Did Honolulu’s $142M Housing Deal Collapse?
A $142 million business deal that would transfer ownership of a dozen of Honolulu鈥檚 public housing complexes to a private developer was left on the verge of collapse Wednesday night.
The city, which has been trying to unload the properties for nearly a decade, finally came to an agreement last year to sell the apartments to a group of private developers called the Honolulu Affordable Housing Partnership.
But one developer’s testimony during Wednesday’s Honolulu City Council meeting has called into question the ability of the HAHP to finalize the agreement, which has left the Caldwell administration scrambling to try to hold things together.
鈥淭his is extremely important for many reasons,鈥 Mayor Kirk Caldwell told reporters after the council session. 鈥淲e are going to have to make tough decisions if we can鈥檛 save this sale. We鈥檙e going to assume that we can.鈥
Caldwell plans to meet with the developers Thursday to mend relationships and dispel any unease they might have about dealing with the “political arena.” He insisted that it is too soon to start searching for a new buyer.
鈥淚 want to salvage this sale,鈥 Caldwell said. 鈥淚鈥檓 not going to a Plan B. I鈥檓 going with Plan A.鈥
On Wednesday, the Honolulu City Council was planning to vote on two resolutions that either would have delayed the sale of the 12 affordable housing complexes or called it off completely. Rather than vote, they tabled the resolutions, essentially letting them die.
The legislation was introduced on Friday by Council Chair Ernie Martin, who didn’t like how the administration plans to spend part of the $142 million windfall.
Honolulu City Council Chair Ernie Martin during a meeting Dec. 11, 2013.
Specifically, he expressed concerns about $35 million that is slated to go through a federal grant program to nonprofits and other city projects. He felt the projects that the money is destined for haven’t been fully vetted.
This sparked a showdown between Martin and Caldwell, who said the resolutions jeopardized the fate of the entire sale. The two politicians have butted heads a number of times since Caldwell took office, especially over how the city spends money on nonprofits.
Caldwell鈥檚 fear that Martin was scaring the developers away with his resolutions was echoed by that William Rice, of the affordable housing partnership, sent to Budget Director Nelson Koyanagi.
Rice wrote that Martin鈥檚 threat of killing the deal was driving investors away and undermining the group鈥檚 ability to finance the purchase of the properties.
As a result, Rice noted, the developers have begun moving forward with legal measures to cancel the agreement, which could put the city on the hook for at least $2.5 million and open it up to further litigation if the developers attempt to recoup the $4 million they spent trying to finalize the transaction.
The stakes for the city could be even higher if the deal crumbles. Honolulu would lose out on the $142 million that would go toward various programs, including large projects, such as Caldwell’s Housing First initiative that aims to get homeless people off the streets and is a top priority for his administration.
Officials would also need to find a way to keep paying for operations and maintenance of the facilities. The city spends $7.6 million to run the apartments every year. The apartments are also in need of repairs. The developers had agreed to $50 million in renovations 鈥 if they purchase the properties.
In an attempt to salvage the deal, the administration and Councilman Breene Harimoto proposed a new resolution Wednesday that would reaffirm the city鈥檚 earlier support of the sale. That resolution also sought to extend a March 31, 2014 deadline for the developers to complete the deal.
But when council members pressed Rice about whether the new resolution would soothe the fears of his investors he said that he didn’t know if it would make a difference. Instead, he repeatedly circled back to his argument that the city had breached its contract with the affordable housing partnership, which caused financing for the project to dissipate.
Rice’s comments caused much angst for certain council members. Many said they were skeptical about the timing of developers’ loss of financing from lenders and investors.
Some even hinted that the developers were using Martin鈥檚 resolutions as a convenient excuse to ask for an extension or back out altogether because they were simply having trouble closing the deal.
鈥淚 do not find it convincing from the buyer that three days will affect any type of investment deal,鈥 Councilwoman Kymberly Pine said, referring to the fact that Martin only introduced his resolutions late Friday. 鈥淚 find it almost unbelievable and not credible. In fact, I do not want to vote for this (resolution of support) because I now doubt that this company ever had the financing.鈥
Honolulu City Councilwoman Ann Kobayashi chairs the Budget Committee.
Pine pointed to the fact that the affordable housing partnership had asked for a number of time extensions while working on the sale agreement. She also challenged Rice on the idea that the city had breached its contract simply because one politician introduced legislation.
But Rice continually defended HAHP鈥檚 desire to close the deal during the meeting, noting that the developers had been working on it for nearly two years.
鈥淚t makes no sense that we would put $4 million into a transaction and not want to see it through,鈥 Rice said. 鈥淲e believe in this transaction. But the mere fact that the city is considering rescinding an agreement that鈥檚 been in place and part of the public record for a matter of time does not inspire the confidence of folks that need to put in additional capital.鈥
Still, Rice did not convince the council. They didn鈥檛 vote on any of the resolutions. He also left the council and the administration with a series of unanswered questions about the deal.
Martin said he had intended to support the new resolution until he heard what Rice had to say. As he heard Rice testify, Martin said he became “skeptical” about the developer’s reasons for losing confidence in the city to follow through on its end of the bargain.
Martin particularly didn’t like the fact that Rice seemed to be using the introduction of his resolutions as a scapegoat for the lost financing.
鈥淭he mere introduction of any legislation does not express the intent of a body as a whole,鈥 Martin said after Wednesday鈥檚 meeting. 鈥淭hat鈥檚 just one individual legislative member offering an opinion 鈥 You cannot use that as a basis to state a city position.鈥
He added that the entire purpose for threatening to rescind the sale in the first place was to extend the debate about how the money would be spent.
Caldwell said he wished the city council would have publicly supported the sale agreement with a new resolution, but now he is searching for ways to keep the sale afloat.
“I鈥檓 very very disappointed with what occurred today and I wish it had a different result,” Caldwell said. “I think it was important to send a reaffirming message to the buyer and lift the cloud that鈥檚 been placed on this sale.”
Read the letter from HAHP to the city here:
