The Intriguing History That Underlies A Kona Affordable Housing Development

How did a newly minted company get the County of Hawai‘i to purchase 13 acres of land for it? With only $1,000 in out-of-pocket expenses the company was able to acquire land valued by the county at $948,200.

It later sold off more than half of that acreage for $950,000 and it still owns the remaining six acres. That land has now been leased for $84,000 a year to a developer that is proposing to build 112 affordable rental units on the site in Kealakehe, near the village of Kona, at a per-unit average cost of more than $400,000.

Not a bad return for an initial investment of less than a month’s rent for a two- bedroom apartment in Hilo.

So how did West View Developments, LLC, pull it off?

‘Excess Credits’

Environment Hawai‘i reviewed files at the county Office of Housing and Community Development (OHCD) in an effort to answer this question – and a host of others, too. Not every question was answered, and in some cases, when answers were found, they only led to still more questions.

Here is what we did learn:

The secret to the West View deals lies in the award by the county of what are called excess housing credits. Chapter 11 of the Hawai‘i County Code, which deals with affordable housing, lays out a complicated system whereby developers can earn excess credits by exceeding the minimum requirements for affordable housing associated with various types of development. (This is more fully described in another article in this issue.)

West View Developments was registered with the state Department of Commerce and Consumer Affairs on December 17, 2014. The only organizer named in the articles of organization is Raj Budhabhatti, who listed an address in the Puna district of Hawai‘i County. Budhabhatti has no documented involvement in development of any type, other than his involvement in a 75-kilowatt solar power farm on his Puna land. In 2013, the groundbreaking for that feed-in-tariff facility was attended by, among others, then-Governor Neil Abercrombie. (On April 3, 2014, Abercrombie nominated Budhabhatti to a four-year term on the High Tech Development Corporation’s board of directors, but just four days later, the nomination was withdrawn without explanation.)

In any event, here is what can be known from the public record about West View’s involvement in the Kona development.

For about 15 years, the land had been owned by Ron Brown. Brown was famous – or, more likely, infamous – for his development in the early 1990s of what was then known as Crazy Horse Ranch. That controversial development consisted of 20 three-story buildings on 10 acres in the state Agricultural land use district. His intentions for the nearby 13-acre Kona land evolved over time, but he was motivated enough to work out an agreement with the Department of Water Supply to provide service to the site.

In 2015, however, Brown was ready to sell the property. Working with the OHCD, he and Budhabhatti agreed to a purchase contract that was signed by Budhabhatti’s attorney, Gary Zamber, and by Brown on October 9.

The agreement had three contingencies: a “proposed affordable housing agreement;” the “assignment of affordable credit [sic];” and a “critical regional housing letter.” The total purchase price was given as $1,000 “total cash funds from buyer,” but also “including other good and valuable consideration.”

That “good and valuable consideration” came in the form of excess affordable housing credits – 46 of them, to be precise. The value of such credits depends on a number of factors, but in recent years, they have sold for between $20,000 and $50,000 each. In other words, 46 credits were easily worth $1 million and likely far more.

On November 18, 2015, county housing administrator Susan K. Akiyama (now Kunz) signed the “critical regional housing determination” that allowed the housing credits to be used outside of a 15-mile radius of the original property. If West View had questions or required more information, Akiyama said to “please call Alan Rudo” at OHCD, the staffer who had apparently worked out details of the agreement.

Those 46 credits were just part of a total of 95 “excess credits” awarded to West View Developments in an affordable housing agreement that Akiyama and then-Mayor Billy Kenoi had signed just five days earlier. As stated in that agreement, West View was to complete within five years construction of no fewer than 52 rental units on the site, which were to be affordable to households earning less than 60 percent of the area median income. For each unit, West View would earn two affordable housing credits, for a total of 104. Nine of those were to be used to satisfy on-site affordable housing requirements, leaving a net of 95 credits. After subtracting the 46 assigned to Brown, West View still had 49 credits.

In other words, by the award of 104 housing credits to the inexperienced developer West View, the county effectively purchased the land for West View by satisfying Brown’s terms of sale. What’s more, it left West View not only with the land, but with “good and valuable consideration” that was likely worth more than $1 million.

According to county property tax records and the state Bureau of Conveyances, the purchase price for the three parcels included in the housing agreement was $948,200. Just how that number was pinned down is explained by the purchase agreement, which states: “For purposes of computing the conveyance tax, title insurance, and escrow fees, the real property shall be valued at 2015 county of Hawai‘i assessed value of $948,200.”

It Gets Better

The deed assigning title to West View Developments was filed at the Bureau of Conveyances on December 17, 2015. A year later, West View proposed selling off the largest (seven-acre) and most mauka of the three lots, at the southern end of Kiwi Street. Housing staffer Rudo prepared the internal accounting forms needed, and on December 27, 2016, the partial release from the housing agreement was filed with the bureau.

The lot has no permitted improvement, but aerial photos and Google street-view photos show a rag-tag collection of out-buildings, including trailers and other impermanent structures, on the site. In 2019, West View filed a complaint for ejectment against a tenant on the premises, stating that the tenant was six months in arrears of the $750-a-month rental payment.

For more than five years, the land remained unsold. But in May 2021, Budhabhatti signed a warranty deed placing title for the Kiwi Street parcel in the hands of PMJ Kona, LLC. Purchase price was recorded at $950,000. The address for West View was given as in care of Margaret Reynolds, on South Pueo Place, in Kona. Reynolds is married to Rudo, the former OHCD staffer.

A New Face

Meanwhile, work on the two parcels that remained bound by the now- diminished housing agreement appeared to be at a standstill.

