`Aina Le`a Seeks Two-Year Extension of Deadline for Affordable Housing

posted in: October 2010 | 0
 The November 17 deadline for completion of 385 units of affordable housing at the Villages of `Aina Le`a is fast approaching. And, to judge from all appearances, there is no possible way it can be met.

In late August, the developer, DW `Aina Le`a, LLC, filed with the Land Use Commission a request for a time extension.

Attorneys for the landowner, Bridge Capital, filed a supporting document that all but threatened the LUC with legal action should it vote to revert the 1,060-acre project site, near Puako, Hawai`i, to the state Agricultural land use district.

At the same time, DWAL launched a public-relations campaign, issuing in mid-September a press release stating that a research firm it had hired determined that “Hawai`i Island residents strongly support” the development, with 68 percent of residents indicating they support it. The press release stated also that beginning September 13, `Aina Le`a would open reservation requests from local Realtors and that the units would be “introduced for sale” this month.

In other developments:

    • The company building the affordable houses, TrueStyle Pacific Builders, has been sued by Pacific Source, a Seattle company, for $102,152.89 owing on deliveries of hardware to the `Aina Le`a site. According to court records, `Aina Le`a purchased the items in quantities sufficient to outfit 32 of the units. Pacific Source is also seeking a lien on the property.
    • Another lawsuit against TrueStyle has been brought by Honsador Lumber for failure to pay invoices amounting to more than $400,000.
    • Both major contractors on the project, TrueStyle and Goodfellow Bros., have advanced money to `Aina Le`a: Goodfellow, to the tune of $1.64 million in infrastructure costs; TrueStyle, in the amount of $7.84 million, according to DWAL’s attorney;
    • On August 18, Robert Wessels, a principal of DWAL, was in Malaysia to meet with Capital Asia investors, each of whom has put up at least $96,000 toward purchase of land and construction of the affordable units. According to one of the participants, Wessels “shared that he has a new exit strategy for this investment.” “Initially I was informed that I need 30 months to realize my returns of 30 percent on the project,” wrote Jonathan Quek Chin Wei, who describes himself as “Asia’s Youngest Wealth Coach.” “Looking at the progress of the partners in Big Island, I now need less than 30 months to make money from this Land Development Project.” In a filing with the LUC, the developer’s attorney stated that Capital Asia is bringing in $1.5 million a month, and that “the volume of investment will increase when investors begin to receive back their returns.” According to Hawai`i County property tax records, the individual investors in Singapore and Malaysia holding an undivided interest in the 62-acre affordable housing lot now number more than 400.
  • DW `Aina Le`a took out a full-page ad in Big Island papers last month, announcing it had partnered with Hawai`i First Federal Credit Union in establishing a program to give qualified buyers of the affordable units a match of $4 to every $1 saved toward a down payment, “up to a set amount.” In August, DWAL told the Land Use Commission that one of the major obstacles it was facing in selling units was the difficulty that potential buyers were facing with down payments, and “FHA regulations do not allow DW to make direct subsidies of down payments.DW has been working with Hawai`i Home Ownership and with Bank of America on a program to subsidize down payments…”

The Motion

On August 30, Alan Okamoto, the Hilo attorney representing DWAL, filed a motion with the Land Use Commission to amend three conditions in the LUC’s order placing the land in the Urban District: Condition 1, requiring the 385 units to be completed by November 17; Condition 5, requiring the sewage treatment plant be built inside the project boundary; and Condition 7, requiring the developer to provide 16 acres of land within the project area to the state Department of Education.

Regarding Condition 1, DWAL is asking the LUC to give it until December 31, 2011, to complete 190 affordable units and to December 31, 2012, to finish the remaining 195. This “slightly extended period of time,” writes Okamoto, is needed so that DWAL can “confirm eligibility of prospective buyers … and assist them in obtaining financing.” And, with no apparent irony intended, he adds: “DW understands the importance of setting definite standards for its performance of this condition…”

On the matter of the location of the wastewater plant, Okamoto writes, “there are engineering and aesthetic benefits” to providing the plant to treat waste from the entire project (more than 2,000 houses) on land in the adjoining Agricultural district.

As to the school site, Okamoto writes, “When DW purchased the project, it appeared that the Department of Education wished to acquire a much larger area,” and one alternative was a site in the adjoining Agricultural land “where the site would have good access to utilities and roadways.”

In a supporting statement, Wessels describes some of the difficulties DWAL has had getting financing for the project. It approached Bank of Hawai`i and First Hawaiian Bank, “four major banks on the mainland,” and “equity and hedge funds.” None, he says, was interested in providing loans for the project. DWAL then “proceeded with its available funds, funds from the Capital Asia investor program, and the cooperation of its contractors … and its material supplier to carry a portion of construction costs until the construction loan is funded. To date, DW, its investors and its contractors have invested over $20 million” on the affordable housing site, he says. (However, if each of the 400-plus investors in Capital Asia put in the minimum required amount of $96,000, DWAL would have raised more than $38 million from that source alone.)

