by Andrew Walden (Updated June 26)
For over a year, most of Hawaii’s pliant and un-inquisitive media have gone along with the ridiculous story that Koolina developer and Broken Trust player Jeff Stone was donating 300 Makaha acres to Hawaiian Homelands and Kamehameha Schools as “a gift from the heart….” Stone even used the so-called gift to boost his pet congressional candidate. The Star-Bulletin reported April 8, 2010: “Stone credited state Senate President Colleen Hanabusa with being the ‘catalyst’ for the donation.”
But now, only days before the deal was to close, Stone and competing luxury home developer Kamehameha Schools have had a falling out.
It turns out that the deal for the “donation” was to have included DHHL giving away to Stone affordable home credits valued by DHHL at between $30M and $50M. Stone in turn straight-facedly claims he would never use them.
Stone led a hui which purchased the land for $4.4M in 2004. Trading the land for $50M in credits yields a 1136% rate of return, respectable even by corporatist Hawaii standards.
The affordable housing credits—estimated by DHHL to be worth between $75K and $125K each—would have started out as the property of DHHL, generated by the construction of 400 affordable homes on the “donated” land. Under the terms of the deal, DHHL was to have quietly given away these valuable assets instead of selling them to finance the construction of more homes for beneficiaries or transferring them to the contractor to help keep the construction cost down. What was reported as a “gift from the heart” may actually a case of Hawaiian Homelands vastly overpaying for land.
There is no honor among Hawaii’s politically-connected developers. Pouty over being stuck with some free land and no sweeteners, Kamehameha apparently grabbed for the credits by offering to purchase the whole parcel from Stone for $8M and then "donating" most of the parcel to DHHL--thus guaranteeing the tax credits for itself. The deal then began to collapse in a paroxysm of finger pointing
In April, 2010, KHON2 alone reported:
Local developer Jeff Stone has received four hundred affordable housing credits in exchange for donating 230 acres of land to the Department of Hawaiian Homelands deep inside Makaha Valley….
Stone told reporters all of his affordable housing requirements at Ko Olina have already been met.
“Within Ko Olina we already have 392 affordable credits, so we can build up to 4,000 homes,” he said….
Kaulana Park, the director of DHHL, told KHON2 he believes Stone will honor his promise not to profit from the housing credits gained from his donation of land.
"If he says he's going to do it the right way then he will,” said Park. “Let’s not judge him for what he thinks he might do, judge him for what he has done.”
The affordable housing credits were not mentioned outside of the KHON coverage, but now the Star-Advertiser is presenting it as if it had been reporting on the credits all along. The June 24 Star-Advertiser includes the following:
“When the original plan was announced in April 2010, Stone said he did not need and would not use, transfer or sell the credits, making the whole deal a charitable contribution or, as he said, a gift ‘from the heart.’"
But the April 7, 2010 Honolulu Advertiser report on the “donation” says nothing about affordable housing credits. The article ends with this:
“Stone has told members of the West O'ahu community that the Kamehameha Schools-DHHL land donation is a charitable reinvestment in the community with no strings attached….”
The April 8, 2010 Star-Bulletin report on the deal also says nothing about affordable housing credits, but does include this interesting tidbit:
“Stone said the donation to Hawaiian Homes was given with the understanding that the 400 to 600 housing units to be built in Makaha would be affordable, between $198,000 and $249,000.”
And on April 7, 2010 the Star-Bulletin included this near-denial:
“Asked whether the gift offered tax benefits, Stone said, ‘It doesn't have substantial tax consequences for me. It's not being done for that purpose.’"
Neither an April 9 Star-Bulletin editorial nor the April 7 News Release from KSBE mention affordable housing credits.
Stone’s claim that “did not need and would not use, transfer or sell the credits” begs some questions. Why would Stone have the credits in the first place? They go to the builder, which in this case would be DHHL. Given Stone’s claim he “did not need” the credits, one must ask:
- If so, why would he deny them to DHHL?
- Is Stone renouncing all further construction of market-priced housing beyond the 392 credits KoOlina already holds?
- Is this a maneuver to drive up costs for his competitors?
At a January, 2010 “Consultation” with DHHL beneficiaries on DHHL Affordable Housing Credit Policy, DHHL officials pointed to Act 141, Section 1, paragraph (b):
Each county shall issue affordable housing credits to the department of Hawaiian home lands with respect to existing and future Hawaiian home lands projects upon a request for such credits by the department of Hawaiian home lands. The credits shall be transferable and shall be issued on a one unit for one-unit basis. The credits may be applied county-wide within the same county in which the credits were earned to satisfy affordable housing obligations imposed by the county on market priced residential and nonresidential developments.
Here is a Q&A with one Kauai beneficiary:
Q: Who does this benefit?
A: This benefits us, the Department, may bring cash to the Trust
Q: Any idea on how much a housing credit is worth?
A: $75,000 - $125,000 – range in all counties.
And near the end of the “Consultation”, the following exchange occurred:
Q: Would this affect developments such as Makaha / Jeff Stone?
Stone’s Ko Olina development is expected to benefit if rail is ever built. The credits would serve as a license to build luxury homes—bought by his “donation” as cheaply as a dime on the dollar.
Competing luxury developer Kamehameha Schools—whose Kakaako luxury redevelopment plans form a prong in the anti-rail attack—would likewise be able to reduce its cost of construction for Kakaako condos. Was the Department of Hawaiian Homelands’ alleged inability to do its “due diligence” on the Makaha land just a stalling tactic designed to pressure Stone to negotiate with KSBE? Or was DHHL torn between two masters, unable to discern which to give the credits to.
PBN reports: “Stone, who placed the signed deeds to the 300 acres in escrow with Island Title Corp. on May 5, told Nahalea in an email Thursday that he is willing to complete the deal by June 30 if Kamehameha Schools and DHHL commit to their original plans.”
In other words, if KSBE capitulates and lets Stone have all the affordable housing credits, he will proceed—hence all the bleating in the media about how the deal can still be ‘saved’.
If the deal dies, Kamehameha’s plan to use the center as a cornerstone of its initiative to save Waianae coast schools from the DoE is pau as well—which threatens DoE’s RTTT money. And this debacle is yet another step away from DHHL’s mission and back to the bad old days when the Department was hostage to politics and deal making rather than being master of both.
Totally Related: The resource curse (Paradox of Plenty)
The Resource Curse in Hawaii: OHA driving Hawaiians out of Hawaii
Ka Pua Kamehameha Schools Learning Community on The Stone Family Lands http://www.theresortgroup.com/makaha-development.aspx
Hanabusa, Jeff Stone, and their cronies: