City officials are now anticipating it may take up to three years to sell off 12 rental projects after the collapse last month of a $142 million deal with the nonprofit Honolulu Affordable Housing Partners LLC.
Members of the Honolulu City Council’s Budget Committee were also told Wednesday by city Managing Director Ember Shinn that the administration turned down $105 million from another potential buyer because it was not enough to pay off the debt and other costs tied to the purchase or development of the 12 complexes scattered across Oahu.
Despite misgivings about the latest news on the city’s so far unsuccessful sale, the committee voted unanimously to advance Bill 6, giving the administration the authority to begin a new Request For Proposals process.
California-based Honolulu Affordable Housing Partners told city officials on Jan. 23 that it was terminating the deal because it would not be able to meet the city’s demand for $35 million to close the deal by March 31 in exchange for "seller financing," which would have allowed the partners to defer their payments.
Pam Witty-Oakland, the city’s community services director, said the complexity of the deal means it will take longer than the year or two originally envisioned.
"tWe’re looking at a minimum of 30 months to be able to move forward on a complete transaction again, 30 to 36 months," Witty-Oakland said.
Former Mayor Peter Carlisle first announced that HAHP’s proposal was chosen from among seven in June 2012.
Several Council members questioned why the administration did not follow through with its original plan to try to negotiate with the second- and third-place bidders by March 31 instead of reopening the process.
Shinn and Witty-Oakland said the city, in recent weeks, turned down two offers in excess of $100 million because neither would have met the debt owed and other obligations associated with the properties. There also would not have been enough time to complete a deal by March 31, they said.
"The other bidders did not meet our financial obligation," Witty-Oakland said. "By the time we knew the original folks were not going to be able to close, we were down to just about 60 days. That was not necessarily enough time for due diligence with a new buyer and it was not enough time for (the U.S. Department of Housing and Urban Development) to complete its review."
Council Chairman Ernie Martin said it would have made sense to keep negotiating with the two other finalists especially since "we’ve been asked by some of the other bidders" to keep the existing RFP alive.
The upset price, or minimum bid, being asked in the new RFP for the 12 properties will be $130 million. While the properties have been appraised at $57 million, the city’s debt on them is $70 million, she said. "And then you’ve got the program income (anticipated proceeds that would be used by nonprofits), we’ve got the rental assistance programs plus closing costs."
Martin said that because it will take 30 to 36 months to close a new deal and that the city is currently spending $7 million annually to pay off debt and maintain the properties, "hypothetically" it may have made more sense to keep negotiating with the other two top bidders.
The other bidders "are saying if you get a bid of $130 million, and they question you can get that, if we wait three years to get that, if there’s a bid on the table now for $110 million-$115 million, you might as well take it," Martin said.
Councilman Ron Menor agreed, adding that the March 31 deadline could have been extended by the Council if necessary.
"My concern is whether the city will, in fact, will be able to obtain a better deal by restarting the process as opposed to at least continuing negotiations with the other two bidders at least up until the March 31 deadline."
Shinn said "it was a painful decision" to restart the process, adding that extending the March 31 deadline, just for the two other bidders, would have extended the city’s legal risks.
On the bright side, "my phone has not stopped ringing" from parties both locally and abroad expressing interest in the properties, she said.
A $5 million refundable deposit placed by HAHP has already been returned, Shinn said.
To ensure that the Council will have a say in the language on the new Request For Proposals, Budget Chairwoman Ann Kobayashi amended the bill to require that the RFP be included when the Council gives its final OK to the measure.
