On December 30, the members of the state Land Use Commission gathered, via Zoom, for what was expected to be a fairly brief hearing to review and approve an agreement among Maui County, property owners, and the state Office of Planning concerning the future of a development proposal approved by the LUC three decades ago.
Oh, how wrong those expectations were.
Time and again, commissioners expressed their dismay over statements made by the attorney for one of the landowners.
“For once in my life, I’m a little bit speechless,” said commissioner Gary Okuda following the admission by attorney Jason McFarlin that his client, Wailuku Plantation, LLC, and its owner, Vernon Lindsey, lacked the financial ability to carry out the project anticipated in the stipulation signed barely two weeks earlier, on December 14.
“I don’t know what to say. I don’t know what to ask. I will stop here.” That was commissioner Lee Ohigashi, following McFarlin’s disclosure that Lindsey would be petitioning the LUC to revert about 79 acres owned by Wailuku Plantation from the Urban land use district back to the Agricultural district.
Commissioner Arnold Wong at one point was obviously angered by what he saw as McFarlin’s dissembling.
McFarlin attempted to explain: “I’m trying to be up front about absolutely everything here… I just want you guys to keep in mind I’m dealing with a very indecisive and difficult client here and I am trying to provide you with the best information I can. … I really take great offense that I would be alleged to be a liar because I’ve – uh, you know there aren’t any good answers to these questions. There just aren’t.”
Wong then offered an apology of sorts. “I was taken aback,” he said, “because it seemed there were some misrepresentations… I was thrown off my chair by what I heard.”
What the commission was being asked to do was approve a request that McFarlin filed on August 20, seeking to bifurcate the responsibilities and obligations imposed on C. Brewer Properties, Inc., in 1990, when the LUC approved its petition to place into the Urban district two widely separated tracts of land near Wailuku, Maui. The stipulated agreement set forth mechanics to effect that bifurcation.
The larger of those two tracts, just mauka of Wailuku town and referred to as the Wailuku development in the decision and order, consists of 545 acres, and in the 30 years since the LUC approved the boundary amendment request, it has been substantially developed as the Kehalani master planned community.
The smaller tract, consisting of 79 acres arranged in a narrow, irregularly shaped parcel, runs along the eastern side of Kahekili Highway north from its intersection with Piʻihana Road, near Iao Stream, nearly to its intersection with Waiehu Beach Road. It has seen no permitted development whatsoever.
Within a few years of the LUC’s approval, C. Brewer ceased most of its agricultural operations and set up a new entity, Hawaiʻi Land & Farming, to take over its real estate operations. Eventually, that, too, foundered and developer Stanford Carr ended up owning both tracts.
In January 2013, Kehalani Holdings Company, LLC, which had acquired the land through a process called deed in lieu of foreclosure, divided ownership. RCFC Keahalani, LLC, was the new owner of the mauka tract, while RCFC Piʻihana, LLC, took title to the smaller, 79-acre tract. RCFC Kehalani continues to hold title to about 50 acres in the mauka development. RCFC Piʻihana, on the other hand, sold its holdings to Lindsey’s company in a series of transactions from August 2017 through April 2019. According to property tax records maintained by Maui County, Lindsey paid around $2 million for the land.
The obligations imposed by the conditions of the LUC redistricting back in 1990 run with the land. In the case of the Piʻihana tract, those conditions include building a bridge across Iao Stream and developing the infrastructure for some 600 homes that were to be affordable to households earning between 80 percent and 140 percent of the average median income of Maui.
As Lindsey took over the land, RCFC Piʻihana sloughed off those obligations, which, in 1990, were estimated to cost nearly $13 million. (In today’s dollars, that would be around $26 million.)
But unless and until the LUC bifurcates the docket, its affiliated company, RCFC Kehalani, remains potentially liable for them.
That point came up early in the LUC’s discussion. Commissioner Gary Okuda asked McFarlin: “You do agree that there is an argument that because your clients are successors in interest to the original order that C. Brewer and Co. obtained, that your respective clients might have obligations with respect to each other’s development. I mean, there’s at least that argument, correct?”
McFarlin: “Ah, yes. Yes, there is that argument.”
Okuda: “And in fact that’s one of the reasons why at least your client is asking for this bifurcation so going forward there’s not going to be any responsibility for what’s happening at the other project, correct?”
In fact, there’s virtually no chance that McFarlin’s clients – Vernon Lindsey and the handful of other owners of the Piʻihana land who have purchased small parcels over the last couple of years – face any real risk of being held liable for fulfilling the as-yet unfulfilled obligations associated with the Kehalani development. Of the two largest landowners – Lindsey’s Wailuku Plantation and RCFC Kehalani – Lindsey has, by far, the shallower pockets. Should bifurcation occur, it would be RCFC Kehalani who would be relieved of the greater burden.
Joint and Several
Commissioner Dawn Chang pressed the same question with Randall Sakumoto, of Honolulu’s McCorriston Miller law firm, representing RCFC Kehalani.
