Wednesday, April 27, 2011

Pile of Pohaku

As was detailed in ”Winners and Losers,” Southern California developer Nicky Michaels pioneered the scam of transforming modest beach bungalows along Kauai’s North Shore into lavish mini-resorts under building permits ostensibly issued for “unsubstantial improvements.”

But though Michaels was the first, he certainly wasn’t the only Kauai real estate speculator to lowball the cost of renovations to avoid complying with 1981 National Flood Insurance Program rules that required new, or substantially improved, buildings in the flood zone to be elevated.

Tom Brooks, an Orange County, Calif., builder, spotted a similar opportunity when he purchased a three-bedroom, three-bath house at 4445 Alamoo Rd., Wainiha — just around the corner from Michaels’ Blue Lagoon vacation rental — in January 2006.

Brooks, who is also a director of the stalled Kulana ag subdivision in Kapaa, paid $1.1 million for the 2,640-square-foot house, which was built in 1977 — prior to the more stringent flood rules.

The MLS listing offered two photos of the house and a description:

Remarks: Spacious and bright cedar home enjoys beach access steps away. Permitted ground floor living areas offer lots of potential and multiple living arrangements. Huge covered lanai is bright and breezy. Hear the surf while gazing at the mountain view. Open beam ceiling upstairs complement the thick 3" cedar single wall construction. Upgrades are due as downstairs and some exterior areas reflect deferred maintenance.

Private remarks: Sold "as is" only. Original owner occupant seller, no vacation rental history.

Brooks quickly got to work, and within four months of purchasing the house got a building permit for alterations and repairs valued at $60,000 on a house that had inexplicably expanded to 2,900 square feet.

Although the scope of work detailed in the permit was limited to “Replace Roof, siding, windows, cabinets, drywall, and Repair Electrical,” it wasn’t long before the house looked nothing like its former simple self:

County records show that the house passed all of its inspections. But half were waived, and the rest were done on the same day — April 25, 2007 — raising the question of how framing and final inspections could be conducted concurrently.

In August of that year, Brooks got a building permit for the 178-square-foot porte cochere that is evident in this photo, which was taken prior to issuance of the permit:

The planning department allowed the porte cochere to be built under an amended previous SMA minor permit. County records show no inspections were conducted.

County records also show how both the renovation and porte cochere were determined to be “unsubstantial improvements,” based on their purported combined value of $73,800 and the house’s assessed value of $159,000.

Its transformation complete, the former three-bedroom, three-bath structure was renamed “Hale Pohaku” and turned into a luxury vacation rental — an entirely new use with a now fully enclosed downstairs and an additional bedroom and bath.
The Jean Abbott Properties website advertised it as renting for $4,000 per week, with detailed photos of the interior and this description (emphasis added):

Fabulous, newly built 4 bedroom, 4 bath home n Haena on Kauai’s famous north shore near Tunnels Beach. Privacy is not an issue at this gated, two story custom built home, perfect for your families vacation.

Totally brand new, this wonderful home features a large living room with a big screen satellite TV and surround-sound speakers, open kitchen with breakfast bar, hardwood floors, and large windows facing the magnificent mountains.

Even more intriguing were the references to two kitchens, where previously there had been just one, and the suggestion of a multifamily dwelling, which is prohibited under the North Shore Plan:

High ceiling, hard-wood floors, A/C and a gourmet kitchen are just a few things that add to the elegance of this property. The upper level is complete with two separate lanais furnished with comfortable furniture to bar-be-cue and take in the views of the majestic mountains. Both bedrooms with queen beds are equipped with flat panel TVs.

The Lower level features a suite with 2 twins, separate kitchen, and bathroom with Jacuzzi tub and shower combination. A separate bedroom with queen bed, flat screen satellite TV and detached bath with shower stall completes the downstairs.

Here’s a photo of that downstairs kitchen, which was posted on a vacation rental website:

Remember, this total makeover — including the addition of living quarters on the newly enclosed ground floor — was presented by Brooks as an “unsubstantial improvement” valued at just $78,000.

