Hawai`i Planning Director Questions Whether `Aina Le`a Complied with Zoning Conditions

posted in: April 2016 | 0
Aina Lea whale's point
A depiction of the luxury townhouses planned for the Whale’s Point development part of the Villages of ‘Aina Le‘a.

Is the `Aina Le`a project about to start up again?

That development, on about 3,000 acres of land mauka of the Mauna Lani resort in the Kohala district of the Big Island, has been on the books for nearly three decades. However, work to build the infrastructure, highway improvements, and homes (including 385 units of “affordable housing”) has stalled out. A long-simmering dispute over compliance with terms established by the state Land Use Commission when it approved a petition to shift about a third of the land into the Urban land use district in 1989, a court challenge to an environmental impact statement, changes in property ownership – all have contributed to the delays.

Now, though, `Aina Le`a is showing new signs of life.

  • Last December, the company submitted an annual report to the Hawai`i County Planning Department, the first such report since 2005. Prompting the submission was a letter last October from the planning director, Duane Kanuha, who reminded the company that filing the annual reports was a condition of the rezoning ordinance.
  • The planning consultant retained by `Aina Le`a, Inc., has drafted a preparation notice to be published in the state’s Environmental Notice, in advance of publishing a supplemental environmental impact statement for the project.
  • Last month, the company filed with the Securities and Exchange Commission a so-called “free writing prospectus” – essentially, a colorful, 31-page booklet distributed to potential investors that lacks much of the detailed information that the SEC requires to be submitted in a formal prospectus. (The latter was filed last November.)

Still, it may be a while before `Aina Le`a gets the all-clear to resume work on the project.

Compliance with Zoning Conditions: A dispute has arisen between `Aina Le`a and the Planning Department over fulfillment of conditions attached to the county rezoning ordinance, originally passed in 1993 and amended in 1996.

In the annual report filed by `Aina Le`a attorney Alan Okamoto last December, Okamoto claimed that the company had complied with Condition C, which required subdivision plans “for any portion of the property” to be submitted, and approval secured, within five years of zoning approval. With several time extensions having been granted for compliance with this provision, the new deadline for this was September 21, 2009.

Okamoto pointed to one subdivision approval as satisfying this condition. That was a “bulk lot subdivision,” approved in June 2009, that reshaped the five discrete tax-unit parcels in the Urban area into five new parcels of different shapes and size, with one of the emerging parcels being that on which `Aina Le`a intends to build 482 town-house units (including the 385 units of required affordable housing) and another, adjacent to the town-house development, where ‘Aina Le‘a has said it plans to develop 70 single-family lots.

Yet when the application was made, `Aina Le`a’s planner at the time, Sidney Fuke, told the Planning Department that it was not at all a residential subdivision. At the time, Fuke was seeking the department’s permission to subdivide before traffic improvements with Queen Ka`ahumanu Highway had been completed. Another condition (Condition O) of the rezoning ordinance is that intersection improvements needed to be made, including a channelized intersection, to the satisfaction of the state Department of Transportation, before any residential subdivision could be given final approval.

With no improvements having been carried out at that time (or since, for that matter), Fuke argued that the subdivision he was applying for was not a residential one. “While the aforementioned condition requires the channelized intersection be completed ‘prior to final subdivision approval,’” Fuke wrote, “the proposed affordable multiple-family residential project is not a residential subdivision.”

Referring to Fuke’s own statement, Kanuha disputed Okamoto’s claim of compliance with the “final residential subdivision” approval. Neither the 2009 subdivision nor another one Okamoto referred to (another bulk lot subdivision carried out in 2012, beyond the compliance deadline) is a “residential subdivision,” he wrote, “since they did not create individual residential lots.”

Kanuha also pointed out several additional compliance issues, including that for a park plan, historic site protection, public school site, and wastewater treatment.

None of these is as critical to `Aina Le`a’s plans as Condition C, however. Noting that the Planning Department had already given `Aina Le`a an administrative time extension (which expired more than six years ago), Kanuha informed Okamoto that his client “will need to request a time extension for this condition from the County Council before the Planning Department can issue future approvals based on the zoning ordinance.”

The ordinance also gives Kanuha instructions to rezone the property “should any of the conditions not be met or substantially complied with in a timely fashion.” In that event, the planning director “shall initiate rezoning of the area to its original or more appropriate designation.”

In early March, Okamoto replied to Kanuha. First, he restated his contention that the 2009 consolidation-and-subdivision fulfilled the condition. Second he argued that there is no definition of “residential subdivision” in the zoning ordinance.

Okamoto also referred to past correspondence with former planning director Virginia Goldstein, in which, he claimed, “there is a consistent thread of understanding – none of which was refuted by your office – that creation of the affordable multiple-family residential lot would have fulfilled Condition C. … `Aina Le`a, Inc., relied on that in obtaining more than $20,000,000.00 to start the project. Accordingly, we respectfully request your reconsideration of your preliminary conclusion that Condition C has not been complied with.”

As Environment Hawai`i went to press, the Planning Department was preparing a response to Okamoto.

