 million uncollected on a full remediation assessment. The Board voted to pursue a Section 363(h) sale instead.
What is happening to the timeshare units?
The Board discontinued all timeshare occupancy as of January 1, 2026. Buildings G and H are unoccupied because of compromised post-tension steel cables, and reservations on or after January 1, 2026 have been cancelled. The Association seeks to sell the entire property to a single buyer through the bankruptcy process. Under Hawaii Revised Statutes Section 514B-47, a sale would end the condominium property regime, with net proceeds divided among unit owners in proportion to their common interests.
What is a Section 363(h) sale?
Section 363(h) of the Bankruptcy Code allows a trustee or debtor to sell the estate's interest together with co-owners' interests when partition is impracticable and the benefit to the estate outweighs the detriment to co-owners. The Association's marketing motion uses the provision to sell the entire resort free and clear of roughly 7,000 individual ownership interests, with those interests attaching to sale proceeds.
Will timeshare owners receive any recovery?
Interval owners are being treated as equity holders rather than creditors, meaning they would receive sale proceeds only after creditor claims—including Bank of Hawaii's secured claim and administrative expenses—are paid. Any recovery depends on the sale price and case costs. Margaret Westbrook, special counsel for the debtor, told the First Day hearing that case costs are "eroding the recoveries" available to equity holders. As of July 2026, the property has not been sold and the section 363(h) sale adversary proceeding (Adversary No. 26-90012) remains pending with no trial date set.
What is happening with the 45 whole unit owners?
At the First Day hearing, Margaret Westbrook told the court the treatment of whole unit owners was "yet to be determined"—whether a sale would include their interests outright or proceed subject to their ownership. The Subchapter V Plan of Liquidation filed March 5, 2026 places whole-unit owners in an impaired class tied in part to an insurance-settlement trust, receiving pro rata shares of residual value after claims and reserves are satisfied. Whole owners, led by Allan Rouhier, filed the Minority Owner Litigation in 2022; the Association removed that case to bankruptcy court as Adversary No. 26-90003, with trial scheduled for August 11, 2026, and whole owners face larger per-unit exposure than interval owners.
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