State board rules against homeowners in Kakaako tower dispute over 53% spike in maintenance fees

A state board has rejected a petition from owners of a moderate-priced Kakaako condominium tower to hold the developer of the 2-year-old building accountable for grossly underestimated maintenance fees.

Board members of the Hawaii Community Development Authority voted 5-1 Wednesday to deny the petition filed in May by the association of homeowners at Ke Kilohana, a 424-unit tower developed by Howard Hughes Corp. to partially satisfy an HCDA requirement to make 20% of homes in its master-planned Ward Village community affordable to moderate-income households.

The petition asked the board to declare that Hughes Corp. failed to deliver homes meeting affordability guidelines because maintenance fees had to be increased 53% less than a year after the 43-story tower opened.

However, the matter before the agency might not be over.

HCDA’s board suggested Wednesday that Ke Kilohana’s owner association use a specific provision in the agency’s rules of practice and procedure, one that allows the agency’s executive director to issue a violation notice and citation, to address its claim.

“I feel this is a little bit of an imperfect resolution for today, but I feel like we do have a lot of commitment on behalf of the board to continue to look deeper not only at this petitioner’s request but at broader issues that the petition brings up regarding true preservation of affordability,” said board member Wei Fang.

The board’s vote followed a discussion with a state attorney in a private executive session.

The only no vote was from board member Kevin Sakoda, who said he needed more legal clarity on the issue.

Ke Kilohana’s board, which last year sued Hughes Corp. in state court over maintenance fees, has suggested that the developer low-balled its maintenance fee estimate so it could sell units for more because HCDA rules specify that monthly ownership cost, including mortgage and maintenance costs, can’t exceed 33% of a buyer’s gross monthly income.

Hughes Corp. has previously called the claims baseless and said some factors for maintenance costs were outside its control and had to do with employee staffing, insurance premiums and water and electricity use.

The Texas-based development firm also has pointed to a disclaimer in its sales documents that says maintenance fee estimates “are not intended to be and do not constitute any representation or warranty by the developer” in part because insurance, energy and labor costs were in flux and could substantially increase over a short time.

Hughes Corp., which primarily has developed luxury condo towers at Ward Village, estimated monthly Ke Kilohana maintenance fees would be around $270 for one-bedroom units, $400 for two-bedroom units and $525 for most three-bedroom units.

After the building opened in May 2019 and residents assumed control of the association board, expenses were exceeding maintenance fee revenue by $50,000 a month. In response, maintenance fees were raised by 53% early last year, adding roughly $150 to $300 to owners’ monthly payments.