In all the hand-wringing over the lack of affordable housing in Hawaiʻi, the state Land Use Commission is often held out as the whipping boy. Obtaining approvals for redistricting land into the Urban District can be a long and involved process. But at a recent meeting of the commission, LUC executive officer Dan Orodenker rebuffed that criticism.
A review of past Land Use Commission dockets, he said, revealed that “there are approximately 40,000 to 65,000 housing units that were promised but are unbuilt on various projects all around the state.” That led to the decision to initiate an effort to hire someone “to go out and find out why these projects aren’t moving and what we can do to help them move, to be proactive in trying to get units built that we’ve already approved,” he added.
“If we could build 45,000 units over the next several years, it would make a big impact.”
In November, former commissioner Arnold Wong was brought on to facilitate this effort as the LUC’s new “development coordinator.”
“We hired Arnold to take on this role, not only because he had a good understanding of how the commission works, being a former commissioner, but also because he has a good understanding of how the private sector works, how the Legislature works. He has good connections in state and county government as well.”
Orodenker said the initiative had already logged some successes, citing a project in Kihei that had been stalled over the failure of the developer and the Hawaiʻi Emergency Management Agency (HIEMA) to agree on the siting of an emergency siren.
“Certain things are just not getting done for various reasons,” Orodenker noted. To move projects that have already had approvals along, “we’re working with state and county agencies to ensure we can get these projects built. We’ve established a working relationship with the Commission on Water Resource Management, HIEMA, the Hawaiʻi Housing Finance and Development Corporation, and the Department of Health, to name a few, to help developers get things moving.”
Orodenker said that Wong was focused at the moment on five projects on Kauaʻi, representing several thousand housing units, as well as five projects on Maui, one on Lanaʻi, and one on Oʻahu. “Add all these up, we’re looking at 10,000 to 15,000 units,” he said.
Pulelehua
One of the stalled Maui projects called out by Orodenker is Pulelehua. “We were working very hard on Pululehua for a while, Orodenker said, noting that it stalled out “because of the water situation on Maui.”
When it was approved, in 2006, water was determined not to be limited. In the decision and order for the redistricting, the LUC found: “In the Lahaina region, the Honolua and Honokowai aquifers serve as a source of water for area wells. … The current pumpage from the aquifers by area wells is substantially below their sustainable yield. The commission on water resource management has not designated either aquifer as groundwater management areas.”
Over the next 10 years, none of the 882 units promised were built. In 2016, Maui Land & Pineapple sold the land to a company headed by Paul Cheng, a Texas-based entrepreneur who claims a history of successful real estate developments, but who also has a federal fraud conviction on his record.
In 2020, the LUC approved amendments to the original decision and order, allowing for the development of up to 1,000 housing units, including some ʻohana units on single-family lots, plus 800 multi-family units. Of the latter, 300 were to be rented out as affordable under county guidelines, while 100 were to be sold as affordable.
Cheng testified that he had the financial resources to develop the project. His company, Maui Oceanview LP, he said, is a partnership “between ANICO-EAGLE and USA Infrastructure Investments, LP, of Texas. ANICO-EAGLE is a subsidiary of the American National Insurance Company … with over $26 billion in assets. … USA Infrastructure Investments is a Paul Cheng-owned development company based in Texas.” ANICO-EAGLE “typically finances such construction needs with either construction financing or equity financing,” Cheng told the LUC.
Despite the claim of deep pockets to support the development, Cheng lobbied the Maui County Council for help with financing of 60 units in the first phase of development, consisting of a total of 100 multi-family units for purchase at prices deemed affordable for households earning up to 120 percent of the area median income. He was given a subsidy of $18 million.
Then, in 2022, the Commission on Water Resource Management designated West Maui groundwater and surface water as water management areas. Existing users need to obtain permits for their ongoing uses, while new users – such as the Pulelehua development – are at the back of the line. If they are able to obtain permits at all, it is only if there is sufficient capacity remaining after existing users receive their permits.
