Hurricane Forces LUC to Cancel Hearing on Waikoloa Highlands

posted in: September 2018 | 0

Saved by the storm!

Thanks to Hurricane Lane, the state Land Use Commission was spared the need to make a critical decision on the stalled-out plans to develop a 398-lot residential subdivision on land just upslope of Waikoloa Village.

On August 22, the LUC had been scheduled to meet in Kona. On the agenda: an order for the developer to show cause as to why the subject land, about 730 acres, should not be placed back into the state Agricultural District. Ten year ago, the same body had upzoned the parcel from Ag to the Rural District, subject to the developer, which at the time was Waikoloa Mauka, LLC, complying with a number of conditions inside a ten-year time frame.

The deadline for compliance expired in June. A couple of weeks prior to that, the LUC had voted in support of the motion to require the successor landowner, Waikoloa Highlands, Inc., to give them good cause as to why the land should not be reverted to Ag.

The scheduled hearing on the show-cause order coincided, however, with the approach of Hurricane Lane, a Category 5 cyclone forecast to move up the Kona Coast on the same day, forcing the LUC to cancel the meeting.

Despite the cancellation, it appeared likely that the commissioners would give Waikoloa Highlands more time to prepare its defense. In July, the company requested a continuance. Neither the Hawai`i County Planning Department nor the state Office of Planning – the two other parties that participated in the LUC’s 2006-2008 deliberations – objected to the request. Given that litigation over the nearby `Aina Le`a development has made the commission exquisitely sensitive to the need to be scrupulous in respecting due process rights, odds were good that a continuance would have been granted.

Still, on the outside chance that the show-cause hearing would go forward, Steve Lim, the attorney recently retained to represent Waikoloa Highlands, submitted to the LUC a statement of its position on the show-cause order.

First, Lim claimed that the previous principal of Waikoloa Mauka, Stepan Martirosian, had defrauded Vitaly Grigoriants, the Armenian banker who had put up the capital for the land’s purchase. Martirosian, who was, Lim wrote, “solely responsible for overseeing all aspects of the project,” had committed “gross mismanagement and fraud.”

“Armed with new management,” Lim continued, “WHI is competent and committed to developing the project through completion” and has already “substantially commenced” its development.

Aside from a few stakes in the ground that carve out the boundary of just under 15 acres from the original 731 acres, there have been no visible on-the-ground changes to the land. The activities that Lim cites as contributing to substantial commencement consist almost entirely of documents drafted more than a decade ago, during the pendency of the LUC deliberations on the original docket, and a frenzy of activity that began in late 2016.

Exactly what counts as “completion” in Lim’s view might also come as a surprise to some members of the commission.

The LUC approval, Lim notes, was for a development consisting of 398 vacant lots with a minimum one-acre lot size. The commission’s order approving the redistricting defined “full buildout” as “completion of the backbone infrastructure to allow for the sale of individual lots” and required that this milestone be completed by June 2018.

Lim goes on to argue that despite the mention of “backbone infrastructure” in the LUC decision, all that is really required, in fact, is that the developer obtain a bond guaranteeing that the improvements will be made.

“For developments like the [Waikoloa Highlands] project, once tentative subdivision is obtained, the lots can be registered with the state of Hawai`i Department of Commerce and Consumer Affairs,” Lim writes. The DCCA can then issue a “preliminary order of registration,” which allows the developer to enter into contracts for sale of the lots (providing, however, for the “right of rescission in the event final subdivision approval is not obtained”) or non-binding reservation agreements.

Here’s Lim’s description of how this will work after the DCCA’s “preliminary order of registration: “From this point, final subdivision can be obtained in either of two ways: (1) the developer can complete all requirement improvements; or (2) the developer can post a completion bond …. In the latter option, which will be applicable to this project, the developer will first prepare construction drawings and cost estimates for the subdivision and submit those drawings to the respective county agencies for processing. Once the county approves the construction drawings and cost estimates, the developer will then obtain a completion bond…”

After the developer provides the bond, Lim continues, the county “will then issue final subdivision approval and the developer can then process its application to the DCCA to obtain a Final Order of Registration,” Lim argues. With that in hand, “the developer can then proceed to close upon all of the contracts that were entered into under the Preliminary Order of Registration. Therefore, under this process, the sale of project lots can close prior to the actual start or completion of all necessary infrastructure and related improvements.”

In other words, Lim is arguing, the developer will be able to satisfy the condition that “backbone infrastructure” be provided merely by posting a bond and without ever turning the first spade of earth. Whether the county or the LUC commissioners agree won’t be known until the show-cause hearing is rescheduled.

— Patricia Tummons

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