HONOLULU — An affordable condominium project in Kakaako marketed as extraordinary boutique housing is facing the extraordinary prospect of foreclosure on unsold units nearly three years after opening.
A state agency that helped finance the project called The Block 803 Waimanu is considering foreclosure against the developer after financial difficulties stemming from 61 unsold units in the 153-unit complex despite prices as low as $276,102 for a studio.
The Hawaii Housing Finance and Development Corp., a state agency that helps finance affordable housing, has requested board authorization to potentially take control of The Block’s unsold inventory in an effort to mitigate possible losses on a loan made to the project’s developer, an affiliate of MJF Development Corp., led by Franco Mola.
Mola’s company informed HHFDC that it can’t continue to cover expenses for the unsold units, which total about $500,000 a year and include property taxes and condo association fees, according to a staff report prepared for the agency’s board to consider at a meeting Thursday.
The report also said staff recently discovered that the developer has been renting out 10 unsold units to help cover its expenses.
Renting out these units was done without required approval, according to the report, which said rental income totaling about $24,000 a month should have gone to lenders. The report also noted that some unsold units have sustained damage, which mostly has been repaired.
According to the report, the developer hasn’t made any principal or interest payments on a $9.8 million HHFDC loan, violating loan requirements. The loan matures Sept. 30 and has accrued $641,164 in interest, making the total obligation almost $10.5 million.
HHFDC has offered to extend its loan for another year and suggested replacing the project’s sales broker, which is affiliated with Mola, but noted that this might not solve the developer’s financial problem or result in the agency having its loan paid in full.
The agency also notes in its staff report that taking ownership of the unsold units through foreclosure or in lieu of foreclosure may not be its best option, given ownership costs and additional work for staff.
“However, HHFDC is a mortgage lienholder on the project and is prepared to fully enforce all of its rights if necessary,” the staff report said.
Mola could not be reached for comment Monday.
The developer initially sought to develop a condo high-rise at 803 Waimanu St. in 2013. But Mola’s plan for a 27-story tower with 192 units drew heavy opposition mainly from residents in the adjacent Imperial Plaza condo tower because MJF sought to build its project taller and closer to Imperial Plaza than development rules allowed for the area.
As an alternative, Mola proposed making all units in the tower affordable to moderate-income buyers under “workforce housing” rules of another state agency that allowed for height and spacing exemptions while prohibiting government financing.
The Hawaii Community Development Authority, the agency regulating development in Kakaako, rejected the affordable tower plan. That led Mola to pursue a $40 million midrise that became The Block with mostly moderate-priced units financed with a $9.8 million HHFDC loan and a senior loan from private lenders.
In 2015 the developer envisioned that units in The Block would be incredibly attractive at prices from $240,000 for a studio with 384 square feet of living space and no parking to $540,225 for a two-bedroom unit with 1,029 square feet of living space and one parking space.
Of the 153 units, 117 were slated to be studios with envisioned prices ranging from $240,000 to $307,200.
“We anticipate (The Block) units will be well-accepted in the market,” said a study the developer commissioned from Novogradac & Co.
At the time, the cheapest existing condo on the market in Kakaako, ground zero for luxury tower projects, was a 548-square-foot unit at Royal Capitol Plaza for $409,000. Planned condo projects in the area at the time included a midrise at 400 Keawe St., where prices ranged roughly from $390,000 to $775,000, and the Vida tower at 888 Ala Moana Blvd., where prices started at $988,000 and ran over $4 million.
For all of Oahu the median sale price for previously owned condos in 2015 was $360,000 — meaning half sold for more than that and half for less. This year through August the figure is $508,000.
Originally, all but 19 units in The Block were reserved for households with moderate incomes and priced to be affordable for such households.
Sales efforts began in 2017 with Oceanfront Sotheby’s International Realty serving as the project’s exclusive broker. After delayed construction in part due to slow sales, the project was completed in late 2021.
In May 2023 the project’s sales broker became Real Estate Strategies LLC, led by Vincenzo Mola, which is marketing The Block as “an extraordinary boutique condominium in the vibrant heart of Kakaako” and as “affordable modern industrial condos” with touches of luxury.
One drawback for the project has been parking. There are 82 parking spaces in the building, mainly in a mechanized parking system that stores vehicles vertically.
Of 61 unsold units, 42 don’t have parking, according to HHFDC.
Unsold units without parking include a 338- square-foot studio listed for $276,100 and a 382-square-foot studio listed for $299,900.
Unsold units with one parking space include a 419-square-foot studio listed for $345,127, a 533-square-foot one- bedroom unit listed for $490,000 and a 986-square-foot two-bedroom unit listed for $650,000.
HHFDC explored the possibility of renting parking nearby for use by The Block unit owners but was unsuccessful, according to the staff report.
Agency staff is requesting board approval to spend up to $500,000 to pay for potential legal fees, property taxes and condo association fees.
In an effort to spur sales and generate more revenue to satisfy debt, the agency also seeks board approval to lift buyer income restrictions sell up to 25 unsold units at higher market prices, which would allow buyers with higher incomes to purchase units at current regulated affordable prices.
“If no action is taken at this time, there is not projected to be sufficient sales revenue from the sale of the unsold units to fully repay both the senior loan and the (HHFDC) loan,” the staff report said. “The developer has not presented a plan to cover the holding costs or prevent tax auction or condominium foreclosure.”