(Environment Hawaiʻi asked the public information office for the Department of Land and Natural Resources, the administrative home of the Water Commission, the status of any request for a water allocation for this project. No response had been received by press time.)
Following the Lahaina fires, Cheng sought an additional $50 million to support the project, which has been revised now to include 1,060 affordable rental units, 100 affordable single-family homes, and 100 homes for sale at market rates. In October, the County Council adopted a resolution in support, urging the administration of Mayor Richard Bissen to expedite a grant of the funds to Cheng. As of last month, no additional grants had been made to Cheng.
At a council meeting in April, the county’s housing director, Lori Tsuhako, was asked about the release of funds from the earlier $18 million grant. Tsuhako said less than $400,000 had been distributed. “Right now, we are working with the developer to address some regulatory issues and until those regulatory issues are satisfied, the department will not reimburse the developer any further,” she was reported to have told the council.
Puʻukoliʻi
Just down the road from the Pulelehua is an area mauka of the Kaʻanapali resort that has been approved for urban development since 1993. The original plan called for construction of 1,300 units of housing, with 60 percent of them being affordable. In 2009, landowner Kaʻanapali Land Management Corporation, successor to Amfac, received approval to reduce the number of homes to 940, of which just over half would be in the affordable range.
Since then, some of the roadway improvements called for in the 1993 order from the LUC have been built, but, as reported in the December 2023 edition of Environment Hawaiʻi, not one unit of housing has been erected.
Land adjacent to a lot proposed for a hospital, but not included in the LUC redistricting order, is being considered as a temporary home site by the Federal Emergency Management Agency. According to an environmental assessment prepared in January, about 214 temporary shelters would be erected with FEMA paying for the materials, shipping, and labor, in addition to installation of necessary infrastructure.
The environmental assessment made no mention of the availability of water for the housing. An inquiry about water availability was made to the Department of Land and Natural Resources’ public information office, but was not answered by press time.
The LUC had scheduled a status report on the Puʻukoliʻi development for May 8.
Royal Kunia II
Last month, the Land Use Commission met to receive an update on plans to develop Royal Kunia II, a 500-acre area redistricted by the LUC in 1993. It was also considering a proposed amendment to change the deadline by which certain infrastructure improvements (irrigation water and electricity) would be available to a 150-acre agricultural parcel that was conveyed to the state earlier this year as a condition of the boundary redistricting.
Developer Herbert Horita was the original petitioner. The project called for 800 single-family units, 1,200 multi-family units, 123 acres of light industrial uses, an 18-hole golf course, a public park, and a school site.
In the years since, ownership changed. By the early 2020s, Haseko Royal Kunia II, LLC, had acquired 211 acres of land on which it now states it intends to erect 1,850 housing units. RK II, LLC, a subsidiary of Jupiter Holdings – a Delaware-organized, California-based investment company – had acquired the 123 acres intended for light-industrial and commercial development. No longer was any golf course being considered. Instead, a 161-acre tract was approved for the solar farm being developed by Hoʻohana Solar. Reports submitted by Haseko and RK II confirmed their intention of moving forward with development of the housing and commercial projects. Also, Hoʻohana Solar reported that it had complied with conditions set a decade ago that it provide the infrastructure improvements up to the boundary of the 150-acre ag park.
At the April LUC meeting, commissioners heard from a nearby resident (a subcontractor to Haseko) who wanted to see the project move forward. In addition, Chris Delaunay, a representative of Pacific Resource Partnership, vouched for Haseko, mentioning several of the projects that it had developed over the years.
That prompted a comment from commissioner Gary Okuda. “That’s basically what the commission was being told 30 years ago,” he said, noting that he had reviewed the LUC’s prior findings in the docket. Back then, he said, the LUC was told that “we have a really good developer here, Herbert Horita. He has a track record of building projects, projects for local people, where they can live and raise families. This project is gonna create jobs, be a positive thing for the community.
“And then here we are, 30 plus years later, and we’re hearing the same thing. Based on your experience and your organization’s experience, what can the Land Use Commission do to make sure that when housing is being promised and jobs for local people are being promised, it’s actually going to take place and we’re not going to be here 30 years later” with the same situation. Maybe a bond should be required? Okuda asked.
Delaunay replied, stating that he was in favor of the project moving ahead and had no knowledge of earlier endorsements of the project.
Okuda returned to the issue of stalled-out projects in later questioning. With three – possibly four – different landowners now having taken on responsibility for moving forward with the project first laid out some 30 years ago, what could the LUC do to ensure that the projects it approves are actually undertaken?
Curtis Tabata, attorney for Haseko, was the first to face Okuda’s grilling.
“Do you agree that the decision and order, the findings of fact, and the conclusions of law [in LUC redistricting approvals] are encumbrances on title?” Okuda asked.
Tabata agreed.
“That means that whoever goes and obtains an interest in the property … is subject to and has to follow those encumbrances, correct?”
Again, Tabata agreed.
Okuda continued with his argument that even though Haseko owns only one part of the overall project, the encumbrances on the title mean that Haseko is on the hook to see that the entire development, as anticipated in the 1996 amendment to the original decision and order, is completed.
“So,” Okuda said, in the 1996 amended decision, “there was a list … of what the land use plan consisted of… It provided for the construction of 1,250 single-family residential units… How many of those single-family units have been built as of today?”
None, Tabata acknowledged.
“There’s a statement that there would be 750 low-density apartments… How many have been built as of today?”
Again, none, Tabata replied.
And has any development occurred on the 123.7 acres that are approved for light industrial use, Okuda asked.
This portion of the project isn’t to be undertaken by Haseko, Tabata noted. Still, “I don’t think so,” he said.
The LUC also called for eight acres to be set aside for a school and 11 acres for a public park, Okuda pointed out. Tabata agreed that these elements also had not been satisfied.
But Tabata defended his client against any suggestion that Haseko was speculating or had any intention other than developing the land, even if no vertical construction had yet occurred. “We do have all the effort and money Haseko has spent after they acquired the land,” he said. “We are not land-banking here. Haseko is a developer, not a land banker. There’s too much overhead to just be sitting on the land. They need to develop, build, and sell.”
Terry Lee, representing RK II Partners, owner of the area designated for light-industrial development, was up next. He told the commission that to a great extent, his client’s ability to move forward “piggybacked” on Haseko’s development.
“We know how we want to develop our roughly 124 acres,” Lee said. “The problem we have is the timing. … We have pending with the [Honolulu Department of Planning and Permitting] a subdivision application for 37 acres, phase 1 of our development. Unfortunately, as part of that application, we’re piggybacking on a subdivision application by Haseko,” which would put in the needed roadway – something that Haseko has said won’t be done until 2026.
“Well, the DPP needs to first approve that subdivision application before it can continue processing our subdivision application. So our ability to develop our project is heavily dependent on Haseko completing certain things and we are in discussions with Haseko. … I don’t want to get into the nitty gritties of our contractual disagreements. … We’re hopeful we’ll work something out with them.”
Lee then went on to mention “one other housekeeping matter.” Back in 2004, he said, the LUC effectively inoculated his client from any threat that the land it now owns could be reverted to Agriculture, even if the other owners fail to live up to their commitments. At that time, the then-owner, HRT, negotiated an understanding with the state that if HRT were to purchase the 150 acres for the ag park, the acreage now owned by RK II Partners could not be downzoned, even if the rest of the development was subject to reversion.
“In other words,” Lee said, “it’s sort of protected from that downside risk.”
But, Lee continued, “the ultimate order that came out of the commission is somewhat vague … It would be helpful if the commission can clarify for us the legal effect of that order.”
