The Hawaiʻi County Office of Housing and Community Development sailed for years without any meaningful oversight of its handling of affordable housing credits. Internal controls were also sorely lacking.
That came to an end last summer, following criminal charges against Alan Rudo, who had been employed by OHCD until late 2018 and who had conspired with others to award to themselves housing credits that they then used to purchase land. The land was then resold or leased, with Rudo and his associates enriching themselves with the proceeds of those sales.
Two of the schemes Rudo carried out involved the sale of affordable housing credits. A third involved the diversion of property donated to fulfill an affordable housing obligation to a company that then resold the property, with Rudo and his co-conspirators sharing in the proceeds from that sale.
But the patterns of those schemes don’t begin to exhaust the ways in which the complexities of Chapter 11 can lead to abuse.
The full extent of the use and abuse of affordable housing credits may never be known. As the Hawaiʻi County auditor points out in a recent report on the office, “In October 2018, two of OHCD’s five server drivers failed simultaneously, resulting in data loss.” Perhaps coincidentally, this was around the time that Alan Rudo had come under suspicion for his involvement in arranging a scheme to satisfy housing obligations for a proposed development outside of Waikoloa Village.
In any event, the auditor continues, “While some information was recovered through backups, OHCD has spent four years working to recover lost data. Some scanned data will never be recovered because the original documents were shredded.”
Environment Hawaiʻi reviewed the tabulation of housing credits prepared by the auditor and has attempted to trace the transfer of credits as well as the ways in which affordable housing obligations have been satisfied by reviewing records maintained by the state Bureau of Conveyances. Not every agreement executed by the Housing Office was found there, and many of the credit transfers can only be inferred since not every transfer was recorded.
Despite it all, we were able to track a few. And they paint a discouraging picture of just how developers and their agents have gamed the system for the last two decades.
Hilo One, Hilo Two
The county auditor reports that Hilo One, Inc., purchased six credits that it then redeemed. We investigated. Here’s what we found:
In 1993, the state Land Use Commission approved a petition to move into the state Urban Land Use District about 24 acres of land north of Hilo, in the Paukaʻa community. One of the conditions was that the developer, Hilo One, Inc., satisfy affordable housing conditions set by Hawaiʻi County. President of Hilo One is Roland J. Higashi, a prominent Hilo businessman and former member of the state Board of Land and Natural Resources.
Eventually, the land was developed with 21 luxury housing lots ranging in size from 15,000 square feet to more than an acre.
Not until 2016 did the developer work out an affordable housing agreement with the Housing Office.
By then, Hilo One had sold the Pauka`a property to RJL, LLC (members are Roland, Janice, and Laurie Higashi, as well as Hilo real estate agent Robert G. Williams). To satisfy the affordable housing conditions, the county and RJL agreed that RJL would need to earn six credits. This, RJL proposed, would be achieved by selling 12 lots created in a different subdivision, Waiakea Fairways, in the area of Hilo known as Waiakea Uka, at prices affordable to households earning no more than 100 percent of the area median income, or AMI.
In November 2017, however, RJL wanted to change the terms. In an amended agreement, RJL, the county, and a third party – Hilo Two, LLC – agreed that the affordable housing condition could be met simply by selling off all 49 lots in the Waiakea Fairways subdivision, bounded on two sides by Hilo’s municipal golf course, at set prices per lot, ranging from $135,000 for the smallest to $195,000 for the largest, with those next to fairways priced toward the upper end. (Hilo Two had two managing partners: RJL, LLC, and RS Williams, LLC. It submitted articles of termination to the state Department of Commerce and Consumer affairs in July of last year.)
The amended agreement had no calculations to suggest that any of those lots were within the range of affordability to households earning 100 percent of the AMI. The fact that the lots were substantially larger than other lots in the neighborhood – around 20,000 square feet versus 15,000 for the neighborhood – and that many of them backed onto the golf course would seem to put them in a range affordable only to a higher income bracket.
