Due diligence.
That’s what you do if you are buying or receiving property. And it’s what you should do in spades if you are doing so on behalf of people struggling to find affordable housing in Hawai‘i.
But due diligence appears to have been completely lacking when the Hawai‘i County Office of Housing and Community Development (OHCD) was negotiating with a Waikoloa developer over terms that would lead to satisfaction of affordable housing conditions imposed by the state Land Use Commission as well as the County Council.
Here are the many ways in which the OHCD failed its clients – to say nothing of the taxpaying public of Hawai‘i County – in its dealings with Waikoloa Highlands, Inc.
The County Code requires any developer wanting to satisfy the affordable housing condition by a land transfer – instead of built units – to transfer title to either the county or a qualified nonprofit organization, such as Habitat for Humanity. In the case of Waikoloa Mauka, LLC, or its successor, Waikoloa Highlands, Inc., which was hoping to develop 398 single-family house lots on about 730 acres near Waikoloa Village, that transfer, involving about 11.7 acres of land, was made to a for-profit entity, Plumeria at Waikoloa, LLC.
Nothing is known as to who was behind this company, formed barely two weeks before the OHCD signed off on the deal. Paul Sulla, the Hilo attorney who registered the LLC with the state Department of Commerce and Consumer Affairs on November 16, 2016, would not answer any questions about the company posed to him by Environment Hawai‘i. The registration indicates that there were two members in the LLC in addition to Sulla; their identity remains hidden.
Alan Rudo, late of the OHCD staff, seems to know the most about this case. He says it was the developer who proposed transferring the land to Plumeria at Waikoloa (now known as Peaceful Ventures, LLC).
Sidney Fuke, who at the time of the transfer was a consultant to Waikoloa Highlands, says that it was the OHCD that wanted the land to end up in the hands of Plumeria at Waikoloa.
With none of these parties having yet had to testify under oath as to the events surrounding this transfer, the mystery remains as to who is behind the scheme to violate the County Code and have the land end up in the hands of a private, for-profit entity. Worth noting also is the fact that Plumeria at Waikoloa seems to have paid a nominal $50,000 for the land, which it then resold for $1.5 million to Pua Melia, LLC, which is now attempting to put some affordable housing on the property, as well as a large True Value hardware store.
The County Code requires also that any land conveyed to satisfy affordable-housing requirements has to be “without unusual site conditions that make it difficult to build a home” or “to accommodate the number of homes the developer would be required to provide if its required credits were earned by selling completed dwelling units.”
Here, the 11.7 acres did not meet this standard. Practically since the first subdivision maps were proposed by the original developer nearly 30 years ago, and certainly in the 2006 environmental impact statement for the boundary reclassification, the particular area designated in 2016 for affordable housing was shown to be bisected by a “flood route,” as the EIS described it.
At no point did the county Office of Housing and Community Development, charged with ensuring that the affordable-housing conditions imposed on the developer were met, bother to check that the land was suitable and “without unusual site conditions.”
An unsigned memo to the files, apparently written well after the affordable housing deal was done, lists all the things that were ignored or overlooked in the affordable housing deal. Included among them was “significant flood route [runs] through parcel.”
The County Code stipulates that developers need to earn affordable housing credits equal to 20 percent of the number of market-rate lots or homes in their intended subdivisions. A credit is usually equal to one housing unit, but could be more or less, depending upon the level of affordability. For example, a rental unit that is affordable to a family earning 60 percent of the median income in the area is going to be worth more than one credit, while a unit offered for sale to a household earning 120 percent of the average median would be worth less.
In the case of Waikoloa Mauka, the 11.7 acres it transferred to Plumeria at Waikoloa would need to be sufficient to develop housing able to earn 80 credits.
OHCD records reviewed by Environment Hawai‘i suggest that at no time prior to the office signing off on the affordable housing agreement, in December 2016, was any calculation made as to whether the area, burdened by utility easements and drainageways, would be able to accommodate the number of units needed to add up to 80 credits.
And, in fact, the current owner of the 11.7-acre parcel has acknowledged that if he is to build the hardware store, then he will be able to build at most 32 affordable units.
At the time the housing agreement was signed, Bureau of Conveyance records indicated that there was still at least one outstanding encumbrance on the land: a mortgage for $1.5 million. This fact alone should have caused someone at Housing to put the brakes on the transaction.
Yet no one checked.
In that same undated confessional memo, among the “challenging issues” associated with the Waikoloa affordable housing deal was the fact that it was “later discovered that the parcel had [redacted] encumbered against the bulk parcel.”
(Joel La Pinta, who was the Hilo-based manager for Waikoloa Highlands, has said that in fact, the mortgage that was still on record as a lien against the property had actually been paid off, but no release had been filed owing to an oversight. Environment Hawai‘i has been unable to verify this independently.)
The deputy corporation counsel assigned to the Office of Housing at the time was Amy Self. She was supposed to make sure that the affordable housing agreement as well as the release from the affordable housing requirement, executed by the OHCD in July 2017, was legal as to form and legality.
We understand that the Corporation Counsel’s office is stretched thin, as are most other county offices and departments. Nevertheless, it is vital that the county corporation counsel’s office – the county’s (and the public’s) last defense against entering into improper or even illegal contracts and agreements – exercise its responsibility with seriousness and care.
That did not happen in this case. On November 9, Mayor Harry Kim signed a letter renouncing the affordable housing agreement and subsequent release. On its face, the agreement contradicted the county charter, which deputy corporation counsel Ron Kim argues absolves the county from any liability.
Yet it would hardly be surprising if the county eventually does face legal jeopardy from Waikoloa Highlands. After all, to have it in writing that you’ve satisfied every legal requirement for affordable housing – and then, more than a year later, be told no, you haven’t – would seem to open the door to litigation.
In sum, it should distress every resident of Hawai‘i County that an office entrusted with developing housing for those most in need of it should have acted with such lack of care and caution in its negotiations to satisfy Waikoloa Highlands’ affordable housing requirements.
One of the parties that played a key part in these negotiations has already left the Housing Office. But there remain questions as to how the rest of the staff, from the administrator on down, could have allowed the mistakes to multiply as they did.
What’s more, the Waikoloa case raises the question of how many other times the Office of Housing failed to live up to its legal and moral requirements in settling with other developers.
As a result of the Land Use Commission’s action in November, the Waikoloa Highlands project must now go back to the drawing board and the affordable housing requirements imposed by county zoning can be reconfigured should the owner seek to have the County Council pass a new rezoning ordinance.
In the meantime, the council might wish to take a close look at the circumstances that led to this debacle in the first place. We would strongly urge it to do so.
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