Dan Giovanni, chairman of the commission, noted that this would have to be taken up at another time. “This is a bit more than a housekeeping matter. … If you want clarification, you need to file a petition for a declaratory ruling,” he said.
Then Okuda began to press Lee on the same issues he raised with Tabata. Did Lee agree that the conditions in the LUC boundary amendment approval “became and are encumbrances on title?” he asked.
Lee agreed, acknowledging that an encumbrance is binding on successor landowners.
“Your client succeeded to a portion of the property. So in other words … if for some reason Haseko doesn’t perform its obligations, then there’s a reasonable argument that can be made that … your client might have to satisfy those obligations,” Okuda said.
Lee answered that this was a legal risk, but it could be obviated should the LUC grant the petition for declaratory relief his client might be filing.
“But as things stand right now,” Okuda said, one could argue “that your client would be responsible to carry out the obligations of Haseko if Haseko doesn’t perform.”
Lee: “I would agree with that.”
Kona Vistas
This project, just south of Kailua-Kona village, received LUC approval four decades ago. Approximately half of it was developed – 215 single-family lots, all market-rate lots, no affordable – and then the work stopped.
About eight years ago, the undeveloped portion, consisting of around 70 acres, was sold and the new landowner, Kona Three, has been working with the county to relaunch the project.
It hasn’t gone well.
The county’s Leeward Planning Commission has not yet forwarded to the County Council a recommendation on Kona Three’s request to allow it another decade, at least, to complete the project. Concerns have arisen over historic and cultural sites, traffic, drainage problems, and a number of other issues. Community opposition has been fierce, as the LUC members heard when the commission held a status hearing on the project in February.
Much of the discussion among commissioners concerned how the county and developer were proposing to fulfill the requirement in the original decision and order (in 1984) that 10 percent of the housing be affordable under county guidelines. Kona Three had inherited this obligation, amounting to 22 affordable units, when it purchased the undeveloped lands that were part of the original Kona Vistas project.
In addition to those 22 units, should the county approve Kona Three’s plans to develop 450 housing units on its 70 acres, the affordable quota would now be 20 percent, in keeping with changes to the county’s affordable housing law. That would make the developer on the hook for a total of 112 affordable units.
Commissioner Gary Okuda wanted to know just how many of those units would actually be built, given the county’s past history of allowing developers to get off the hook for affordable housing through the purchase of affordable housing credits. The practice has come under the County Council’s critical scrutiny following disclosure of abuse of that system, with the admitted connivance of a former county housing staffer.
How committed is your client to actually building the affordable units? Okuda asked Daryn Arai, the planning consultant for Kona Three. “I don’t want to get into this amorphous area about, ‘Oh, but we got these housing credits that are floating around,’ and the next thing I know a bunch of people are indicted by a federal grand jury in Honolulu.”
“The best thing I can tell you at this time,” Arai responded, “the actual number of affordable units to be constructed is dependent on the number of units they are able to successfully place upon the land.” And this, he added, could not be known until the owners go through a long process of site engineering, grading, roads, infrastructure, and the like. “All these things could have an effect on the actual number of units that gets placed on the ground. It’s the number of units on the ground that determines the total affordable units.”
But, Okuda asked, “What assurance, since we’ve waited 40 years – what assurance do we have that 20 years from now … that the community is gonna still see the same situation, except it’s going to be with a new owner who comes in and gives us commitments that, ‘yeah, we’re going to do it right.’”
“The only assurance I can give you is that nothing will happen if the entitlements are not kept in place” by the county, Arai replied.
Okuda turned his attention to Michael Matsukawa, the attorney representing Kona Three.
“What are we to do on the commission where we seem to have these cases where applicants, landowners, make these promises to the community and we don’t see compliance?” he asked. He noted that a former commissioner – Dawn Chang, now head of the state Department of Land and Natural Resources – “started suggesting that maybe the applicant should be required to pull a performance bond so that if the infrastructure is not put in, we go to the bonding company, make the bonding company go and pay for it. If affordable housing is not put in, we go to the bonding company, make them pay for it.”
