State is asked to intervene in Kakaako housing dispute

Owners of the most affordable homes in Kakaako’s tony Ward Village neighborhood have asked a state agency to intervene in a dispute over costs to maintain their units.

The association of homeowners in the 2-year-old Ke Kilohana condominium tower earlier this week appealed to the Hawaii Community Development Authority to help resolve claims that the building’s developer should rectify high maintenance costs after dramatically underestimating the expense for buyers.

Ke Kilohana’s association board filed a lawsuit against the building’s developer, Howard Hughes Corp., last year after realizing a 53% maintenance fee increase was needed to maintain the 43-story tower less than a year after it opened.

Now the board is asking that HCDA take action against Hughes Corp., alleging Ke Kilohana no longer satisfies the developer’s affordable-housing requirement because too much income is needed to maintain ownership.

“Those (maintenance fee) increases effectively render those units as no longer being affordable,” Ken Kasdan, an attorney with the law firm Kasdan Turner Thomson and Booth representing homeowners, said in a statement.

Hughes Corp. regards the claims as baseless and said some factors for maintenance costs were outside its control and had to do with employee staffing, insurance premiums and water and electricity use.

The developer, which mainly has built luxury condo towers at Ward Village, also said it is in compliance with HCDA rules regarding affordable housing.

HCDA requires that 20% of homes in new high-density projects in Kakaako be affordable to a “gap group” of residents who often can’t afford market-priced homes but don’t qualify for other affordable-housing programs tailored to median- and low-income households.

Under HCDA’s so-called reserved housing program, buyers can’t earn more than 140% of Honolulu’s median income. The limit equated to $86,150 for a single person, $98,450 for a couple or $123,050 for a family of four in 2016, when 375 of Ke Kilohana’s 424 units were sold to qualified buyers at below-market prices ranging from $323,475 to $560,774 before construction.

At the time, Hughes Corp. estimated monthly maintenance fees would be around $270 for one-bedroom units, $400 for two-bedroom units and $525 for most three-bedroom units.

After the building opened in May 2019 and residents filled the homeowner association board, actual maintenance costs were far higher.

The board found expenses exceeding fee revenue by $50,000 a month, leaving a deficit and nothing to build up a reserve fund for expensive long-term maintenance needs. Reasons for the disparity included higher-than- anticipated electricity use for common areas along with labor costs for security, cleaning and building management, according to a board analysis.

As a result, the board raised maintenance fees 53% early last year, which added roughly $150 to $300 to owners’ monthly payments.

“Our building was going into the red every month, and we needed to raise the HOA fees immediately or become unable to pay the building’s bills,” said Ke Kilohana resident Loren Bullard.

Bullard said she feels like the victim of a bait-and-switch deal in which low maintenance fees touted by the developer were “complete and utter fiction. They were not based in reality; they could not cover the basic operation of our building.”

Ke Kilohana resident Shelley Steele said she had to take on extra work as a teacher to pay for the increase.

“It’s a hardship financially,” she said. “The developers have to be held accountable for their end of the bargain.”

Ke Kilohana’s board filed a lawsuit last year suggesting that Hughes Corp. low-balled the maintenance fee estimate so it could sell units for more because HCDA rules specify that monthly ownership cost, including mortgage and maintenance costs, can’t exceed 33% of a buyer’s gross monthly income.

“Had Howard Hughes properly estimated the association fees/dues, the price of the units would have been significantly lower in order to satisfy the HCDA’s affordability requirements,” the complaint said.

The developer said it tried to help Ke Kilohana owners before they sued by offering operational advice and financial assistance, which the board rejected.

According to board documents, Hughes Corp. in late 2019 offered the owners association $600,000 plus 17 parking stalls and 114 storage lockers in the building to generate revenue and offset the deficit.

The developer also has pointed to a disclaimer in its sales documents that says insurance, energy and labor costs were in flux and could substantially increase over a short time period.

“Such estimates are not intended to be and do not constitute any representation or warranty by the developer,” the disclosure document says in part.

One of Hawaii’s biggest condo management firms, Hawaiiana Management Co., produced the estimates for Ke Kilohana.

Hughes Corp. filed a claim last month in the homeowner association’s lawsuit alleging that Hawaiiana is liable if its work contained negligent misrepresentations. Hawaiiana responded in a filing denying the claim.

In the filing with HCDA, made by the same law firm that sued Hughes Corp., Ke Kilohana’s association asks HCDA to remedy the maintenance cost issue and block Hughes Corp. from obtaining permits to develop more towers at Ward Village on grounds the developer hasn’t satisfied its obligation to make 20% of existing homes affordable to households meeting high-moderate income limits.

The filing asks for the agency to hold a hearing on the matter.

A day after the filing, HCDA approved development permits for two more towers, including one designed to satisfy the developer’s total affordable- housing requirement balance at Ward Village, where build-out is approaching midpoint in a master plan calling for about 4,500 homes in 16 towers.