Here’s what’s happening – or not – with the Villages of `Aina Le`a, a development on a thousand-acre tract of land put into the Urban district more than 20 years ago:
- Construction of affordable townhouses has stalled out after completion of 16 units last spring; the primary contractor is owed more than $4 million for work already done;
- Finding a source of construction funds is, by the developer’s own admission, an uphill climb;
- The November 17 deadline for completion of 385 units intended for sale to low- to middle-income families passed, with the developer acknowledging that they probably won’t be ready for occupancy until late next year;
- The Land Use Commission is continuing to hear arguments on whether the land should revert to its prior Agriculture classification.
On November 18, the day after the deadline for completion of the affordable units passed, the LUC held a hearing on the status of its order to show cause why the land should not be reverted. That order, issued more than two years ago, was rescinded when the current developer, DW `Aina Le`a Development, LLC, took over the project from Bridge Capital and committed to moving heaven and earth to get the affordable housing done by the 2010 deadline. That deadline was set in 2005, at the request of Bridge, in return for reducing the affordable portion of the project from 60 percent of all units built to 20 percent.
As the meeting began, the King Kamehameha Hotel ballroom in Kona was packed with partisans of the developer: real estate agents, lumber purveyors (including one who recently withdrew a petition for a mechanic’s lien against the project), a mortgage banker, a consultant, an electrical contractor, a civil engineer, an architect. All gave the project their hearty endorsement in testimony to the commission.
Only two discouraging voices were heard: That of George Robertson, of the Puako Community Association, and Randy Vitousek, representing the Mauna Lani Resort Association. Robertson said his constituents were “very upset about the design and construction of the affordable homes that were once promised to be interspersed throughout the development. Right now, they’re clustered… [into] an affordable ghetto….
“It seems to me like we, including the folks in this audience, have been enabling a drug addict that constantly comes back for more, and we keep giving him more and more extensions. It’s concerning for us that the Land Use Commission, its integrity and credibility is at stake when you keep doing this.”
Vitousek noted that while his client had no position on the specific matter before the commission, it was concerned that if the LUC did approve any time extension, it include a condition that intersection improvements on Queen Ka`ahumanu Highway be completed before any occupancy is allowed.
He went on to note that the developer’s final environmental impact statement, released earlier in the month, had given inadequate attention to the likely impact that future residents of the project will have on the resort. “Their promotional material,” he said, “contains photographs of the beach at Mauna Lani, the pool, and the golf course. We ask the commissioners to consider requiring further offsite mitigation with respect to the recreational and cultural resources in the area.”
The first witness called by DWAL after the public testimony had concluded was James Leonard, the consultant who prepared the EIS. At several points, the EIS mentions that the developer owns the land that it will be developing. Comments received on the draft EIS note, however, that the only discrete parcel that DWAL has a registered interest in is the 61-acre lot where the affordable units are proposed.
Deputy attorney general Bryan Yee, representing the state Office of Planning, questioned Leonard about DWAL’s interest in the property. “Is it your understanding that Bridge owns the majority of the petition area?” he asked. Despite the assertions in the EIS, Leonard demurred. He wasn’t “that versed in terms of ownership,” he said. Appended to the EIS, however, was the sale agreement between Bridge and DWAL; while Bridge gives DWAL development rights to the Urban land, the agreement calls for phased-in purchase. To date, title to only the 61-plus acres for the affordable units has been transferred from Bridge to DWAL.
Robert Wessels was the second (and last) witness called by the developer’s attorney Alan Okamoto. Although Wessels was not asked directly about ownership of the land outside of the affordable housing parcel, he did acknowledge that under an unusual financing scheme DWAL had entered into with a Southeast Asia company called Capital Asia, title to the affordable housing parcel is now held by more than 600 tenants in common, with more being added each week.
As Wessels explained, each investor purchases an undivided interest in the land. Once the condominium property regime is approved, the individual investor’s interest becomes attached to a specific unit (or units, in the case of investors who have bought multiple shares). When that unit is sold, or 30 months after the investor purchased a stake (whichever occurs first), the investor receives his or her final payout. According to Wessels, an initial payout is made as soon as the investor buys a share: $5,000 “lease rent” for each $96,000 investment. When the investor cashes out, he or she will receive interest amounting to 12 percent a year, less the $5,000 payment. In other words, for every townhouse purchased, $120,000 off the bat goes to pay off the investor.
Under questioning from LUC member Normand Lezy, Wessels said that the revenue flow from Southeast Asia was a pretty steady stream of between $200,000 and $300,000 a week. More than half of that, Wessels said, was going to pay off the $4 million in outstanding billings from Goodfellow Bros., the primary construction contractor.
Another focus of the hearing was on the prospect for completion of the affordable units. In his testimony, Wessels said he was hopeful the units could be put up for sale, with certificates of occupancy in hand, by March 31, 2011. The package sewage treatment plant, Wessels said, “was supposed to have been shipped from Austin, Texas, two to four days ago. It’s somewhere en route… It was supposed to arrive by the 20th, but I don’t believe it’ll be here by then. But it’ll be here in the next couple of weeks.” Given that it’s a turnkey operation, he suggested, attaching it to sewer lines and getting it operational would take little additional time. “According to the manufacturer,” he said, “installation and phase-in of operations, other than permitting, takes 30 days or less…. We have planned on phasing it in so we can actually turn it on in the first part of the year.”
Water tanks for potable water are likewise en route, “shipped on the 7th of November from a port in Australia,” Wessels said. The 250,000-gallon tanks “will be available by the end of December,” although some trenching would still need to be done for the water pipes.
Materials needed to finish the interior of buildings that are now up (three eight-unit buildings, in addition to the two nominally completed in March) are “primarily there…. Of the 40 units, all materials are effectively on site… almost all rough-in plumbing is on site,” although, he added, “I don’t believe there’s electrical for those.”
Foundation slabs for three more of the affordable townhouse buildings were nearly ready, he said: “Wire just has to be rolled and concrete poured.”
Landscaping? It “is designed… Some of the plants for models [model units] are on order.”
Getting HELCO to bring electric service to the site was a bit stickier, Wessels said. In the meantime, he had ordered solar panels to be installed on the carport roofs of 16 units, along with battery packs. “Because of tax credits, they’ll be in our facility by the end of December… We anticipate having the power from the solar functioning in January or by the first week of February… Our intent is to be able to roll through all 432 units with solar carports,” he added. The photovoltaic systems won’t eliminate utility bills for the homeowners, however. Although Wessels claims that each carport roof system will generate about 25 percent more energy than the household consumes, it will be his company, and not the homeowners, who enter into a power purchase agreement with HELCO. Eventually, he said, “we want to do it like a co-op, where the homeowners will get the proceeds,” but the details still have to be worked out with the Public Utilities Commission.
As to the intersection improvements that should be completed before occupancy, Wessels noted that designs had been submitted to the state Department of Transportation, but no approval had been given yet.
Questioned by Yee, Wessels backed off. “If I said [the infrastructure] was almost done, the engineering is done, some of the trenching, some of the blasting for trenching, sewer piping, and manholes are on site,” he said. “Easements and surveying for easements … are there. The legal descriptions for the roadways are done. A lot of work has been done, but I don’t want to misrepresent it’s been completed.”
Still, Wessels estimated that Phase I of the project would be done by the end of March 2011, if one of the construction loans he had applied for came through. But under further questioning, Wessels clarified that he didn’t mean the entire Phase I (all the townhouses), but merely the first increment – five eight-unit buildings – of the work. As to a date for completion of the entire first phase, that, Wessels said, “will take us through probably June.” June of 2011? Yee asked. “2011,” Wessels answered. If the financing doesn’t come through, then it would probably “take us until October 2011,” he said.
Commissioner Charles Jencks, a developer himself, was obviously skeptical of Wessels’ optimistic time frames. He went through the outstanding items needed to be done before occupancy, each time eliciting agreement from Wessels that the time required might be three or four times as long as he had originally thought. “Given all the questions I just asked you,” Jencks said to Wessels, “and, truthfully, what is the lack of submittals [for permits] and the time that takes – they’re all unknowns. They’re all discretionary… We’re talking about a significantly longer period of time than the end of the first quarter, wouldn’t you agree?”
“When you put it that way, yes,” Wessels responded.
“Sounds to me you’re looking at a year,” Jencks said.
“You may be correct,” Wessels finally acknowledged.
In his closing argument, Yee raised the argument that in light of the failure of DWAL to meet the November 17 deadline, and given its earlier failure (in the eyes of the LUC) to meet the March 31 deadline for completion of 16 affordable units, by rights, the 1,062 acres urbanized in 1989 had already been reverted to the Agriculture district.
“Let’s be clear what we mean by the order to show cause.” He said. “The Land Use Commission issued the order to show cause, and we had a hearing, and the commission reverted the property. It then went back and decided to say, ‘if you complete these 16 units, then we’ll lift the reversion.’ And then it decided, no, those 16 units were not completed.
