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County files lawsuit against Kamakoa project development companies

Kamakoa at Waikoloa workforce housing applicants tour the site before the lottery Saturday, Jan. 17 (Photo courtesy of Waikoloa Workforce Housing)

Kamakoa at Waikoloa workforce housing applicants tour the site before the lottery Saturday, Jan. 17 (Photo courtesy of Waikoloa Workforce Housing)

MEDIA RELEASE

The County of Hawai’i has filed a lawsuit against the companies UniDev, LLC and UniDev Hawaii LLC alleging the companies knowingly filed false and fraudulent claims for payment with the county.

The lawsuit filed in Third Circuit Court also alleges UniDev deliberately provided false information and false documentation to the county in 2007 and 2008 in an effort to persuade county officials to commit $31 million to support the 1,200-unit Kamakoa at Waikoloa workforce housing project.

The lawsuit alleges UniDev deliberately understated development costs and omitted expenses to make it appear the housing units at Kamakoa would be affordable for the target group of families making 50 percent to 140 percent of the median county income.

The suit also alleges UniDev negligently made numerous representations to induce the county to provide funding because UniDev collected a portion of its fees for managing the project out of the money provided by the county.

The county made $31 million available for the project under a financing agreement made June 2008. Then in September 2008, UniDev informed the county “the project was not financially viable as previously represented,” according to the lawsuit.

The lawsuit also alleges UniDev was negligent for failing to obtain prior approval for entering into certain consultant contracts. The lawsuit alleges UniDev also allowed the costs of some contracts to escalate in order to boost UniDev’s fees, which were based in part on a percentage of development and construction costs.

The lawsuit seeks general, special and punitive damages. It also seeks civil penalties under a state law that prohibits filing of false claims against the counties. Each violation of that law can be punished by a civil penalty of up to $10,000 plus three times the amount of damages the county suffered because of the false claim.

Ground was broken last year on Phase 1A of the Kamakoa project, and construction is now underway under a $28 million contract with Isemoto Contracting Co. That work includes installing roads, waterlines, sewer lines, house pads, and other infrastructure, and is being funded with the money the county made available for the project in 2008.

County Housing Administrator Stephen J. Arnett said Isemoto will complete its work, and said the County remains committed to constructing affordable housing for working families on the Waikoloa site.

UniDev’s relationship with the project began after the county issued a request for proposals in 2004 to develop 268 acres of county land into the Waikoloa workforce housing project. UniDev’s response to the RFP stated that it “will provide, through our financing partners, 100% of the financing for this project,” according to the county lawsuit.

Based on that and other claims by the company, UniDev and its plan for the site were selected. The non-profit Hawai’i Island Housing Trust was subsequently formed and took title to the land. Its for-profit subsidiary, Waikoloa Workforce Housing LLC, was created with the responsibility of developing the project, utilizing the expertise and management capabilities of UniDev.

The lawsuit alleges UniDev arranged for only one short-term loan from its “financing partners” for the project. In 2006 UniDev arranged for a pre-development loan of $4.25 million to Waikoloa Workforce Housing from the National Electrical Benefit Fund (NEBF), a retirement fund affiliated with the International Brotherhood of Electrical Workers. The Waikoloa land was used as collateral for that loan.

UniDev failed to secure other financing as it was required to do under the Development Services Agreement, and when the short-term NEBF loan came due in 2007, the county had to step in to provide $6 million to pay off the loan and provide additional cash to keep the project going, according to the lawsuit. If the county had failed to step in and repay the loan, the property and control of the project would have gone to the NEBF, according to the suit.

In all, the county has committed $40 million in general obligation bond funding to support the project.

According to the lawsuit, Waikoloa Workforce Housing received the results of an independent audit on Jan. 26, 2009 that showed UniDev had entered into contracts without the required approval of WWH; that UniDev hired service providers without contracts; and UniDev had understated the costs to complete to project.

The lawsuit also alleges UniDev filed “false and fraudulent” claims with the county on March 17, 2008, and alleges UniDev on April 30, 2009 submitted false claims to the county demanding payment of fees that UniDev knew the county was not responsible to pay.

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