The county Office of the Corporation Counsel today formally notified the entities overseeing development of the Kamakoa at Waikoloa workforce housing project they are in default of their financing and development agreements with the county.
The county offered Waikoloa Workforce Housing LLC (WWH) and its parent company Hawaii Island Housing Trust (HIHT) 60 days to cure their defaults. The letter by Corporation Counsel Lincoln Ashida further advised WWH and HIHT that the county will not accept any proposal for the project that relies on additional funding or guarantees from the county other than what was previously agreed to.
“Simply stated, if the entities responsible for delivering this project cannot perform their obligations under their agreements with the county, the county must protect its taxpayers by enforcing the county’s rights under those agreements,” Ashida said.
The letter urged WWH to stop all work on Kamakoa except for the on-site construction that is already underway. On-site work is now being done under a contract with Isemoto Contracting Co. with funds supplied by the county, and that work will be completed. The Isemoto contract includes installing roads, waterlines, sewer lines, house pads, and other infrastructure for the project.
In the face of feasibility and financing difficulties, WWH and UniDev LLC (UniDev) each recently formulated a new proposal to try to advance the project. Without making a determination with regard to the viability or desirability of those proposals, Ashida stated that both plans amount to “a significant departure” from the parameters set forth in the financing agreement WWH entered into with the County last June. UniDev is the owner’s representative and is tasked with arranging financing and managing design and construction of the project on behalf of WWH.
Neither of the recently revised plans for the project proposed by WWH and UniDev adhered to the agreed-upon construction schedule; neither plan included clear provisions for the financing of a park and other community facilities that were required; and the UniDev plan proposed extensive use of rent-to-own housing units that were never contemplated by the agreement or the previous plans for the project.
“We are absolutely committed to ensuring housing that is affordable to working families in the area is constructed on this site,” said Housing Administrator Stephen J. Arnett. “Unfortunately, the project as it was originally planned simply no longer appears viable. We appreciate the hard work that the managers and staff of WWH and the board of HIHT have put into this project to try to make it work, but it is time to take a hard, realistic look at the problems confronting this development.”
The Kamakoa project was announced in 2005 as a development of 1,200 affordable workforce units, including for-sale homes and rentals on 268 acres of county-owned land in northwest of Waikoloa Village. UniDev and its plan for the site were selected after UniDev responded to a request for proposals. The non-profit Hawai’i Island Housing Trust was subsequently formed and took title to the land. Its for-profit subsidiary, Waikoloa Workforce Housing LLC, was created with the responsibility of developing the project, utilizing the expertise and management capabilities of UniDev.
In order to ensure that rents on the rental units in the project would be truly affordable and to support public facilities in the project and the related infrastructure, the county agreed to make $40 million in county funds available to WWH under several financing agreements.
Ground was broken last year on Phase 1A of the project on about 50 acres. The $28 million contract WWH has with Isemoto covers grubbing and grading, roads, water lines, sewer lines, sidewalks, house pads and other infrastructure for about 200 units, as well as preparation of the park site. Funds have also been used for design and engineering expenses and homeownership counseling.
The viability of the project as it was originally proposed has been called into question by a series of events both inside and outside of Hawai’i County, Arnett explained:
- Infrastructure for the project such as roads and water lines was ultimately to be financed with community facilities district bonds that would be repaid over time through special assessments levied on the homeowners who bought into the project. The viability of that plan has been called into question by the recent upheaval in the bond and financial markets upon which the community facilities district financing is dependent.
- A crucial attraction for the project was zero-down loans for working families to finance leasehold units ranging in price from about $230,000 to $377,000, but recent events in the state and national economies have reduced the number of potential buyers who can qualify for such loans. Adding to the uncertainty is the fact that families buying into the project would be required to pay significant charges for the community facilities district assessments and common area maintenance charges in addition to the principal and interest payments on their mortgages.
- The project was originally proposed as a development that would rely on private financing with no cash contributions by the county. When it became apparent that the proposed financing would be insufficient to allow for the facilities and rental affordability desired for the project, the county agreed to commit up to $40 million to the project. To date, the entire investment in the project, including land and cash, has been by the county. Private financing that was necessary to actually begin constructing homes has not materialized.