“[I]n the interest of providing affordable lots to Hawaii residents, JOINING PARTY [Hilo Two] is prepared to offer and sell the lots in the Waiakea Fairways Subdivision for not more than the prices shown on the schedule attached hereto,” the amended agreement states.
All 49 lots have since been sold at prices at or below those specified in the attachment.
The original agreement listed eligibility requirements for the purchasers and restrictions on resales for 10 years. “Applicants shall intend to utilize the affordable housing lot as their permanent and primary residence and be owner-occupants during the affordable housing period,” that agreement stated. In addition, buyers “must not own more than fifty-one percent or more interest in real property suitable for dwelling purposes within one year prior to the date of application.”
All that was jettisoned in the amendment.
In early 2018, the first lots in the Waiakea subdivision began to sell. One of the earliest buyers snatched up not one but two of them for $132,683. The schedule appended to the agreement set maximum prices for each of those lots at $135,000. The buyer was none other than RJL, LLC. Over the next year, RJL built a three-bedroom, two-bath house on one of the lots and promptly resold it for the market-rate price of $459,000. RJL built a similar-sized house on the second lot, which it sold in 2019 for $420,000.
Another lot was purchased by RS Williams, LLC, one of the members of Hilo Two. That lot, obtained for $98,733, was resold a year later, with no further improvements, for $240,000.
On January 3, 2018, two lots were sold to one buyer, real estate agent Terry Schoneberg, at the scheduled prices, for a total payment of $310,000. Two days later, Schoneberg sold off one of the lots, whose scheduled price was $150,000, for $175,000, reaping $25,000 in 48 hours. In August, that second lot, whose scheduled price was listed at $160,000, was sold for $186,000. For an initial investment of $310,000, Schoneberg saw a return of $51,000 in less than eight months.
Several of the still undeveloped lots now have market values of upwards of $300,000, according to the county tax assessments. One vacant lot that sold for $175,000 in 2017 is now offered for sale at $318,000. Those lots with houses that are near the golf course have assessed market values approaching or even exceeding $1 million and recent sales have surpassed that.
Today the median household income in Hilo is around $70,000 a year.
Yet another affordable housing agreement involving Higashi and Williams is mentioned in the audit report: that between the county and a company known as Kona Three, LLC. The members of the company are OIP, LLC (Robert Williams, manager), RJL, LLC, and Richard Wheelock, a real estate agent in Hilo.
Kona Three owns around 69 acres of land in Kona, just mauka of Queen Ka`ahumanu Highway and north of Lako Street, where it says it intends to develop 450 residential units. The land was part of a much larger development proposed in the early 1980s by the Gamlon Corp. for around 172 acres. The Land Use Commission approved the project in 1983, with the condition that 10 percent of the units built be affordable. Gamlon and a successor company, Gamrex, developed 103 acres with 215 single-family houses, but never fulfilled the affordable housing requirement.
In 2015, Kona Three purchased the undeveloped land intended for multi-family housing. In an environmental assessment published in 2020, it stated that it proposed building “up to 450 multi-family residential units in clusters of two- and three-story buildings. … Units would target local renters and buyers in the ‘market’ price points.” None of the housing, in other words, would be priced so as to be affordable.
Early last year, the Housing Office and Kona Three signed an affordable housing agreement making it clear that Kona Three did not intend to develop any affordable housing on the site – or anywhere else, for that matter.
Kona Three, the agreement states, “proposes to satisfy the … affordable housing requirements … through the acquisition of affordable housing credits.”
The total number of credits that would be needed to satisfy those affordable housing obligations was put at 67, or 10 percent of the total number of units developed over all 172 acres. The audit report states that Kona Three has a commitment to purchase those credits, although the seller is not identified.
The affordable housing agreement contains language that, up to this point, had never been inserted into such agreements: “The developer shall provide proof and OHCD shall verify excess credits are valid.”