Wessels refers to a pending loan from “Exim Corp.” that would “cover the construction costs for the balance of Phase 1 and payment toward the purchase price for the remainder of the residential, the golf course, and village commercial elements of the project.” On July 1, Wessels, when asked about his company’s plan to purchase the remainder of the project area (another 1,000 acres besides the 62 for Phase I), he told the LUC that the Exim Bank would come through with a loan of $98 million by mid-August, which would include $12 million still owed on the Phase I land. In his more recent statement, dated August 27, he says that loan package “is expected by October 2010.”

A hearing on the motion to amend the conditions is scheduled for November 4 in the LUC conference room in Honolulu.

The Threats

A week after DWAL filed its motion, Bridge `Aina Le`a, LLC, the subsidiary of Bridge Capital that still owns nearly all the Urban area of the project and which remains one of the petitioners in the matter pending before the Land Use Commission, filed a position statement on DWAL’s motion. Basically, while Bridge supports the amendments proposed by DWAL, its attorney, Bruce Voss, argues that the motion does not do nearly enough to remedy the past injuries that the LUC has inflicted on the project.

Thus, the LUC should eliminate deadlines altogether, Voss argues.

In addition, the `Aina Le`a project has been subject to more stringent conditions than the LUC has imposed on other projects, Voss argues, claiming “the commission has deliberately discriminated against” it. What’s more, he writes, the commission has violated due process by not giving proper notice of its “action” proposed in the July 1 meeting, by having the motion July 1 be “vague and ambiguous,” by failing to define what it meant when it talked about “completed” houses, and by establishing an arbitrary and capricious deadline for completion of the 385 affordable units, among other things.

Voss even seems to suggest at one point that 107 apartments built by a previous landowner, Nansay, to satisfy various affordable housing requirements for its projects at Puako and Kohanaiki should be credited against the obligations of DWAL. Litigation over how those units – low-income housing in Waikoloa – should be credited resulted in a settlement in which none of the units could be used “towards satisfying Bridge’s existing affordable housing obligation at Puako.” Instead, Bridge may use 47 of the units as credits against affordable housing requirements on any other development it might propose within 15 miles of Waikoloa.

The commission’s finding on July 1 that the requirement to complete 16 units of affordable housing by March 31 was not met was “illegal,” Voss says, in that it “completely failed to comply with the contested case requirements of Chapter 91 of Hawai`i Revised Statutes.” Despite that, he says, the action “cast a dark cloud over the project and crippled DW’s effort to conclude financing to continue the affordable housing construction.”

The Rebuttal

Voss is especially unhappy with the actions of Abbey Seth Mayer, the director of the Office of Planning. Mayer’s comment to the LUC on the progress `Aina Le`a was making in May was unsolicited, Voss argues, and unprecedented, since he did not submit any similar comments on the progress of any of the other Big Island developments, including those “where no construction work was done during 2010,” he writes.

Undaunted, Mayer responded with the Office of Planning’s memo opposing the motion to amend the three conditions. The memo notes that the 2010 affordable housing deadline was itself two years beyond what Bridge `Aina Le`a indicated would be needed – that in 2005, Bridge itself had proposed that it be given only until 2008 to complete 385 units.

One of the points Mayer has raised over the last two years that the integrity of the commission is compromised if it does not enforce the conditions it attaches to land reclassification. The decision made in 2005, setting the 2010 deadline for affordable housing, “should stand for something, and should not be revisited, the memo states. “The petitioner should not be rewarded for failing to meet those representations and conditions. In order to preserve the integrity of LUC decisions and the LUC decision-making process, the petitioner’s request” should be denied, Mayer writes.

If DWAL is going to argue that reversion would be an economic hardship, “OP notes that DW’s remedy is not to ask the LUC to forsake the integrity of the land use process but rather to pursue Bridge `Aina Le`a…. DW cannot rely upon the LUC to avoid its economic losses and should resolve its monetary concerns over the transaction with Bridge `Aina Le`a.”

As far as the request to amend the conditions concerning the location of the sewage treatment plant and the school site, Mayer notes that if the LUC votes to revert the land, “any amendment of conditions 5 and 7 will be moot.” What’s more, as concerns DWAL’s claim that the Department of Education will accept 32 acres of land in the Agricultural District, Mayer attaches to his memo an email from a DOE planner, stating that the agreement worked out with the developer called for DWAL to “secure a boundary amendment” for the parcel before the DOE would accept it. So far, “Petitioner has not filed a new petition to reclassify” those 32 acres, Meyer says.


Patricia Tummons


Volume 21, Number 4 — October 2010


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