“Because those units weren’t completed, there’s an order that has reverted the petition area. So there’s no further decision to make per se… The land has been reverted.”
Complaints made by Bruce Voss, the attorney for Bridge Capital, about procedural irregularities “are made too late,” Yee said.
Notwithstanding Yee’s remarks, the LUC did not make any decision on the order to show cause. A hearing on DWAL’s motion to amend three conditions (relating to deadlines for construction, a school site, and a sewage treatment plant site) has yet to be scheduled; if the commission should decide that the land is properly reverted to the Ag district, then there will be no need to hear the motion to amend.
Finally, on November 12, six days before the November meeting, Voss, attorney for Bridge, filed a lengthy motion on the order to show cause, arguing that the LUC has no legal right to take any further action on this matter as a result of numerous procedural irregularities and due process violations. DW `Aina Le`a attorney Okamoto joined in Voss’s motion three days later. The LUC will schedule a briefing on that motion in weeks to come, followed by oral arguments.
Environment Hawai`i has published the following articles on the Villages of `Aina Le`a. All are available in the Archives section of our website, www.environment-hawaii.org
- “2 Decades and Counting: Golf ‘Villages’ at Puako are Still a Work in Progress,” March 2008;
- “Hawai`i County Board Deals Setback to Stalled Bridge `Aina Le`a Project,” December 2008;
- “Bridge `Aina Le`a Gets Drubbing from the Land Use Commission,” March 2009;
- “After Years of Delay, LUC Revokes Entitlements for Bridge `Aina Le`a,” June 2009;
- “Commission Stays Decisions to Revert Puako Land,” July 2009;
- “Under New Management, `Aina Le`a is Given Yet Another Chance by LUC,” October 2009;
- “Some Progress Reported at Kohala Site that Won Reprieve from LUC,” March 2010;
- “Office of Planning: `Aina Le`a Has Not Met, Cannot Meet LUC Deadlines,” June 2010
- “`Aina Le`a Faces Compliance Hearing,” August 2010
- “`Aina Le`a Seeks Two-Year Extension of Deadline for Affordable Housing,” October 2010.
LUC Gives Thumbs-Up To ‘Affordable’ Kona Project
“Two weeks ago,” said Bryan Yee, the attorney representing the state Office of Planning, “the Queen Lili`uokalani Trust said in its opening argument that it felt as if they were standing in front of a steaming locomotive,” referring to the expedited, 45-day time frame within which the state Land Use Commission had to weigh the issues and come to a decision on Kamakana Villages, a 272-acre project near Kailua-Kona. The expedited hearing was required under state law giving favorable treatment to residential developments where “affordable” units account for more than 50 percent of the total.
“I know how that feels,” Yee continued. “We’ve stood in front of steaming locomotives a couple of times.”
But this was no steaming locomotive, he continued. When the OP determined the original archeaeological inventory was insufficient, it put a stop to the project while a more thorough inventory was completed.
Then the OP director, Abbey Seth Mayer, took the position that the project was going to have to mitigate its impacts and comply with all requirements. “We told the petitioners they had to stop, and they did,” Yee said.
On top of everything else, the developer, a subsidiary of the large national development company Forest City Enterprises, had to go through a lengthy negotiation process with the Hawai`i Housing Finance and Development Corporation – and “steaming locomotive is never a term one uses with respect to dealing with state agencies.”
If this project were to make it through to approval, Yee continued, “it’s not because it’s a steaming locomotive, but the little engine that could.”
Ben Kudo, on the other hand, the attorney for Queen Lili`uokalani Trust, told the commission in his closing argument that, “having lived these last three or four weeks, I feel like I’ve been dragged under a train.” Kudo, who usually represents developers before the LUC, said it was an “interesting experience” to represent an intervenor.
“Ultimately,” he said, “this commission will approve this petition. I know that. The [Hawai`i] County Council may approve it as well. We realize that’s a reality.”
Still, he said, he believed some good had come out of the involvement of the trust in the process. “When we appeared before this commission four weeks ago, there were 91 exemptions being sought at the county level. It’s now been reduced to 54.” Also, he added, “I think we’ve sensitized this commission to some of our concerns.” The Queen Lili`uokalani Trust had sold the land in question to the state in 1992 and still owns land surrounding the parcel.
