Developers of a troubled, 153-unit condominium complex at 803 Waimanu Street in Kakaako are running out of money — and payments are due, including to the Hawaii Housing Finance and Development Corp. (HHFDC), which has loaned the project $9.83 million.
HHFDC must take action on this property, with its 117 units classified as “affordable” under state guidelines. Sale applications opened for condos at 803 Waimanu in 2017, but more than seven years later, 61 of the condos are still available, including units at market rate and at below-market prices that range as low as $276,102 for a studio.
One option is to take control of the project, including by foreclosure. To take over the condo will cost more money — but to do nothing could result in the loss of HHFDC’s entire loan amount.
The agency’s failure to intervene sooner as signs of trouble arose is turning out to be a costly oversight. 803 Waimanu’s poor sales rate has drawn notice for years — and the developer has also violated HHFDC loan requirements, failing to make required interest payments, so that the debt to the state totals more than $10.47 million. What’s worse, operators of the condo project secretly rented out unsold units in violation of the project agreement — a troubling action, which raises the prospect of damage done to units that would have to be repaired before a sale.
Incorporated property and development companies controlled by Franco Mola are the legal entities responsible for these loans, with a handful of limited liability companies in the mix. With the developer’s debt growing and sales bungled, problems with 803 Waimanu have reached a level demanding urgent action.
Now, HHFDC must carefully manage its financial interventions — and reform the development’s management and marketing — for two compelling reasons: to protect the state’s loan money; and to get these units into the hands of local workers seeking affordable homes.
On Sept. 12, HHFDC asked its Board of Directors to approve an additional budget of up to $500,000 for expenses that could develop as the agency takes action. Costs could include legal fees and payments for other debts, such as property taxes and condo fees on unsold units.
In approving this request, the board properly deleted HHFDC’s proposal to convert an additional 25 unsold, affordably priced units that are reserved for Hawaii owner-residents with limited incomes to “market-priced” units with no restrictions on buyers. This was the right call — first because this project was approved in order to increase Kakaako’s affordable housing supply, and also because there are already 17 unsold units at market price. Those were converted months ago from restricted, affordable units to market rate by the state’s Hawaii Community Development Authority (HCDA), which had its own agreement with the developer — a move that should also have served as another bright red flag for HHFDC.
HHFDC’s loan to 803 Waimanu’s developers has a maturity date (date when legally due) of Sept. 30, but so does a private loan with priority over the state’s. Yet in its Sept. 12 proposal to the HHFDC’s Board of Directors about this dilemma, agency staff reports that the developer “does not have the liquidity” to pay ongoing costs. That’s a final, blaring signal that action is required.
It’s true that circumstances have changed since 803 Waimanu was first proposed: The city’s rail line was expected to run through the area by 2019, but now won’t reach Kakaako until 2031. And of 61 as-yet-unsold units, 42 don’t have parking. But the state has also agreed to a series of earlier concessions, and the developer has not been able to meet obligations.
Despite the expense and staff time involved in taking control of the project, it’s incumbent on HHFDC to get this mess fixed before more money evaporates from its grasp. A better time to act has already passed, but further delay is unacceptable.
