Council OKs deal
to end condo stalemate

But a lawyer warns the city
that a proviso could kill the pact

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By Gordon Y.K. Pang
gpang@starbulletin.com

Honolulu City Council members gave final approval yesterday to a deal that would end a long-standing stalemate between the city and the owners of Harbor Court downtown. The vote was 6-2.

But a lawyer for AHI Harbor Limited Partnership warned that a proviso attached to the measure could kill the deal.

The deal calls for AHI to pay the city $12 million for the fee interests in 84 residential units -- $7 million up front and the remaining $5 million as individual units over the next five years.

Council Policy Chairman Romy Cachola pushed through a proviso requiring the city to be the sole first lien interest in the event of a foreclosure.

The proviso would guarantee that the city would obtain its $5 million plus interest before other creditors were paid.

Previously, the bill gave the city a "co-first lien" interest with any third-party lenders, with the city receiving only a one-sixth share of proceeds garnered from a foreclosure.

Cachola said the new language provides added protection in ensuring the city will get paid what its due, citing the need for city officials to be fiscally responsible to taxpayers.

Councilman Gary Okino said, "This future $5 million is important to us."

But AHI attorney William McCorriston objected to the proviso, warning that it could kill the deal altogether because of the difficulty in convincing mainland creditors to give a loan at a second lien position.

McCorriston said Cachola's fears are unwarranted.

"The real estate market would have to drop 40 percent across the board before you lose $5 million," he said. "That's not going to happen."

City Managing Director Ben Lee also endorsed the original deal as "a sound business decision."

Meanwhile, Council Budget Chairman Steve Holmes said he worried that if the deal fell through, the city would lose $7 million it had already budgeted for this year.

Holmes and Councilman John Henry Felix were the two members who voted against the measure because of the new proviso.

"It's a sizable amount of money," Holmes said, noting that the city already is cutting back on services since the slowing of the economy caused by the Sept. 11 terrorist attacks. "We've reached a point at the city where we're really hurting financially."

Cachola, however, cited several other recent land deals have fallen through that caused the city to lose revenue that had been anticipated for the budget.

McCorriston earlier questioned why Cachola was raising issue with the original deal 18 months after it was made with other Council members.

Cachola said he was not on the Council then.

McCorriston, who was so furious after the meeting that he refused to talk to reporters, also warned that the reworked deal will send a bad message to mainland lenders about the way the Council does business.

Harbor Court's developers built the twin towers on city-owned land along Nimitz Highway as a leasehold project.

In an attempt to attract purchasers, the developer agreed in 1994 to buy the fees on the units with the intent of then selling them to those purchasing units.

But continued slow sales forced the project into bankruptcy.

AHI, lenders to the original developer, inherited the developers' commitment to purchase the fees.