Lualualei developer won’t give up

Selling new single-family houses with ocean views on Oahu for $350,000 doesn’t seem like it’d be a struggle, given the median price for previously owned homes sold last year on the island hit a record $650,000 and appears headed higher this year.

A struggle, however, is indeed what one developer has been through in an effort to create an affordable-housing subdivision in Nanakuli with three- and four-bedroom houses priced between $330,000 and $355,000.

"It’s been rough," said R.J. Martin, a 34-year-old history lecturer who has been working on the project called Green Homes at Lualualei for several years and encountered financial difficulties that threaten his dream of providing 25 homes for moderate-income families.

Martin started the project by purchasing a nearly 3-acre lot across from Ulehawa Beach Park for $1 million in 2008 while he was seeking a doctorate degree in history at the University of Hawaii. 

The unlikely developer got interested in affordable housing after moving to Hawaii from California in 2003 and wondering why there weren’t many new homes being built for average residents.

Martin decided he would try his hand at building such homes here. To pay for the lot in Nanakuli, he sold a home he had bought in Ewa Beach in 2004 for a profit and moved into an apartment in Makiki. He also got some financial help from his family.

Martin’s mother, Barbara, said her son became a developer for passion, not money. "This is all about his belief that people need affordable homes,"she said.

Martin planned to start and finish building the 25-home subdivision in 2011.

Yet to date, only four homes have been built and three sold.

Martin said his struggles bringing the project to fruition were beyond anything he imagined even knowing that developing affordable housing in Hawaii is a daunting challenge for experienced developers because of high costs for land and construction.

"I wouldn’t wish what I’ve gone through on my worst enemy," he said.

The root issue, according to Martin, who is now a lecturer in world history at UH West Oahu and an agent with real estate brokerage firm Coldwell Banker Pacific Properties, was not being able to find investors willing to finance home construction.

"I’ve reached out to every bank in town," he said.

Martin also futilely applied for a $2 million loan in 2010 from the Hawaii Housing Finance and Development Corp., a state agency that helps foster affordable-housing development and qualified Green Homes at Lualualei as eligible for regulatory exemptions.

Undaunted about his financing prospects, Martin launched sales efforts in 2011, advertising the project with "green" features such as solar water heating, photovoltaic panels, three roof heat barriers and low-flow water fixtures that would reduce utility costs for homebuyers.

Gov. Neil Abercrombie and then-Lt. Gov. Brian Schatz issued a special message as part of the project’s sales information package calling the homeownership opportunity at Green Homes at Lualualei a momentous occasion and an example of a public benefit when the government and private sector work together.

In 2012 Martin plowed ahead with construction on the first few homes and $800,000 in infrastructure work, but had to rely on contractors willing to be paid later. He also sought volunteers for jobs that included painting and landscaping.

Further difficulty involved Martin’s development partner, Pacific Island Investments LLC and its brokerage affiliate, DaKine Homes, pulling out of the project. Martin also resorted to taking out high-interest loans to keep construction going.

Two homes were finished and sold last March. Another two homes were completed in August, and one of those has sold. Since then the financing issues have prevented construction of more homes, and debt on the project has become a challenge to repay.

To help save the project, Martin explored selling it or partnering with other developers, including the Self-Help Housing Corp. of Hawaii, to no avail.

Selling the one unsold house would help ease the financial squeeze, but there has been some fear from prospective purchasers that the subdivision won’t be finished.

"There’s a bit of a taint to the project," Richard Prahler, development branch chief of Housing Finance, said during a recent agency board meeting discussing Green Homes at Lualualei.

In a renewed effort to advance the project and make it more attractive to investors willing to finance construction, Martin obtained approval from Housing Finance earlier this month to remove some restrictions on who can buy a home in the subdivision. A similar approval from the City Council is needed, though the support from Housing Finance suggests the Council will also approve the change.

The restrictions were attached to the project under state law that allows certain zoning, tax and other benefits for qualified affordable-housing projects.

Restrictions include requiring that buyers live in the home and share future equity with Housing Finance if they sell the property within 10years, and excluding buyers if they already own residential real estate or earn more than 140 percent of Honolulu’s median income, which equates to $134,120 for a family of four.

Housing Finance agreed to remove those restrictions for 13 of the 25 homes, which keeps the project in compliance with rules for such affordable-housing projects that require the restrictions for at least half the homes.

Martin said he expects the change will encourage lenders to finance construction because the 12 homes without buyer restrictions will be more attractive to buyers, while a bigger pool of buyers can buy the homes.

"We now have the ability to bring funds to the project so we can build the affordable homes," Martin said.

Martin added that if he can resume building and give the project some momentum, then proceeds will allow him to build and sell another 10 homes where the buyer limitations still apply. "I believe the buyers are out there," he said.