“Currently, both parties – your client and Mr. McFarlin’s client – are responsible to fulfill responsibilities under the D&O [the LUC’s 1990 decision and order]. Jointly and individually responsible for fulfilling those obligations,” Chang stated.
“I don’t know that I agree with that,” Sakumoto replied. “We have always been responsible for the Wailuku project district. There’s never been any sense that we were also obliged to perform conditions as they relate to unrelated property. There’s no feasible means of doing that. It’s hard to imagine a scenario where that could actually be done.”
“Humor me,” Chang continued. “If we bifurcated the docket, … would you agree that the Land Use Commission and the public would not have the ability to hold both parties responsible to fulfill all the obligations under the D&O? … Once we bifurcate, we are essentially separating the responsibilities of both parties.”
“That’s our objective,” Sakumoto replied, describing the existing state of affairs as “clouding the title” and an “ambiguity we would like you to resolve.”
“We don’t think as a practical matter there’s any real change,” he added. “My client has no … business with respect to [the Piʻihana] property.”
Chang: “You would agree, the benefit is really to your clients? At this time, clearing the cloud is to the benefit of your clients.” She agreed that the conditions that apply strictly to the Piʻihana project should be borne by Wailuku Plantation, but, she went on to say, “I’m more concerned about infrastructure requirements – the roadways, the bridge – those kinds of major infrastructure requirements that were placed in the LUC’s conditions, where there is an argument that, to a certain extent, both parties are obligated to fulfill those obligations.”
If the LUC were to agree to the bifurcation, as laid out in the proposed stipulation, Chang said, “we would no longer be able to ask your client to fulfill those obligations.”
Apart from the roadway and bridge obligations, the 1990 D&O required some of the housing to be affordable. In the case of the Piʻihana development, all 600 of the housing units proposed were to be affordable – with 40 percent (240 units) affordable to families with 80 percent of the county’s median income levels, 180 affordable to those at the 80 to 120 percent income level, and 30 percent affordable to those in the 120 to 140 percent range.
In the case of the Kehalani development, 37.5 percent were to be affordable (for a total of 900 units) within those same ranges. Altogether, of the 3,000 total units planned (600 in Piʻihana, 2,400 in Kehalani), fully half were meant to be affordable with those ranges.
Commission chair Jonathan Scheuer pressed Sakumoto on this issue. “Where does your proposed bifurcation leave this condition?” he asked. “My concern is, the LUC approved a docket with two project districts and tied project conditions to both…. It appears there’s no financial ability or intent of the current owner of the Piʻihana project district, which was sold the land by your client, to fulfill any of these conditions. So we, the people of Hawaiʻi, the people of Maui, are out 600 units of affordable housing. And I don’t want to be out 600 units of affordable housing….
“If we have any hope of seeing affordable housing in the Piʻihana project developed, what’s our path forward?”
“I can only answer for the Wailuku project district,” Sakumoto answered. “We will continue to do what we can… The history of this is, before the lender foreclosed, my client inquired with the county Department of Housing and Human Concerns, what was the status of the affordable housing requirements. Since then, they have been reporting annually to the county.”
Okuda picked up the questioning. When Sakumoto’s client acquired the Kehalani property by means of a deed in lieu of foreclosure, Okuda said, “bottom line is that the new owner steps in the shoes of the prior owner… So whatever obligations the prior owner had… foreclosure doesn’t cut off those obligations. And whoever takes a deed in lieu knows or should know that fact. If you take that deed in lieu, or you’re a successor to someone who took that deed in lieu, you’re assuming underlying obligations, encumbrances, and orders that run with the land.”
Commission chair Scheuer doubled back to the question of the benefits to Sakumoto’s clients should the stipulation and bifurcation be approved.
“RCFC Piʻihana and RCFC Kehalani, were they owned by the same parent?” he asked.
Sakumoto said he didn’t honestly know, but, “the fact that RCFC is in both names, I guess there’s a commonality.”
(Both RCFC Kehalani and RCFC Piihalani are registered as foreign LLCs in Hawaiʻi and both have the same mailing address on Santa Monica Boulevard in Los Angeles.)
“If the same entity owned both, they got a twofer on the transaction,” Scheuer continued. “First, they got paid for the land, and then they got to foist the obligations onto an unsuspecting new owner.”
Sakumoto: “Like any real estate transaction, you buy the benefit and the burden. I don’t know there was any foisting of anything.”
Whether Vernon Lindsey, the sole member of Wailuku Plantation, LLC, was unsuspecting can’t be known; he was not present at the meeting. However, Lindsey does have a history as a failed developer. More than a decade ago, he purchased a number of distressed properties in Hilo, including the former Western Auto store downtown and the complex known as Waiakea Villas. While he may have had good intentions, in the end, he was unable to move forward with his planned projects. His interest in Waiakea Villas was auctioned off when the bank foreclosed. His efforts to develop the old Western Auto building ran afoul of the county, which ultimately found it to be so unsafe as to be uninhabitable. (The building was eventually demolished and a new McDonald’s restaurant and parking lot now occupy the site.) Even before that, in the mid-1990s, Lindsey and his wife, Noenoe, attempted to redevelop the Old Haiku Cannery on Maui – an effort that also ended in foreclosure.