Matsukawa responded by saying that all of the owners of the 200-plus houses in the already developed portion of the Kona Vistas subdivision “have deed covenants that their properties are subject to the [affordable] homes being produced.”
He later elaborated: “As to Mr. Ohigashi’s question, he raises a good question as to who holds the burden for the 22 units… The condition was recorded and appears in every deed to every lot. They all have this exception, that the lot owner accepts the condition as an encumbrance on his or her title. So I guess we’re all tied together in the effort to get the 22 lots done.”
Commissioner Lee Ohigashi asked Michelle Ahn, the deputy corporation counsel advising the county Planning Commission: “What happens if the zoning isn’t approved?”
Assume, Ohigashi said, that, for some reason, the community enrages all the council people, the council people say, ‘hey, we’re not going to do this anymore.’ What happens to the 22 houses?”
Ahn began to reply, but Ohigashi cut her off. “You can write a brief about my comment, I really don’t care. But what happens to the 22 houses?”
LUC Chair Giovanni then gave Ahn the floor.
“The county has to approve this rezoning amendment and their concern is not limited to what would satisfy LUC conditions from a 1984 decision. They might have other considerations, such as not having all the poor people in one corner of the development. As we go through the county process, there might be other considerations.”
Ohigashi repeated: “My question still stands. What happens?”
Jeff Darrow, deputy director of planning for the county, was the one to reply. “To be honest with you, I don’t know. Basically, they won’t have a zoning ordinance, which won’t allow them to continue with their project. We have 215 built houses. Does [the responsibility for the affordable units] fall on the backs of the owners of these 215 houses? Does it fall on the petitioner who purchased a portion of the property? Does it fall on the previous developer – whether they’re around or not, I’m not sure.”
(For details on the project, see the articles in the November 2023 edition of Environment Hawaiʻi.)
Kehalani-Piʻihana
When a LUC-approved project has multiple owners, as is the case in the Royal Kunia project as well as others, and the burden of following through on the promises made falls on all of them, individual owners may petition the LUC for relief in the form of bifurcation. This involves having the LUC separate out the requirements associated with their particular piece of the development from the obligations imposed on others.
Maybe the most egregious example of an effort to bifurcate a development can be seen in central Maui, where, 34 years ago, landowner C. Brewer Properties LLC obtained redistricting of two widely separated parcels – one of 545 acres, lying west of Wailuku town; the other one consisting of 79 acres in an irregularly shaped parcel north of ʻIao Stream. Over succeeding years, various parties took title to the land.
Among other things, the Land Use Commission’s original decision anticipated 2,400 units of housing, 600 of which – all affordable – would be built on the smaller area, while three/eighths of the units in the Kehalani area would be affordable. Development and sales of homes and lots in the larger area would, commissioners anticipated, provide the landowner with the capital required to build the affordable housing on the Piʻihana tract, described as having “physiographic characteristics” that made development and construction more expensive. As chair Jonathan Scheuer put it, “it was cheaper and easier to first develop the Kehalani project area, and income from that would be used to finance the development of affordable housing in the Piʻihana project area.” Other infrastructure tied to the Piʻihana project include a bridge across ʻIao Stream and roadway and drainage improvements.
In 2013, two subsidiaries of a California-based investment company purchased the undeveloped land in both parcels. RCFC Kehalani, LLC, took over the mauka portion (called the Wailuku project in reports to the LUC) and RCFC Piʻihana, LLC, took over the land along ʻIao Stream (the Piʻihana project).
While housing subdivisions and a commercial center had been built in the Wailuku project area, the Piʻihana project was largely undeveloped. Eventually, RCFC Piʻihana divested all its holdings to a company, Wailuku Plantation, LLC, owned by Vernon Lindsey, whose history of development projects on the Big Island and Maui is characterized mostly by failure. Lindsey paid around $2 million for the land.
In 2019, both companies approached the LUC with the idea of bifurcating the project. By late 2020, the Office of State Planning, Maui County, Wailuku Plantation, RCFC Kehalani, and several individuals to whom Lindsey had already sold off small parcels of land signed off on a stipulated agreement endorsing the idea, with Wailuku Plantation initiating the actual petition for bifurcation. Responsibility for various improvements called for in the original LUC decision would, under the stipulated agreement, be apportioned to either RCFC Kehalani or Wailuku Plantation. Both Wailuku Plantation and RCFC Kehalani were to file statements of costs for developing the remaining conditions relating to their respective lands. In addition, the Piʻihana landowners were to provide “information to verify the financial capability to complete the Pihana Project District development.”
At a hearing on December 30, 2020, the LUC learned from Jason McFarlin, the attorney representing Lindsey, that, in fact, his client did not intend to develop the Piʻihana land at all and would instead be seeking to have the land revert to the Agricultural District.
“This project district requires hundreds of millions of dollars,” he said, money that his client doesn’t have.
The Land Use Commission voted to deny the petition to bifurcate and ordered the parties to engage in ongoing discussions. They were 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.”
The parties have yet to report back to commission.
(For more on this project, see the articles in the February 2021 edition of Environment Hawaiʻi.)
ʻAina Leʻa
A dispute over a proposed development of 3,000 acres in the South Kohala district of the Big Island led ultimately to the state Supreme Court decision that left the Land Use Commission largely unable to enforce any conditions it might attach to specific development approvals.
More than 35 years ago, the LUC approved the redistricting of 1,000 acres from the Agricultural to the Urban land use district. The overall project included another 2,000 acres that surrounded the Urban land on three sides. The specifics of the project changed a bit over time. Ownership changed quite a bit.
In 2005, the LUC approved amendments to the project proposed by the then-owner, Bridge ʻAina Leʻa. The project now included 1,924 housing units, with at least 385 to be affordable under the county definition. When an environmental impact statement preparation notice was published two year later, the proposed development now consisted of more than 3,200 housing units in the Urban core as well as a commercial center and a 40-unit lodge. Five golf courses would straddle the boundary between the Urban and Agricultural lands. In the Agricultural section of the development, Bridge proposed 863 lots intended for large single-family residences. The LUC never endorsed that proposal, however.
In 2009, Bridge found a developer, DW ʻAina Leʻa, LLC, that was to erect the affordable units, all of which were to be ready for occupancy by November 17, 2010. As a show of good faith, in the face of growing skepticism by the commissioners that the deadline would be met, DWAL agreed to have at least 16 of the affordable units completed by March 31, 2010.
When the LUC made a site visit after that deadline passed, none of the townhouses was completed, causing the LUC to vote to revert the 1,000-acres of Urban land to the state Agricultural District.
That reversion was overturned by the 3rd Circuit Court and, on appeal, the reversion was upheld by the state Supreme Court. The court determined that, because there had been “substantial commencement” of work on the project, the LUC had no power to revert without going through all the hoops of a redistricting petition.
Since then, the LUC has been had to rely on counties to enforce conditions imposed in redistricting orders.
Meanwhile, there has been little additional work on the ʻAina Leʻa site. The current landowner, ʻAina Leʻa, Inc., a successor to DWAL, has faced nearly insurmountable financing challenges, has gone through bankruptcy, and has lost portions of its proposed development lands through court-ordered foreclosure.
The situation is in flux, but it is likely that eventually the petition area will be held by several different landowners. Will this result in a petition for reversion, for bifurcation, or for an amendment to the existing decision and order of the LUC?
Most likely, the answer won’t be known for years to come.
(Environment Hawaiʻi has reported extensively on the ʻAina Leʻa development.)
— Patricia Tummons
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