One of the first actions taken by the new administration of Hawaiʻi County Mayor Mitch Roth following his inauguration last December was to soften the county’s stance toward the ʻAina Leʻa development. The previous administration had been insisting that the developer would need to prepare a new environmental impact statement before being allowed to do further work on the 1,100-acre site in South Kohala where ʻAina Leʻa is proposing to build more than 2,000 housing units.
ʻAina Leʻa challenged this requirement in a lawsuit filed in 3rd Circuit Court and the county corporation counsel vigorously defended the Planning Department’s position – until last December, when the county and ʻAina Leʻa filed with the court a stipulation that put the case on hold while the parties attempted to work out a settlement.
In late April, the county appeared to have worked out an agreement with ʻAina Leʻa to resolve their differences. A Memorandum of Agreement signed by Richard Bernstein, identified as president of ʻAina Leʻa, Inc., and Mayor Roth, recited many of the conditions in the redistricting order approved by the state Land Use Commission in 1989 and in the county rezoning ordinance, adopted in 1996.
The most recent annual report that the developer filed in March, provides an update on progress toward some of these conditions. ʻAina Leʻa claims that plans for the intersection with Queen Kaʻahumanu Highway “are in final review” by the state Department of Transportation and that it has placed $2 million in escrow to pay for intersection improvements. It also reports that the state Department of Health had approved a decade ago the installation of a membrane bioreactor wastewater treatment system to serve the townhouse development, Lulana Gardens, that has been partly built on a 38-acre parcel within land owned by ʻAina Leʻa. On that parcel, a total of 432 units are planned, with 385 intended to satisfy the requirement that ʻAina Leʻa develop at least 385 units of affordable housing, as defined by county guidelines. So far, ʻAina Leʻa told the county in March, 40 of those units had been completed.
ʻAina Leʻa is required to donate a school site to the Department of Education. However, specifically with regard to developing the Lulana Gardens parcel, it has asked the county to waive the requirement.
In the annual report, signed by Robert Wessels – the CEO of ʻAina Leʻa and its many related companies since 2009 – Wessels notes that Lulana Gardens “has not reached agreement with the County Planning Department on the amount of ‘Fair Share’ contribution the Lulana Gardens affordable housing should contribute. Lulana Gardens desires to reach agreement with the Planning Director as quickly as possible defining what will be acceptable ‘in kind’ and what is required in cash. Lulana Gardens desires to pay the cash portion with the issuance of Certificates of Occupancy for each unit.” (Boldface type is in the original.)
The memorandum of agreement addresses this – for Lulana Gardens. For the 432 units planned in that increment, the fair-share payment comes to $4,645.29 per unit, for a total of $3.3 million.
In addition to the fair-share payment, Lulana Gardens must pay real property taxes — something it has failed to do for several years. For the Lulana Gardens parcel alone, the tax bill at press time stood at $335,438. The total property tax owed for all ʻAina Leʻa parcels, including penalties and interest, stood at more than $812,600.
Outstanding Balance
The unpaid tax bills suggest ʻAina Leʻa may not be in the pink of financial health. But adding to its woes is a foreclosure lawsuit brought against it by Iron Horse Credit, LLC, the lender of last resort whose $5 million loan allowed ʻAina Leʻa to emerge from bankruptcy in 2019.
Iron Horse brought the lawsuit in October 2020. A few weeks later, ʻAina Leʻa responded by adding the County of Hawaiʻi and its planning director as third-party defendants, alleging that ʻAina Leʻa could not pay off the loan because the county had prevented it from fulfilling its obligations under the loan agreement. In other words, ʻAina Leʻa’s argument went, because the county at that time had refused to approve an environmental impact statement preparation notice, or EISPN — the first step toward preparing a new environmental impact statement — ʻAina Leʻa could not move forward with construction of the buildings that, when sold, would create the revenue stream needed to pay back Iron Horse.
From late November 2020 until late September 2021 — a period of nearly 10 months — the county did not respond to ʻAina Leʻa’s efforts to drag it into the Iron Horse case.
But on September 21, deputy corporation counsel Ryan Thomas asked the court to dismiss the county as a third-party defendant.
“[T]he obligations ʻAina Leʻa had to pay the Iron Horse mortgage was [sic] not conditioned upon actions of the county, because said obligations did not interfere with the county’s requirement that ʻAina Leʻa obtain approval of an EISPN. The county’s requirement was excepted from the Iron Horse mortgage as evidenced by the terms of the loan agreement. The loan agreement also showed that the county was not privy to the mortgage,” Thomas wrote.
Then there was this: Ryan told the court that the claims ʻAina Leʻa was making “are presently being litigated in another case” – the case that the company brought seeking to void the county’s requirement that an EIS be prepared. The same case, that is, where action had been suspended last December by virtue of a stipulation agreed to by both the county and ʻAina Leʻa, purportedly allowing the county and ʻAina Leʻa to arrive at some agreement short of requiring an EIS.
The third-party complaint, Ryan wrote, “should be dismissed because the alleged claims are the same claims that are currently being litigated in Lulana. The complaint in Lulana was filed against the county on March 10, 2010 [sic], approximately seven months PRIOR to Iron Horse filing their complaint. The claims asserted in the third-party complaint and Lulana arise from the same exact set of facts and circumstances. In that case, Lulana (organized by ʻAina Leʻa) moved for partial summary judgment, and the motion was denied. Lulana is still active. The claims raised in the third-party complaint should continue to be addressed in Lulana, not here, as it is improper.”
The motion to dismiss the county as a third-party defendant will be heard by the court at 9 a.m. November 19 via Zoom. (Zoom conference ID is 610 665 7731.) The Lulana case, on the other hand, remains dormant, with no substantive filings with the court since the stipulation was filed last December.
The Mayor and the Sellers
In 2019, then-mayor Harry Kim memorialized a meeting with ʻAina Leʻa principals in a letter to Wessels dated November 6. In it, Kim reaffirmed the county’s position that ʻAina Leʻa would be required to prepare a new environmental impact statement. Noting that “the representations made to me at our meeting on October 14, 2019, appear to be incorrect,” Kim went on to list key elements that the company seemed to mis-understand, including:
The project “is not exempt from environmental review…. There is not a valid accepted Final EIS … In 2010, the Planning Department previously accepted a final EIS for a larger project that differs from the present proposal for Lulana Gardens. As you know, in 2013, the Circuit Court of the Third Circuit found that the Planning Department should not have accepted that statement because it did not take a hard look at whether the project covered by the 2010 EIS was a segment of a larger project or also whether there were cumulative impacts which were not fully analyzed.”
But the current administration of Mayor Mitch Roth has been actively promoting sales of units in the Lulana Gardens development.
Roth makes an appearance in a video broadcast on Hawaii News Now’s HI Now program, a platform where commercial entities can buy time. The segment is sponsored by Hawaiʻi Development Group, a company whose two principals, Kelly Valenzuela and her daughter, Lailan Bento, say they have entered into a partnership with Roth to bring affordable housing to the Big Island.
The program’s narrator claims that thanks to a partnership with Hawaiʻi Development Group, Lulana Gardens “has come to life.”
“The great thing here,” says Roth, making an appearance in the video, “is that they’re going to be providing over 400 rental units.”
The video shows Valenzuela and Bento showing off staged units to the mayor. “This is really nice,” Roth says.
Another website, ainaleahi.com, would seem to solicit investments in the publicly traded company. “The Town of ʻAina Leʻa provides an outstanding opportunity to its partners to acquire a major holding of residential-zoned estate [sic] in the heart of one of the fastest growing luxury neighborhoods, with a proven track record of significant land value appreciation,” reads the text under the “Investment” and “Program” tabs of the website. No prospectus for potential investors is offered.
Investment solicitations are highly regulated by both the state and the federal government. There has been no filing with the federal Securities and Exchange Commission since June 22, 2017, when the company announced it had filed a voluntary bankruptcy petition.
— Patricia Tummons
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