Lava Kuakini I: Kahaʻolino Partners
According to the auditor, Kahaʻolino Partners, LLC, purchased seven affordable housing credits to satisfy the affordable housing obligations associated with its development. Here’s what we were able to learn about that:
In late 2004, Kahaʻolino Partners, whose principal was Kona real estate agent Philip Tinguely, purchased about 21 acres of land in Kona north of Kaiminani Drive. The seller was another LLC, C L & D Eight, an entity managed by yet another LLC, Nani Kona Aina, whose sole member was Dan Bolton of Kona.
The land had been rezoned by the County Council a couple of years earlier and at that time, an affordable housing condition had been placed on the proposed 35-lot development.
One means of satisfying affordable housing obligations is for developers of market-rate housing to partner with those developing more affordable complexes. And so Kahaʻolino Partners entered into an agreement on September 21, 2005, with the Housing Office and a newly formed LLC called Lava Kuakini. One of several members of that entity was Edward J. Rapoza, who, like Tinguely, sold real estate in the Kona area.
Lava Kuakini had no development experience and had acquired the land it proposed to develop with an affordable housing complex just two days earlier, September 19. That day, it inked an agreement with Stanley T. Tomono for a tract of land along Kuakini Highway, just south of Kona Village.
Despite this lack of experience, the county Housing Office agreed to allow Kahaʻolino Partners to push its affordable housing obligation onto the young back of Lava Kuakini.
Kahaʻolino Partners, the tripartite agreement stated, had agreed “to purchase a minimum of seven affordable housing excess credits to satisfy the requirements of this agreement with Lava Kuakini, LLC, the developer of approximately 14 acres of real property … which is proposed for development … of approximately 212 multiple-family residential units, 50 percent of which are to be developed as affordable housing units.”
Not until December of that year did Lava Kuakini finally execute its own agreement with the Housing Office for that affordable development. In the intervening year, it had shepherded through the County Council an ordinance that changed the zoning for the property from Agricultural 5 acres to Multiple-Family Residential, subject to a condition that the Housing Office demands are met. The agreement with the Housing Office clearly anticipated that Lava Kuakini would be selling off some of the credits it received for developing low-cost housing: “the developer intends to enter into agreements with developers of other projects for the sale of affordable housing excess credits generated on-site” at the Kuakini property.
But no longer was Lava Kuakini going to build 212 units. This agreement called for just 50 single-family residential lots or multiple-family units, with at least half of them developed in each phase to be affordable.
For 12 years, there is nothing further in records filed with the Bureau of Conveyances concerning the Kaha`olino Partners’ progress toward meeting its affordable housing requirements.
Then, on August 6 of 2018, an “affordable housing release agreement” was lodged with the Bureau of Conveyances, freeing Kaha`olino Partners from any and all obligations to develop affordable housing. No affordable units had been built by Kaha`olino Partners itself. Nor had any credits been purchased from third parties that the company was able to surrender to the county to fulfill its Chapter 11 obligations.
Instead, there was only the promise that “the affordable housing requirement has been secured and will be satisfied at the affordable housing site” owned by Lava Kuakini. The agreement was signed by Tinguely, manager of the Kaha`olino Property Owners Association, and by Steven S.C. Lim, identified now as manager of Lava Kuakini.
By that time, however, Lava Kuakini was six feet under. Two years earlier, on April 19, 2016, Rapoza had submitted articles of termination to the state Department of Commerce and Consumer Affairs. In fact, Lava Kuakini had conveyed its interest in the Kuakini property as far back as May 2013, selling the land that it had acquired for $1.4 million to Kuakini Highway 75-6099 Corp., a California company, for $2,065,000.
The audit report states that Lava Kuakini obtained 10 credits and sold seven of them – presumably the credits that Kaha`olino Partners was said to have purchased. If so, the sale of those credits is not recorded at the Bureau of Conveyances. And, in any event, Lava Kuakini should have had no credits to sell. There is still no housing on the Kuakini property.
Lava Kuakini II: C L & D Nine
In the auditor’s “comprehensive accounting of credits” – a table presenting his conclusions as to the total number of credits obtained, sold, purchased, redeemed, and yet outstanding – there’s an entry for one developer, C L & D Nine (another LLC that traces back to Dan Bolton), that shows it purchased two credits and surrendered them to satisfy its housing obligations. From records at the Bureau of Conveyances, we learned this:
On January 12, 2006, the Housing Office signed on to a tripartite agreement with C L & D Nine and Lava Kuakini. Per its terms, C L & D Nine, the developer of a luxury, gated, 16-lot subdivision about half a mile upslope of Queen Ka`ahumanu Highway in Kona, would satisfy its affordable housing obligations by purchasing “a minimum of three affordable housing excess credits” from Lava Kuakini’s affordable development.
As with every affordable housing agreement Environment Hawai`i was able to review, this one had deadlines for submitting to the Housing Office designs and plans for marketing, periodic progress reports, deadlines for fulfilling the affordable housing requirements (in this case five years), and, “to secure the completion of construction of the affordable housing units,” the county may require the developer to post a bond for the full costs of construction. “The agreement shall provide a mechanism for the county, in the event of a breach of the agreement by the developer, to complete the construction of the affordable housing units,” it said.
Also, the agreement “shall run with the land … and be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.”
Then something odd happened. Barely 10 months after the initial agreement was signed, the county agreed to release 13 of the 16 lots in the C L & D Nine subdivision (now known as Meilani View Estates) from the initial agreement. In addition, the county released Lava Kuakini from any obligation to provide credits to C L & D Nine.
“In consideration of the premises herein, the county, Lava Kuakini and the developer [C L & D Nine] do hereby cancel, release and discharge Lava Kuakini as a party to the January 12, 2006 agreement,” this “partial release and amendment” stated. The county also agreed to “release, discharge, and forever quitclaim unto” C L & D and Lava Kuakini all “right, title and interest which the county, Lava Kuakini, and the Developer may have acquired up to the date of this partial release and amendment of agreement in and to the real property identified herein above.”
Just three of the subdivided lots in the Meilani subdivision – 5, 9, and 13 – were kept by the county as hostage to ensure the affordable housing obligations were fulfilled.
The county’s leverage was further reduced in 2014, with the execution of a “partial release” that removed the cloud from Lot 5. This time, the agreement was not between the county and C L & D Nine, but rather with CLW Hawaii Investments, signed by Clarence L. Werner, its manager. (CLW, original owner of the property, had entered into a development agreement with C L & D Nine,. No one involved at the time seemed to notice that the agreement was made with a party who wasn’t signatory to the original agreement.)
Why did the county give up its hold on Lot 5?
Just days before the county release was signed, a document was lodged with the Bureau of Conveyances recording the assignment of one affordable housing credit by GBH-Kai Maluna, LLC, to CLW Hawaii Investments. And it was this that bought the freedom for Lot 5.
The final release was executed in the spring of 2015, this time with C L & D Nine signing on behalf of the developer. That document states only that the county “hereby confirms that the developer has obtained three affordable housing credits and has fully satisfied any and all of its affordable housing obligations and duties.”
So far as Bureau of Conveyance records go, there was just the one credit, the one obtained by CLW in 2014, that was applied against the three-credit obligation of C L & D Nine.
Where did the second and third credits come from? The auditor’s tabulation says two were obtained, though no source is provided. The requirement that three credits were needed under the affordable housing agreement isn’t accounted for in the tabulation.
Westpro
As complicated as these other transactions may be, the group of agreements involving AAA Development and a host of related LLCs is hands-down the Gordian knot of affordable housing credits.
AAA Development, LLC, still holds on to no fewer than 522 credits, according to the auditor’s tabulation – although, to be sure, he says it should have received just 488. In either case, AAA’s credits amount to between 36 and 38 percent of the total number of credits still outstanding, far more than any other credit holder.
But AAA is just one of a vast number of limited liability companies that are, or were, so closely related, it is difficult to determine who continues to hold possession of what. Complicating matters further is the fact that following the 2008 downturn in real estate, many of those affiliated LLCs lost to foreclosure lands that were subject to affordable housing agreements.
Westpro Hodlings appears to have been the first member of this family of LLCs to receive credits, back in 2003. A document filed with the Bureau of Conveyances in 2012 makes reference to the county awarding six credits to Westpro in an agreement of April 2003. According to that 2012 record, the agreement called for affordable housing to be built on five parcels (four of them just shy of 15 acres) in Kona, lying between Kuakini and Queen Kaʻahumanu highways, makai of the sprawling Pualani subdivision. The land remains undeveloped.
Exactly what Westpro was to do in return for those credits was not specified in the 2012 document.
But those same lands, burdened apparently by the nine-year-old affordable housing agreement, were sold by Westpro to Suffolk Investment, LLC, in 2004. And although the deed makes no mention of credits, nor is any affordable housing agreement called out in the descriptions of the parcels sold, Suffolk claimed ownership of those six credits when it conveyed them in 2012 to Kona Country Club for $43,000 apiece.
That claim of ownership doesn’t seem to have been made by any of the other successors to land once owned by Westpro or related companies. (The Housing Office and the auditor say that Suffolk purchased Westpro and in this fashion came into possession of Westpro’s credits. If that happened, there is no public record of the sale of the business, which, according to the Department of Commerce and Consumer Affairs was administratively terminated in 2014. At the time of its last annual filing, John Stevens, its organizer, was still listed as manager. Suffolk itself was administratively terminated in 2021, after having filed no annual reports for three years.)
In 2004, Westpro again entered into an affordable housing agreement with the county. Under this agreement, Westpro would make five houses available for sale at prices affordable to households earning up to 140 percent of the area median income in the 48-unit second phase of its Pu`uhonua subdivision, which Westpro was building on land south of Kaiminani Drive. The set price calculated at that time was $262,700 for a three-bedroom, two-bath house of 1,104 square feet with a carport on a 10,000-square-foot lot. The affordable houses would simply be used to earn the five credits that Westpro needed as a condition of its subdivision approval; there were no “excess credits” earned.
The only Westpro credits to which reference may be found in Bureau of Conveyance records are these two sets: the six credits awarded in a 2003 agreement, and the five credits earned and used up in the development south of Kaiminani Drive.
The audit report, however, states that Westpro received a total of 50 credits, all of which have been sold.
Seascape
Another Westpro-related LLC called Seascape Development was formed in 2005. In January 2006, it took title – from Westpro – to land in Kona where, eventually, two apartment complexes would arise: the low-income complex known as Lokahi Ka`u, where a total of 306 units would be built; and, immediately makai of that, the 104-unit complex known now as Kona Seascape.
The Lokahi parcel would be sold in early 2008 to AAA. The makai parcel, however, was retained by Seascape Development. In March 2006, Seascape and the county Housing Office signed an affordable housing agreement, calling for Seascape to build 108 affordable units, all of which were to be sold to households earning between 120 and 140 percent of AMI. For each unit, the county immediately awarded Seascape half a credit, for a total of 54 credits. “The developer may transfer said credits” with the approval of the Housing Office, the agreement said. But if any such credits were to be transferred, Seascape promised to build and sell, within three years of the time the first credits were sold, units sufficient to account for the transferred credits. In other words, if Seascape sold three credits, it would need to build six affordable units within the next three years.
Seascape built most of the units but by December 2007, it was apparently not selling them as quickly as it anticipated and, what’s more, it was under increasing financial pressure from lenders. On December 12, the county amended its agreement with Seascape, releasing it from all further obligations. The condition was that Seascape would sell all those units yet unsold at a price of not more than $293,403 per unit to anyone who could pay it, regardless of their income levels.
For most of the previous year, Seascape and related entities had been falling behind in payments to lenders. As soon as one would threaten to foreclose, another was found – but inevitably at ever higher rates.
Around 2010, as Seascape and related Westpro companies were litigating in federal court over terms of a $7 million note issued in late 2007 that had gone into default, it received a bail-out of sorts from one Richard L. Fischer, who did acquire an equity interest in at least one of the Stevens-related LLCs.
And what of the Seascape credits?
In July 2006, long before its financial troubles began, Seascape conveyed 24 credits to GBH-Kai Maluna. In 2014, as noted earlier, GBH assigned one credit to CLW. The remaining 23 credits that Seascape transferred to GBH were assigned in 2017 to Hualalai Health, LLC, “to be used in connection” with Hualalai Health’s development of nine acres it owns in Kona, between Hualalai Road and Queen Ka`ahumanu Highway.
On the same date Hualalai Health recorded its receipt of those credits, it turned around and used 17 of them as security for a loan it has received from a company called Hualalai One More Time. The security agreement states that Hualalai One More Time may transfer the credits, so long as it “shall apply the proceeds of any sale to principal and interest” on Hualalai Health’s outstanding loan. When the loan is fully paid off, Hualalai One More Time is to return the unsold credits to Hualalai Health.
Signing for Hualalai Health, a Washington-state LLC, was Bruce D. Beard. Beard, it may be recalled, is one of the people involved in Honua`ula, the developer that leased land in Kealakehe from one of the Alan-Rudo-affiliated companies, West View Development.
As for the remaining 34 Seascape credits (the original 54 less the 24 conveyed to GBH), according to the auditor: 12 were sold to Pinn Brothers Construction, 10 to SCD Kona 108, and eight to WB KD Acquisitions.
And as for Seascape? For a short time, its annual business registration filings listed Richard L. Fischer as its manager. The company was terminated in 2013.
AAA
Then there is the AAA affordable housing agreement. On February 28, 2008, AAA Development, LLC – through Westpro, its managing LLC – signed on with the county to develop 306 units of low-income housing to be rented to households earning less than 60 percent of the AMI. For this, the county agreed to award two credits each for the 108 one-bedroom and 108 two-bedroom unit and one credit for each of the 90 studio units, for a total of 522 credits.
Within days of the agreement being signed, AAA sold the land on which these units were to be built to Ho`olehua Housing, LLC, a company that traces back ultimately to a firm that specializes in affordable housing development. The units were built and the development, known now as the Lokahi Ka`u apartments, continues to serve low-income households.
It may be useful at this time to look into the origins of AAA. It was formed in November 2006 as Ali`i Anna Apartments, LLC, with its sole stated purpose “affordable housing credits, county of Hawai`i.” The organizer and sole manager-member listed was Westpro Holdings, LLC, Alan Dickler, manager. The signature of Dickler or that of John R. Stevens would always appear on the documents entered into by Westpro or its many affiliated LLCs. Barely six weeks after its formation, Ali`i Anna Apartments changed its name to AAA Development.
The first affordable housing agreement AAA signed with the county – and the only one – was for the Lokahi apartments. If it has assigned any of the credits it received, there is no evidence of it at the Bureau of Conveyances. And according to the auditor’s report, the county has no record of any transfer, either.
Unlike the other Westpro-affiliated LLCs, AAA is still nominally active, with its business agent filing timely annual reports with the Department of Commerce and Consumer Affairs. Richard L. Fischer remains its sole named manager.
— Patricia Tummons
Articles in the June 2022 and August 2022 editions of Environment Hawai`i report more fully on the fraudulent schemes devised by Alan Rudo and his associates. Available free online at www.environment-hawaii.org
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