A Free Writing Prospectus: To read through the latest “free writing” prospectus published by `Aina Le`a, one would never know that the company was facing challenges to its ability to develop the land it owns.

There are factual errors. Neither the Hilo nor the Kona airport has international flights at the moment, although both have “international” in their names. A list of “major luxury resorts” within five miles of `Aina Le`a includes the Four Seasons, which is around 30 miles as the crow flies. The company does not own all 1,099 acres in the Urban part of the project; Bridge retains ownership of the 27 acres where the commercial and medical centers are proposed.

Then there are the “forward-looking statements.” In agate type, these are further described as statements that “relate to a variety of matters, including but not limited to: the operations of the business of `Aina Le`a; the Company’s plans, objectives, expectations and intentions; and other statements that are not historical fact. … It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur.”

Among these must be included the statement that “70 luxury view builder’s lots (parcel U) are in construction available by September 2016.” As of mid-March, the county Planning Department had not received any subdivision request for a 70-lot development. Although no “parcel U” is described in the prospectus, there is a 24-acre lot called out as “Existing Residential – U” in a master plan map included in the draft EIS preparation notice.

The prospectus also describes a 48-unit “luxury townhouse” development called Whale’s Point. “Poised on an elevated plateau that meets with a`a cliffs sweeping towards the Pacific Ocean, the view from the Whales [sic] Point is nothing less than picture perfect,” the prospectus states. “Contemporary living design seamlessly integrates with cultural richness and a tradition of a total destination experience that is serene, sensual, and surprisingly different.”

Whale’s Point, it goes on to say, is “part of an EB5 funded project within the development.” This refers to a federal program intended to reward foreign nationals who invest in depressed areas with an expedited path to permanent residency and citizenship. Typical EB-5 projects require between $500,000 and $1 million to be invested in businesses or commercial ventures that will support at least 10 new jobs in a given area. Luxury housing is not usually an approved investment for prospective EB-5 investors. However, with most EB-5 projects being managed by third parties who operate so-called regional centers, finding out which projects have qualified EB-5 investors in a given area is difficult. Hawai`i has 13 such federally approved regional centers, including the Department of Business, Economic Development, and Tourism.

Phase I of the project is said to include the “local workforce” housing, the 70-lot “Ho`olei” subdivision, and the Whale’s Point development, totaling 502 units. This phase “is currently and active ongoing construction” – which comes as news to the Planning Department.

The company, the prospectus states, is seeking “strategic investors to join us in a joint venture for Phase II … approved for 1,731 units of luxury villas, single family homes, and golf lodges.” Phase III is development of “business center, including shopping malls and medical centers, etc.” on the 27-acre commercial site, which `Aina Le`a still does not own.

The Supplemental EIS: A court challenge to the original EIS, brought by the Mauna Lani Resort Association, claimed that by looking only at the development planned for the 1,092 acres of land in the Urban district and not considering development proposed for the 2,000 acres in Ag land surrounding it on three sides, the developer was improperly attempting to segment the project. The judge hearing the case agreed. Now, to move forward with developing the land, a supplemental EIS needs to be prepared. (`Aina Le`a had development rights to the Urban land at the time, and it has acquired almost all of that acreage. Former owner Bridge `Aina Le`a continues to own the surrounding Agricultural land.)

Even assuming that the new EIS is swiftly approved, given the provisions in the environmental review process set forth in Chapter 343, Hawai`i Revised Statutes, there is little chance work could resume on the site before the beginning of next year. First, the preparation notice needs to be announced in the Environmental Notice published by the state Office of Environmental Quality Control. The public may submit comments on this for 30 days. After a draft EIS is prepared and notice published, the public has 45 days in which to submit comments. When the final document is available, anyone who believes it is inadequate has 60 days in which to challenge it in court. The public comment and challenge periods alone take up nearly half a year. Preparing the draft and final documents, which need to address comments received from agencies and the public, takes at least several additional weeks.

James Leonard, the consultant preparing the environmental documentation for `Aina Le`a, submitted a draft supplemental EIS preparation notice to the county Planning Department last December, which, as of mid-March, was still undergoing internal review at the department.

As described in that draft, the project now consists of 2,412 residential units or house lots in the Urban area (including 385 so-called “affordable housing” units going up in the southeastern corner), an 18-hole golf course, a 40-unit hotel, and a 27-acre commercial area.

Leonard’s description of development proposed for the Agricultural area includes two 18-hole golf courses and 863 residential lots. While that is scaled back somewhat from the total of six golf courses that were part of the development when it was proposed for LUC approval, in March, the Hawai`i County Leeward Planning Commission revoked the use permit it had granted for all six golf courses in the early 1990s. In recommending this action, planning director Kanuha cited the failure of the developer to comply with the permit’s time limits as well as the a state law that has banned new construction of golf courses in the state Agricultural district. Golf courses are still a permitted use within the Urban district, however, so `Aina Le`a is able to apply for the golf course it now wants to include as part of the Urban land development.

— Patricia Tummons


Volume 26, Number 10 April 2016

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