Monday, March 28, 2011

Winners and Losers

Once upon a time there was a tidy, simple little one-story cottage of 1,080 square feet sitting on a 20,000-square-foot lot in Wainiha on Kauai’s north shore. It had two bedrooms and two baths, a sandy back yard and a tall ironwood hedge that served to screen it from a broad, white sand public beach.

It was described in the MLS property listing posted by Realtors Roberta Hass and Mimsy Bouret as “Classic home from a bygone era, a historic charmer. They don't make 'em like this anymore! Ambience of ‘Old Hawaii’....A walk back in time.” Sweet.

But it was most likely the reference to "Zoned for two residences, but with restrictions" and “Long vacation rental history” that caught the attention of Nicky Michaels, a Southern California developer whose North Shore Development LLC purchased the property for $1.9 million cash in 2002.

Nicky knew about CPRs, which he promptly did to the mauka side of the lot.

He also knew there was a way to transform the small, modest house into the kind of palatial mini resort that would command really big bucks — without going to the expense and bother of meeting current National Flood Insurance Program rules for building safely in the flood plain. Or in other words, elevating the house.

How? By claiming he was making “unsubstantial improvements” to the property.

According to Kauai County’s Flood Review Policy which was derived from the County Floodplain Management Ordinance, the state flood ordinance, and 44 CFR:

If a structure is in a special flood hazard zone but was built before November 4, 1981, it is Pre-FIRM or “grandfathered.” Building permits for “grandfathered” nonconforming structures can be approved if the improvement is unsubstantial.

When calculating for substantial improvement, the value of the improvement is determined by the County’s Building Division according to their valuation policy. The market value of the structure is as assessed by the County’s Real Property Assessment Division.

The value of the improvements must be less than 50 percent of the structure’s assessed value to qualify as “unsubstantial.” For this purpose, Nicky’s newly purchased house was assessed at $254,000.

The Building Department, under Doug Haigh, went along, and on June 30, 2003, granted Nicky a permit for what were supposed to be “unsubstantial improvements” valued at $122,300.

Soon, the “unsubstantial improvements” were well under way, with Callahan Construction serving as general contractor.

The lawn got expanded right along with the house, which took it well out onto the public beach.

Even Nicky helped water to ensure that the newly planted vegetation flourished.

And indeed it did, sprawling well onto the public beach, as you can see from these two recent photos taken from vacation rental websites.

As for the house, well, here’s an aerial view after the “unsubstantial improvements” were completed. Amazing what just $122,300 can buy.

This vacation rental ad describes its palatial transformation — right down to the putt-putt golf course on what used to be public beach:

Upon arriving to this 5 star luxury retreat and sanctuary; you will soon discover where heaven and earth meet. This home as stated by many is "the nicest home on the North Shore." Each of the four bedrooms has its own private entry and exit with a clear view of either the ocean or a water fall. We incorporated only the best materials available. Cedar exterior, Brazilian marble counter tops, and bathrooms, interior Jacuzzi bathtubs in both oceanfront suites, Brazilian mahogany floors, spacious Ipe decks, all the windows capture mystical magical views, Koi ponds, waterfalls, flowers o plenty encompass this compound.

For those golfers, Seashore Paspalum grass surrounds the house, the same kind of grass found on the greens at the Prince Golf Course in Princeville, rated the #1 golf course in all of Hawaii, only 15 minutes away. The grass feels like carpet for the feet. We’ve set up a fun miniature golf course with plenty of putters and golf balls supplied.

Entertainment features include: 42” HDTV, cable internet service, wireless modem, Pool table/ping-pong table, indoor Mango wood smoothie Bar with refrigerator, Large Gas BBQ, Outside Hot Springs Jacuzzi surrounded by Fragrant flowers, three Kayaks (2 singles, 1 Double) and miniature golf greens.

If you’re wondering "is there going to be a crowd?” The beach directly in front of the property is mostly a private beach. People have to know how to find the beach and beach access is limited.

This vacation rental ad references it as Orchid Beach Villa, and eliminates the possible presence of the general public in extolling its exclusivity:

This fabulous, elegant, and serene 3+BR, 4BA home is on the beach and steps from your own private, protected blue lagoon. Imagine having enough money to purchase a piece of property anywhere in the world, imagine that perfect place. A perfect location, a perfect dream realized, within the Unites States of America, where people with unlimited capital want to live and vacation with their loved ones. This place is the real “Blue Lagoon”, a newly built home on the North Shore of Kauai, Hawaii.

Yet another ad offers a similar revelation about the amount of work done, which seems to exceed the scope permitted by the county:

This place is the real “Blue Lagoon”, a newly built home 4 bedroom 4 bath home on the North Shore of Kauai

Which is it? “Newly built” or “unsubstantial improvements?”

Decide for yourself. Go ahead, take a virtual tour. (Click on the photo and drag your mouse.)

Now compare that to what it looked like when Nicky bought it nine years ago.

The public beach has also undergone a marked change, thanks to all that planting, fertilizing and watering.

Now it’s difficult for folks to walk the beach when the surf is up, which helps the vacation rental live up to its much-touted promise of exclusive seclusion.

So what’s the cost of all this luxury and privacy?

From Price (per week): (Plus 11.42% tax not included) $8500 Security Deposit:(Refundable) $1800.00 Cleaning Fee: $525.00 Reservation Fee $50.00

But even rates like that — and the benefits reaped from the charade of an “unsubstantial improvement” — weren’t enough to keep Nicky from crashing. Now Blue Lagoon is in foreclosure.

Yes, Nicky's about to lose the house, one of several he purchased on the North Shore and transformed through "unsubstantial improvement" permits. More on them later.

But in the meantime, the public has already lost a big chunk of beach to Nicky’s speculative dream: a gated resort for 10 “people with unlimited capital…and their loved ones” — right smack in the tsunami zone.

Comments accepted on Kauai Eclectic.