The decision facing the commission “presents an interesting decision,” he said. “It pits two types of good uses against each other. It pits affordable housing, which we support, and which is a legitimate state interest, against what we represent, which is social welfare services. If social welfare services have to give way because of affordable housing, the choice is homes over children. I have a problem with that.” The mission of the trust is to serve orphans and indigent children; lease rents from the trust’s developed lands make up the bulk of its operating revenues.
There was, in the end, little dissent among the commission, which voted seven to two to approve the project at its meeting on November 4, just one day before the 45-day window for LUC action was to close. Had the commission not reached a decision by that time, the project would have been allowed to proceed as anticipated in the petition to redistrict the land, shifting it from Agriculture to Urban.
A Moving Target
Despite the approval, it was clear that the commissioners had misgivings about some aspects of the project.
First of all, there were discrepancies between the project as described in the development agreement signed in 2009 by Forest City and HHFDC and the project as described in the LUC petition. The number of dwellings and the breakdown of the type of units to be allocated to each category of affordability (up to 80 percent of Hawai`i County’s adjusted median income, 100, 120, and 140 percent) were anything but clear.
The commissioners also seemed concerned about the density of residential units, picking up on testimony offered by Mark Boud, a marketing consultant for Queen Lili`uokalani Trust. “The density is too high, the square footage too low,” said Boud. What’s more, the target prices for the affordable units were, in today’s depressed real estate market, no less than those of other houses for sale. “Right now, there is so much selection, at lower prices than contained in the Hallstrom report, that this would be a hard sell,” he said. The Hallstrom Group prepared the market analysis for Forest City, estimating that the sales price for the multifamily units would range between $300,000 and $400,000.
“Who would want to buy an affordable condo at 37 units per acre when you can get a single family home for the same price, or lower, in the same area?” Boud asked.
Thomas Contrades, commissioner from Kauai, explained his objections to the project before the final vote.
“I know I’m going to be all alone on this, but I still have to say it anyway. I’m going to vote no…. I’ve spent most of my adult life representing workers. The average wage of a worker in the state today is $15 an hour. The average worker earns $30,000 a year. If both mom and dad work, that’s $60,000. You’re going to have two cars, education… Nobody’s going to be able to afford to live in this place…. There’s no such thing as affordable housing if we do it the way it’s being proposed…
“People don’t want to live in small little houses, especially if you’re from Hawai`i… The type of development in this application is so intense, it would not be a good place to live….
“This project has just too many questions that need to be answered: How many 80, 100, 120 percent affordable – how many are going to be produced? What happens if they can’t hook up to the wastewater treatment plant after the first two, three phases are done? We all know [the county] is going to be at capacity very quickly. What happens if the units don’t sell? … What happens if Forest City exercises its rights to walk away? … Who will take over? How will HHFDC find anybody else to take over?…
“I look on this as a terrible deal… We don’t know how it’s costed out, we don’t know what they’re going to charge, but ‘trust us.’ I’ve trusted many people over the years… I can’t do that any longer.”
Nicholas Teves was the only other commissioner joining Contrades in opposing the project.
Approval by the County
On November 17, the Hawai`i County Council approved a resolution granting the Forest City project 54 exemptions from the County Code. The exemptions, the developer said, were needed to make the project financially viable and to make it conform to LEED-ND (neighborhood development) standards (such as narrower than standard roads and streets, tighter turning radii, smaller house lots, and the like). The only council member to object was Brenda Ford.
O`oma Petition Fails
In the end, it was all about the noise.
When the state Land Use Commission voted last month on the petition of O`oma Beachside Villages to shift roughly 181 acres of coastal land at O`oma, just south of the Kona airport, into the Urban District, members of the commission were torn.
“I find this a very difficult decision,” said Ronald Heller, commissioner from O`ahu. “There are a number of things I do like about the project, including the amount of conservation space and open land… I respect the commitment to preserving beach access and appreciate that [the developer] has gone to great lengths to ensure beach access.”
“However,” he continued, “for me, the factor that tips the balance is airport proximity. It is inevitable that if a number of homes are built that close to the airport, it will lead to problems down the road…as the airport expands and as that many people are living in close proximity.”
He stated he liked the project, which proposed about a thousand housing units of various types as well as parks, shops, and a school site. But, he continued, it was “in the wrong place with respect to the airport.” He would therefore be voting a “reluctant no,” he said.
At-large member Nicholas Teves Jr. was bothered not only by the airport noise, but also by the outpouring of public testimony against the project, which persisted throughout the many commission hearings over the last several months.
“The airport noise,” he said, “would be unbearable and would only cost the state in the future countless time and money.” In addition, though, there was the fact that “the people of Kona and the island spoke against this project. Most of all, this is conservation land. It was put there for a purpose. The whole petition area should be denied any development.”
Lisa Judge, commissioner from Maui, concurred with Teves and Heller. “It’s a well-designed development,” she said, but “the airport issue really bothers me. I recall yesterday we had testimony from some high school students. They made a poignant point that the decisions we make today don’t affect just our generation, but theirs and all generations to come. While [airport noise] may not be an issue in 10 or 20 years, there’s a great potential for it to be an issue in the future. I just can’t get past that. So I’m also going to be voting no on this petition.”
Joining the three in voting against a motion by fellow commissioner Duane Kanuha, of the Big Island, to deny the petition in part and approve it in part were commission chair Vladimir Devens and Thomas Contrades, commissioner from Kaua`i. (Kanuha’s motion would have approved redistricting of all the petition land except whatever lay within 1,100 feet of the shoreline. To many, the motion was confusing, since the petition for redistricting did not include any land within a 1,100-foot-wide shoreline buffer.)
The crowd, consisting of mostly project opponents, broke into loud whoops and cheers – but when commission executive director Dan Davidson announced that the motion failed, many of the opponents appeared confused. Under LUC regulations, Davidson explained, for a motion to pass, it has to have six affirmative votes from the nine commissioners.
Devens then asked for another motion. Teves responded with a motion to deny.
That also failed to pass, with the commission splitting along the same lines as the previous vote.
After a short executive session, Devens announced that after a review of the law and the commission’s own administrative rules, “It appears that I was incorrect. The motion to deny did pass, because only a majority of five votes is required as opposed to six votes…. I hope we didn’t make a mistake on our interpretation.”
With so much at stake, and O`oma Beachside Villages having invested heavily in both the land and the effort to entitle it, any ambiguity over the LUC’s vote would have invited litigation.
Bryan Yee, the deputy attorney general representing the state Office of Planning, attempted to bring some clarity to the matter. “I’ve always believed you should decide issues on substance rather than procedures,” he said. “Ask the petitioners whether they accept the decision that a 5-4 vote constitutes denial. And if they don’t, … allow the commission the opportunity to fix it if they think it’s appropriate.”
Steve Lim, representing the developer, said that because the commission did not have six affirmative votes on any motion, the proper procedure would be to continue the matter until the next regularly scheduled meeting and put it up for another vote then. “If it fails at that time, the action is denied,” he said.
Yee then cited the LUC rule that states if a petition fails to receive six votes for approval, then the staff prepares a decision and order to deny it. “If you appeal,” he suggested to Lim, “appeal on substance. Don’t appeal on procedure.” He then suggested to the commission that someone make a motion to approve the petition, straight-up.
That’s just what the commission did. With none of the commissioners in favor wanting to kill the project with a motion to approve, it fell to an opponent, Heller, to do so.
“Without necessarily conceding that this is required, for purposes of clarifying the record, I make a motion that the petition … be approved.” With the motion receiving just four votes, the petition was, finally, denied.
The vote marked the third time that the commission has rejected a petition to redistrict this particular slice of land. In 1987, the LUC voted down a proposal by Kahala Capital for a resort on the property. In 1991, the company came back with a revised proposal for a hotel, a smaller “inn,” condos, a golf course, residential lots, conference center, water park, and a “Marine Exploratorium.” Again, the LUC rejected the petition, citing (among other things) concerns about the company’s financial ability to undertake what was touted as a $300 million project.
In 2001, another company took ownership through foreclosure. The efforts of Clifto’s Kona Coast, a Nevada partnership headed up by Cliff Morris, to obtain county rezoning for the 83-acre mauka parcel, already in the Urban District, faltered when it was vetoed by then-Mayor Harry Kim in 2004. Morris sold most of his interest to a company headed up by Dennis Moresco, which formed O`oma Beachside Village and developed the most recent proposal.
Environment Hawai`i has published the following articles on the O`oma project. All are available in the Archives section of our website,www.environment-hawaii.org
- March 2009: “Residential ‘Villages” Are Proposed for Area Near Kona Airport, NELHA;”
- April 2010: “Noise from Kona Airport Casts Pall over Proposed Development at O`oma” and “Water, County Plan Conformance, Access Also at Issue in O`oma Proposal;”
- June 2010: “Another Packed Hearing on O`oma Petition;”
- August 2010: “With Conditions, O`oma Development Wins Support of State Planning Office;”
- November 2010: “Closing Arguments in O`oma Petition.”