This is a new major intersection on the north end of town, down from K-Mart on Makala. They're putting in a large shopping area there. Sports Authority and Petco will be opening sometime this month, with more stores opening later in the year. Circuit City is putting up a building just makai (seaward) of the structure you can see here, and Target is starting to build in Phase 2, which is just to the south of Makala blvd.
The new highway is coming along. They were putting lane bumps and directional arrows on the southbound lanes from Honokohau harbor to Makala this last week, so it's looking as though they may open up 2 lanes southbound to there quite soon. The area from Makala to Henry street still needs a lot of work and most of it is torn up. They're supposedly supposed to be done with the highway work in December and then start working the span from the harbor to the airport starting some time next year.
I'm sure there will be people claiming that Kona and Kailua will be ruined by the new development, but for people who live here it'll be nice to be able to have easy access to what the new businesses have to offer. Downtown along Alii Drive will still be the same wonderful/quaint/feel good experience it's always been. Looking at the highway, it appears they're leaving 70-100 feet of open area between the northbound and southbound lanes, hopefully they'll landscape it nicely, as there's an opportunity to really spiff up the appearance of the entry into town.