DHHL developer declares bankruptcy
The DHHL will work with Hardware Hawaii to finish home construction
The owners of a financially troubled contracting firm that stopped work on about 130 homes for the state Department of Hawaiian Home Lands have filed personal bankruptcy, leaving dozens of families in limbo as to when their homes will be completed.
Fred and Gwen Yamashiro, owners of general contractors Fredco Inc. and Menehune Development Co. Inc. -- which both went into corporate bankruptcy earlier last month -- filed for personal bankruptcy on Dec. 31. Their move leaves the bonding company, Hardware Hawaii, responsible for completing the projects.
The Yamashiros will lose their home and be left only with pension funds and Gwen Yamashiro's unemployment compensation, according to their attorney, Bradley Tamm. The couple listed debts of $19.9 million, which includes obligations as guarantors of the corporate debt, and assets of $647,528.
The Yamashiros personally guaranteed a $13 million performance bond from Hardware Hawaii, their largest single creditor, which issued the bonds for Fredco's four projects on Kauai, Lanai and the Big Island.
Material and labor costs have skyrocketed, and Fredco initially underbid on the projects, Tamm said. The Big Island developer had been successfully building homes for the Department of Hawaiian Home Lands for at least a decade.
"The cost of construction exceeded the amount that the home buyers agreed to pay, and that lenders agreed to finance," Fred Yamashiro said in a letter sent Thursday to buyers.
The latest bankruptcy means that Hardware Hawaii will have to pay for the completion of about 65 units that were bonded and already under construction.
DHHL said it will move quickly on completing the homes -- which faced numerous construction delays -- though chairman Micah Kane couldn't give a timeframe for completion.
"While DHHL may not have a legal obligation, we have a moral obligation because we did validate Menehune Development Co. was capable to our beneficiaries," he said. "We're going to meet our obligations and are going to finish the homes. Our families have been through enough hurt already."
DHHL will ensure that the buyers not pay more than initially agreed upon, Kane said.
Hardware Hawaii is inspecting homes to estimate time and material costs while DHHL is in the process of interviewing contractors to finish the projects and mitigate problems due to construction delays or poor work, Kane said.
The department anticipates disputes between beneficiaries and Hardware Hawaii because of commitments that the bonding company may not be aware of that had been made by the developer, Kane said.
"This is very unusual for us to have to deal with a situation like this and we don't intend to have to deal with something like this in the future going forward," he said.
DHHL has provided a one-time grant of up to $750 for families needing immediate assistance and an additional $500 a month in loans. The department also will be reimbursing interest payments on construction loans that went over what buyers were expected to pay and is evaluating additional claims such as storage costs that may be reimbursed.
"Our house is sitting up there right now being destroyed (by rain), the roof is caving in, the walls are cracking and buckling, the floor is two inches in water," said Laura Henderson, who has waited more than 20 years for the home her partner, Julia Ke, was awarded in Kaumana in Hilo.
Henderson and Ke have invested $60,000 towards construction of the home, which was 75 percent completed when builders abandoned the projects, she said, adding that the couple were told by DHHL to stop monthly interest payments of $355. "Everyone of us are devastated. This is our dream."
Yamashiro told buyers that he had advised Hardware Hawaii of Fredco's financial troubles before construction was stopped on Nov. 30 and had asked the bonding company for an advance to complete the homes, but the request was denied.
The Department of Hawaiian Home Lands also rejected his request to advance funds to complete the projects, he said.
"Under the circumstances, Fredco had no choice except to furlough its workers," Yamashiro said.
One of the challenges of providing affordable housing is that developers don't have as much flexibility on costs as regular projects, whose prices can move with market forces, said attorney Don Gelber, who is handling the bankruptcies of Fredco and Menehune Development.
"The hallmark of an honest but unfortunate developer is ... that he ends up losing everything when his development dreams go south," Tamm said.