And because it was determined to be unsubstantial, the Department of Health did not require Brooks to install a septic tank. Instead, it allowed him to keep using the original cesspool, even though the house is now a multifamily dwelling sleeping eight.

On Sept. 8, 2009, Pohaku House was one of 30 properties that went before the county Planning Commission for a non-conforming use permit to operate a transient vacation rental. Under the newly enacted county ordinance, Brooks had to sign an affidavit swearing the house was used as a TVR prior to March 7, 2008.

The county planning department recommended blanket approval of the entire batch. Caren Diamond and Barbara Robeson of Protect Our Neighborhood `Ohana objected, in part because planners had offered no details on why the applicants, some of whom had been previously denied, were now getting the green light.

The  Planning Commission considered a communication from then Planning Director Ian Costa recommending that Hale Pohaku and 29 other properties be given non-conforming use permits to operate transient vacation rentals. The communication included very little information about the applications.

According to the meeting minutes,  Robeson pointed out that five of the applicants had claimed an owner-occupied real property home exemption. This caused her to wonder how “they were living in the house, but according to their affidavit, the structure had been a vacation rental for some time.”

Diamond provided commissioners with a packet that offered details about how Brooks had used building permits issued for “unsubstantial improvements” to transform the structure into a luxury vacation rental — an entirely new use for the property. Furthermore, he had fully enclosed the downstairs and made it into living quarters for tourists, even though it’s located in the flood zone.

Diamond then posed several questions to Commissioners and planning staff:

So I want to ask you, how this was inspected and how it passed the Planning Department’s criteria and how it now conforms to the [TVR] ordinance because you have a house that is now advertising the downstairs. And if you look at this house and go by it today, you will see the entire house, top to bottom is enclosed. It has made a two-story house, the entire downstairs is stone.

We ask you how this is happening and we are asking you to not give your approval and stamp this and if you do we want to know how you are going to say that this is just fine. And I would like you to use this as an example for the rest of them and ask planner to do their homework and see why we have this problem where we have these structures getting built over and over and over again in Wainiha for their ridiculously low valuations. They are being made flood noncompliant. They are being approved for vacation rental use. I don’t understand it and I hope you won’t give your consent to approve these, thank you.

When then-Commission Chair Caven Raco questioned then-deputy planner Imai Aiu about Diamond’s presentation, he got this response:

Staff: What it appears to me is going on is that there were permitted expansions downstairs, any living was probably not in place when we went out and inspected and saw permitted expansions. If any living has taken place downstairs that may be a question we need to address, however it has just come up recently. So this is new information that we have and it does give grounds to, I would say, address this particular TMK because they may have started since we have gone through this process. So basically in this case what we have is kind of a new violation, basically, or a new possible violation, a new complaint to look in to.

[Commissioner Hartwell] Blake: So the way this looks they have a duplex on the property?

Aiu: I can’t say that it is a duplex.

Mr. Blake: Well that is what they are saying isn’t it? Upstairs and two separate kitchens downstairs, bathroom, Jacuzzi, well those are…but the presence of the kitchen would seem to make it….

Aiu: The presence of the kitchens would seem to make it a duplex.

Mr. Blake: And those aren’t permitted.

Aiu: No.

Mr. Raco: So would it be your recommendation to pull this one off of the consent agenda?

Aiu: Considering new information today, yes, my recommendation would be to pull this one off and have another inspection on site considering improvements made that may or may not be permitted.

However, as Diamond later pointed out to commissioners, the information presented that day about Pohaku was not “new;” indeed, PONO had given it to the planning department some months earlier. She continued:

I really just want you to know that we did complain to the Planning Department when the house was being enclosed on the ground floor and we wondered how this was happening. It shouldn’t be new to them that the ground floor got enclosed.