In February 2019, more than three years after the housing agreement was signed, then-housing administrator Neil Gyotoku wanted to know what, exactly, West View had done to develop the property.

Zamber replied on March 1, stating that West View had “invested over $200k in design, engineering & capacity studies” and that “preliminary subdivision and plan approval [was] near completion.” The company had run into challenges, he added, citing problems with sewer lines and the unwillingness of the Department of Water Supply to honor earlier agreements. He stated also that “Westview [sic] Developments offered to convey two of our three parcels totaling 6-acres to the county, which would provide the county the opportunity to complete the affordable housing… To this date, Westview [sic] has not received a reply.” (No documentation of this offer was found in the files made available for Environment Hawai‘i’s review.)

Zamber then announced that West View was working with Hawai‘i One 1 Investors, “which is providing the much-needed funding in exchange for the housing credits.” (West View’s ultimately unsuccessful efforts to transfer the credits to Hawai‘i One 1 and other entities are discussed elsewhere in this issue.)

Four weeks later, Zamber emailed Gyotoku with an ambitious timetable for various phases of construction for phase 1 of the project. The project now included 60 affordable housing units, Zamber stated, eight more than the 52 originally planned. According to the timetable, “completion of studies” was to be completed by June 2019, while “vertical construction” would commence in May 2021 and continue for 16 months, to August 2022.

Nothing in county records provides evidence that West View Developments actually moved forward with earnest efforts to develop the parcel. Instead, by spring of 2020, West View had teamed up with a new LLC that would take over that task.

On June 8, 2020, the Office of the Secretary of State in Texas received a certificate of formation of a limited liability company. The initial registered agent of the entity, Honua‘ula, LLC, was Aaron L. Hultgren, of McKinney, Texas. He was one of three named managers of the LLC, along with Bruce D. Beard of Indianola, Washington, and Carlo R. Mireles, of Kealakekua. Eleven days later, Honua‘ula registered as a foreign (i.e., out-of-state) LLC with the Hawai‘i Department of Commerce and Consumer Affairs.

By July, Honua‘ula and West View had worked out a Ground Lease Agreement that gave Honua‘ula a 55-year lease on the property. Honua‘ula is to “construct and operate a multi-family apartment complex containing fifty-five (55) affordable housing units and forty-five (45 market-rate housing units.” Lease rent was set at $84,000 a year, and in addition, West View would receive “as additional rent a $100,000 acquisition of lease fee at closing of the financing” with the primary lender.

Over the next year, Honua‘ula and OHCD worked out details of the plan, which were presented to the County Council in August 2021. The material provided to the council, which was being asked to waive permit fees and rezone the land from County Ag-1a (minimum lot size one acre) to RM-2 (2,000 square feet of land for each residential unit), came to 722 pages. (It included, among other things, the full 220-page “Hawai‘i Housing Planning Study” prepared for the state in 2019 and a three-page Phase I Environmental Site Assessment Questionnaire filled out by Rudo, who now identified himself as a consultant to the developer.)

The site plans included in the package of supporting documents show the 112 units arranged in four buildings, with a central pavilion. Unit sizes ranged from about 1,200 square feet for a four-bedroom home down to 585 square feet for a one-bedroom layout. According to Kunz, the project now includes 105 units instead of 112.

The council’s Planning Committee held a hearing on the resolution requesting the zoning change and the waiver of fees on August 18.

In response to concerns that the traffic impact study for the project had been done in the summer of 2020, when covid kept many people from commuting and schools were out of session, Mireles, COO of Honua‘ula, told the committee that a second traffic study had just been completed a week earlier. He and county Public Works chief Ikaika Rodenhurst assured the council members that they would work out appropriate mitigation measures, with Rodenhurst stating that some of the problems are of long-standing and that the county would share mitigation costs with the developer.

Council member Holeka Inaba asked whether the council could amend the resolution to make sure that traffic mitigation measures – yet to be determined – could be included as an obligation of the developer. Malia Hall, the deputy corporation counsel advising the Office of Housing, stated that it would be more appropriate to amend the affordable housing agreement between the county and Honua‘ula.

When the full council heard the resolution on September 8, several neighbors submitted testimony opposed to the project. Traffic was foremost among the concerns, with none of the testifiers aware of the more recent traffic study.

But many other issues weighed on the neighbors’ minds. Beverly Behasa, who lives next to the project site, pointed out that there were already five multi-family affordable housing projects in the area.

“I am opposed to four-story buildings being built right behind my home… There will be issues of headlights, noise and gathering of people on the outside perimeters of the project to smoke, as it is a proposed smoke-free project,” she wrote. Others cited the impact to schools, which, Donna Mayer-Leialoha wrote, “are already overcrowded and at this time cannot absorb an increase in enrollment.”

In support were several nonprofit organizations that advocate for affordable housing, including Habitat for Humanity and Neighborhood Place of Kona.

Kunz told Environment Hawai‘i that no final affordable housing agreement had been signed with Honua‘ula. “Although the county does not have an affordable housing agreement with Honua‘ula, we are currently in negotiations to amend an executed Development Agreement to reflect the action by the County Council and concerns over traffic. The Development Agreement is between the county of Hawai‘i, West View Developments, LLC, and Honua‘ula LLC.”

Nearly nine months later, the site where Honua‘ula is to be built remains as it has been for the last two decades: overgrown, scattered with old tires, abandoned car seats, roofing material that may have been part of a homeless shelter at one time, household trash.

A website hosted by one of the three officers of Honua‘ula, Hultgren, includes a timeline for the project. By November 2021, funding was to be in hand. Construction was to start in December 2021 and conclude by December 2022. The units were to be open to renters a month later.

The timeline is fiction. No more current timeline is available.

— Patricia Tummons