“We are disappointed that the original vision for the project is in jeopardy, but we will do what it takes to ensure that the interests of the taxpayers are protected and the people of Hawai‘i County ultimately get the affordable housing they need,” Arnett said.
COUNTY OF HAWAI‘I
OFFICE OF THE CORPORATION COUNSEL
Dear Mr. Dougall and Mr. Hendricks:
RE: Kamakoa at Waikoloa Project
On behalf of the County of Hawai‘i, I would first like to thank you for all of your efforts in connection with the Kamakoa at Waikoloa project. It has been a challenging project since its inception, but the County was hopeful that it would result in a unique and vibrant workforce community for the citizens of the Island of Hawai‘i. The plan for the Kamakoa at Waikoloa project (the “Project”), as detailed by UniDev, LLC (together with UniDev Hawai‘i, LLC, “UniDev”) was uniquely attractive and valuable because it promised to deliver a large-scale, high quality, perpetually-affordable workforce project on a timely basis with minimal financial risk to the County. Unfortunately, it has recently become apparent that Hawaii Island Housing Trust (“HIHT”), Waikoloa Workforce Housing, LLC (“WWH”) and UniDev are no longer able to deliver that project.
Without making a determination with regard to the viability or desirability of the most recent proposals from WWH and UniDev, it is clear that each such proposal is a significant departure from what was bargained for under that certain Development Financing Agreement dated June 12, 2008 (the “Financing Agreement”) and that certain Amended and Restated Development Agreement dated July 15, 2008 by and between the County, HIHT and WWH (the “Development Agreement”). The County believes that the alternative proposal made to the County by WWH on or around November 17, 2008 is a clear and unequivocal communication that WWH is unable to deliver the Project as contemplated by the Financing Agreement and Development Agreement. However, to ensure that there is no misunderstanding with respect to your ability to meet your obligations under the aforementioned agreements, the County desires to give you an opportunity to cure the above-referenced default in accordance with the notice and cure provisions of the Financing Agreement and Development Agreement. Accordingly, the County hereby provides you with formal notice pursuant to Section 5.1(b) of the Financing Agreement that the inability to develop the Project in accordance with the Project Guidelines is a default under the Financing Agreement. Specifically, your revised proposal does not clearly provide for the community facilities as set forth on Exhibit F4 to the Financing Agreement, does not conform to the financing plan set forth on Exhibit F9 and does not conform to the construction schedule set forth in Exhibit F10. Although you have already rejected the proposal made by UniDev, we note for the record that the adoption of UniDev’s proposal would also represent a default due to its failure to comply with the Project Guidelines. Specifically, that proposal fails to provide for the community facilities set forth on Exhibit F4, fails to offer the super-affordable units and the unit mix set forth on Exhibits F5 and F9, fails to conform to the types of products (providing rent-to-own units in place of many for-sale units) contemplated by Exhibits F6 and F9 and deviates from the construction cost and debt service analysis (though sufficient back-up documentation has not been provided for a full evaluation) set forth on Exhibit F9. Additionally, the County’s assessment of the UniDev proposal leads us to believe that further financial risk on the part of the County would be required in excess of that contemplated by the Financing Agreement and Development Agreement. As provided by Section 5.1(b) of the Financing Agreement, you have thirty (30) days from the date of this notice to cure the aforementioned default. If you are unable to do so, the County may exercise its rights and remedies under Section 5.2 of the Financing Agreement. Additionally, the inability to comply with the terms of the Financing Agreement is a default under Section 3.3(b) of the Development Agreement. Pursuant to section 5.1(b) of the Development Agreement, you have sixty (60) days to cure such default, after which time the County may exercise the rights and remedies as set forth in Section 1.2 of the Development Agreement.
In light of the above-described defaults and until such defaults are cured, the County urges you to cause all work on the Project, other than work that is directly related to on-site construction of Phase 1A, to be ceased immediately. We further wish to advise you that the County will not consider as a cure any plan that involves the provision by the County of additional funds to HIHT, WWH, or its contractors in excess of those already obligated under the existing agreements, will require the guarantee by the County of any financing, or will expose the County to further financial risk of any kind. Please conduct your operations and inform your consultants and contractors accordingly.
LINCOLN S.T. ASHIDA
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