As the panel deliberated, Commissioner Herman Texeira asked Aiu if other applicants may have the same or similar situation as Pohaku. Aiu replied:

I honestly cannot without going in the field every day and seeing if somebody has done [sic] illegal. We all know people have violations. We all know people have illegal properties on there but to say, this is, when we inspected, it was okay. When we inspected for this particular list we found issues we had to look in to. Sometimes there were lot coverage issues. Sometimes there were permitting issues. Those have since been rectified. I imagine this was one of them. Our guys went out, saw enclosures downstairs going up, found building permits for it and said it was okay. Subsequently the owners turned that in to living space that is not necessarily okay. That is why I would now recommend for this to be re-inspected. Since our inspection and what people have done on theirs [sic], without going out there we cannot say. We can only say what happened at the time of our inspection and at the time of checking our records.

However, the building permit, as you may recall, specified the work as “Replace Roof, siding, windows, cabinets, drywall, and Repair Electrical.” No mention was made of enclosing and finishing the downstairs, which is clearly visible in this construction photo and certainly should have been evident at both the April 25, 2007 final inspection and the planning department’s inspection, which was done prior to March 30, 2009.

Deputy County Attorney Ian Jung then jumped in to explain that if the house was being operated as a TVR before March 7, 2008, that non-conforming use would be “vested” and “if anything happens subsequent to then it is subsequent zoning violation and not subject to the TVR ordinance.”

That prompted this exchange between Commissioner Blake and Jung:

Mr. Blake: If it is a subsequent zoning violation, that means their TVR certificate gets jerked, doesn’t it?

Mr. Jung: That is a grey area that we are trying to flush out right now.

Mr. Blake: I mean gee, how mean how many bites of the apple are they going to get. And in this case, if this is true, this is not like a bite of apple, this is like cutting off half the apple. I mean, multiple bites and again, if it is true, we can understand why residents get upset, because this is just blatant, in your face, poke you in the eye.

Commissioner Camilla Matsumoto piped up to say she had appreciated the packet that Diamond presented, and wondered if it was possible to require the other owners to provide similar information about their properties.

Jung replied that the TVR ordinance had already placed “ a huge burden” on the Planning Department, but Mastumoto could impose more requirements.

Matsumoto backpedaled, saying the owners “should be made accountable and not just wait to see what the inspections provide… Put a little bit more responsibility on the owners.”

Aiu said that particular batch of applications initially had been denied precisely because the owners had not provided sufficient information to show they were in compliance, but had since proven they were, prompting the department to seek approval of their non-conforming use certificates.

Raco then asked how, exactly, the commissioners could be sure of that since there were no details provided about each application. He said “some kind of brief on each one” would be useful “[f]or the public and help us know what is the reasoning.”

“We can do that,” Aiu replied. “That is entirely possible.”

Blake also supported such an approach, saying:

I am not anti-TR, but if you’re going to be doing something like this then you need to do it the right way or don’t do it at all.

[Aiu] I understand your frustration with this particular [sic] and it’s good that it was brought up to us because subsequently after receiving their permits they have apparently, I don’t want to, I don’t think it’s my place to without proper inspections and checking their permits to say guilt or not, but they have apparently, violations.

Mr. Blake: It doesn’t bother me to say they have, they advertised it. So what am I going to do, keep giving them the benefit of the doubt? Come on.

[Aiu] I can understand the frustration of Commissioner Blake but without inspecting every property, every day, we cannot verify compliance every day. It’s just not humanly possible.

Blake then suggested that the department could go through the web page advertisements of the TVRs to spot “situations where it’s blatant,” and Matsumoto proposed requiring applicants to provide copies of all their advertising materials.

But Jung said that wouldn’t be possible, because the TVR ordinance was simply regulating uses that previously were not regulated. “So we are stuck with that, we can’t impose new conditions on grandfathered certificates. It gets very complicated, legally very complicated, to do that.”

So what, Blake wanted to know, could the county do if someone “starts to do what they should not be doing” once they get a permit?

Jung replied that it would become an enforcement issue, but whether that would cause the permit to be yanked “is a legal question that I am completely unprepared to answer on the floor. It is an untested area in Hawaii law.”