How did it get to this point?
As was noted many times over the course of the hearing, under rulings from the Hawaiʻi Supreme Court, the Land Use Commission is helpless to enforce conditions it attaches to redistricting amendments once there is “substantial commencement” of work.
In this case, with hundreds of housing units developed in the Kehalani project area, the LUC has its hands tied. Enforcement of conditions fell to the county years ago.
Maui County deputy corporation counsel Michael Hopper was grilled on the county’s efforts to hold both the Piʻihana and Kehalani developers to the promises that C. Brewer made – and which they assumed when they acquired the land.
Okuda pressed Hopper on why the county would go along with the proposed stipulation when, in effect, it would give the county little recourse to force development of the promised 600 affordable housing units in the Piʻihana area.
“You know, the fact that a landowner or somebody who has an obligation gets rid of an asset doesn’t necessarily absolve that person from obligations to perform on the obligations they should’ve performed,” Okuda noted. “If you own a corporation and you know the corporation has obligations and you intentionally don’t perform on those obligations and you drain the corporation of its profits, there still might be personal liability against the corporate owner.”
He continued: “I’m thinking, if there’s no bifurcation, at least not right now, or if there’s a deferral, this actually gives the county of Maui more tools in its toolbox on whatever type of enforcement action the county wants to take. I’m not proposing that people be held hostage here, but sometimes, if there’s no quid pro quo back to the community, a clear community benefit – what is the community getting in return?”
Hopper acknowledged that that “is a grave concern of ours.”
“I understand, technically, yeah, maybe the county could issue a notice of violation against Kehalani only, the developer only, or the homeowners, to fix the situation in Piʻihana. We could try. Not sure it would be successful. But I don’t see that concern as a basis to justify continued opposition to bifurcation,” which, he said, was the appropriate means of making the obligations of all parties clear.
Lee Ohigashi, the commissioner from Maui County, was angry. “We’re asking you, is it the policy of the county of Maui … to ignore that provision and say we’re not going to try to enforce it? ‘We’re not concerned about having an additional 600 units.’”
Commissioner Dan Giovanni was also concerned about the county walking away from the developers’ obligations to provide affordable housing on the Piʻihana tract. “Would you take the position that if the bifurcation goes forward, there’s no recourse for holding Kehalani responsible for any of the conditions that might be judged to apply to Piʻihana?”
Giovanni: “And if we do not bifurcate, the opposite would be true?”
“Technically true,” Hopper replied, going on to mention his “legal concern about forcing Kehalani to build housing on Piʻihana” land.
It was left to commission chair Scheuer to point out that there are other ways to satisfy the affordable housing condition apart from erecting buildings on the Piʻihana property.
“Does condition 1 [in the Decision and Order] specify that the physical building of units on that property is the only way to fulfill those conditions?” Scheuer asked Hopper.
“No, there’s other ways,” Hopper replied.
Scheuer then noted that the original D&O stated that the affordable units could be built in any distribution the developer desired or could produce units affordable to a larger percentage of low-income families and receive more credits against the affordable housing requirement.
Dawn Apuna, the deputy attorney general representing the Office of Planning, a signatory to the stipulated agreement, announced that, “with the new information provided by Mr. McFarlin, we cannot in good conscience continue to support the stipulation.”
“I think the [Office of Planning] understands the frustration the commission feels on behalf of the community, on behalf of whatever conditions were made in the original order. I also understand what Mr. Hopper is saying about the legal ability to force developers to make sure they build affordable housing.
“I would offer, maybe what the commission can do, any new [district boundary amendments] that come through, there be more stringent timelines to make sure developers are doing these things in timely fashion. Bond requirements, maybe other ways to require the original developers to perform as represented.”
Apuna’s retreat from the stipulation pushed the commission to finally wrap up its deliberations.
Okuda weighed in with his thoughts on the issue. “We come across these dockets where the easy money is made by the developer and the stuff that is not easy money, oftentimes affordable housing, it’s just left undone, and other infrastructure promises. And then, when 25, 30 years pass, people come and petition us and say changed circumstances, a lot of time has passed. Relieve us of these obligations.
“Isn’t there a public policy reason why the LUC should start taking a harder line and say, yeah, I guess somebody’s going to suffer, maybe the successor in interest to the original petitioner, but promises made … have to be kept.”
In the end, the commissioners approved a motion to reject the stipulation and order the parties to “continue discussions on this matter and not to return to the commission until evidence of (1) financial capability is filed with the commission; and (2) the responsibility for various conditions and requirements is resolved given the information received at this hearing.”
— Patricia Tummons