Texiera then asked “how can we make a decision if these issues are not clarified?”

Jung advised the panel to trust the information presented by the department, and if it turned out to be wrong, the public could contest it. But if the inspection was satisfactory, “then they should be getting their nonconforming use certificates.”

Aiu again maintained that the inspections had been conducted properly and “the downstairs came into being after our inspections.”

Mr. Texeira: So couldn’t you require another inspection?

Aiu: We can require another inspection, yes. We can go out and inspect it again and in fact that is what I would recommend at this time considering new information that has been brought up.

But as noted earlier, PONO had provided planners with exactly that same information months before, giving them ample opportunity to conduct another inspection before recommending Commission approval.

In the end, Commissioners voted to defer action, pending more information on the applications — specifically, details on why the department initially denied the application, and the steps taken to resolve those concerns.

Robeson then asked if the Commissioners also were going to look into the issue of TVR operators simultaneously claiming the homeowner property tax exemption.

Aiu said that was the kuleana of the Real Property and Finance Department, and since the ordinance didn’t address it, “I don’t know that we can legally say that that is grounds for denial.”

Robeson replied:

I guess my concern is once you give an approval it is harder to take it away so I am suggesting and hoping that you find out more about this and the legal ramifications… since Mr. Aiu said there was no deadline for taking action, that you solve that problem before you give an approval. Again, back to their affidavit, they swear and it is notarized and they sign that they have been operating it as a vacation rental… So if it has been a vacation rental, how can they live in the house? How can they take the homeowner’s exemption? It affects all of us by the way on the amount of property taxes that are raised for the County so I think it ought to be an important issue.

Mr. Raco: Chair, the Deputy just explained it. It is not our jurisdiction… it is not in the ordinance.

Ms. Matsumoto: Even if it is not in the ordinance… I think we need to get as much information as possible in order to make a good decision and all the departments need to work together to help us make that decision.

But by the time the matter came back to the Commission on Jan. 26, 2010, its members seemed to have forgotten all about their earlier concerns and engaged in only the scantest discussion about the applications.

According to meeting minutes, the original 32 applications had been pared down to 20 because the other 12 had been, to quote Aiu, “either found to still have violations and so should not be approved or there were a number or two that due to mistakes with the log and paperwork had already been subsequently approved.”

Blake asked how many of the 12 taken off the list would be denied, and Aiu said three, but only because they had not been approved by March 30, 2009.

Commissioners voted unanimously to approve the 20 TVRs on the list.

Pohaku was not among then, and page six of the TVR log on the Planning Department’s web page shows it as denied.

But as this recent picture shows, the property is being actively marketed as a vacation rental:

When Diamond sent a Sept. 26, 2010 email to then Planning Commission Chairman Nishida asking how that was possible, and if the permit number on the sign was real, she got this response:

The last bill passed by the council corrected a fatal flaw in the original bill which was it tied denial to the building violations. The new bill removed that and is essentially a "registration" of vacation rentals in existence before the passing of the original bill, The Commission does not need to approve the applications for non Ag, non VDA tvrs. The Planning Department has power to approve those. My understanding is that the new bill allows for the applications of all tvrs in operation before the date stated in the original bill. Violations need to be resolved by the renewal date of the TVR.

My guess is that the denial of the [Pohaku] application was based on a zoning or building violation which was clarified in the new bill. I asked the county attorney if people needed to reapply under the new bill and he said the he is recommending reapplication. The county web site has the requirements for application for tvrs as well as the process for application. My understanding is that zoning or other violations must be resolved.

I hesitate to investigate an individual complaint regarding a single application but I will ask the department how will the public know if a permit number is real.

That was the last Diamond heard.

Meanwhile, the HomeAway website shows that Pohaku, which rents for $945 - $1,445 per night or $3,295 - $6,295 per week, is booked through August and over the Christmas holidays.

Comments accepted at Kauai Eclectic.

Construction photos by Caren Diamond