The judge in the foreclosure case of a stalled Hilo subdivision project has ordered the property be listed on the real estate market for up to six months before the previous high bid can be accepted or new bids sought.
An order filed Tuesday by Hilo Circuit Judge Henry Nakamoto appoints Aaron Lee of RE/MAX Properties in Hilo as the exclusive agent for the sale of the 158-acre property known as Puainako Heights.
The listing price would be no more than $6.34 million, according to the document.
The financiers, Vicino Limited Partnership in Van Nuys, Calif., filed in December 2022 to foreclose the mortgage of Puainako Heights Land Investment LLC, whose principals are Turhan Atabay and Michelle Wilson. The principal of the original loan was $3.55 million, according to court documents.
A court filing on Oct. 22 puts Puainako Heights’ debt to Vicino at about $5.2 million, plus delinquent property taxes and $124,200 owed to the Department of Water Supply. Interest is accruing on the debt at $1,775 per day, according to documents, and there are other costs related to the foreclosure.
The Tribune-Herald published a legal notice in April informing prospective buyers the property, which is on Puainako Street about five miles from Hilo’s town center, is in foreclosure. The property has been through at least two ownership changes over the years.
An auction for the property was held May 21 outside Hilo’s state courthouse. Vicino was the high bidder, at $760,000. That bid, to date, hasn’t been accepted by the court.
According to Puainako Heights’ website, the original plan was for “a neighborhood of 337 lots … 318 of these lots are designed to have single-family homes while there is also a small community of town-homes consisting of 19 condominium lots.”
“They haven’t been able to get off the ground mainly because of the wastewater issue,” said Jeff Darrow, the new county planning director.
Lee said the property is zoned “for about 440 residential units, with a commitment of over 300 water meters from the Department of Water Supply.”
“It’s probably the only available residential site near Hilo with a significant water commitment,” he said. “It was planned to be a continuation of the neighborhood below South Wilder Road but has basically been in trouble since the 1990s.”
According to the judge’s order, the property’s listing duration is to be no more than six months. If, after four months of listing, no prospective sale or bona fide offer on the property is received, a hearing already set for 8 a.m. on March 19, 2025, would be used by the court to either confirm the sale to Vicino for $760,000 or to reopen bidding, “should there be interested bidders.”
According to Darrow, some Puainako Heights lots have been built on, but 49 are pending.
“The problem that happens when you have these large-lot subdivisions, there’s a trigger,” he said. “Once you go beyond 50 units, if you’re not hooked up to sewer, it requires the applicant to do an environmental assessment — and then, you have to create a wastewater treatment facility. And that becomes extremely expensive. And I think that’s what’s held up this project for so long.”
Darrow said that because the lots being developed were Phase One in an incremental plan, the state Department of Health may require the developers to install what he called “dry sewer.”
“What dry sewer is, you put in sewer lines planning for an eventual hookup, and you can use a septic system, but once the wastewater treatment facility is built, you have to connect and vacate the septics,” he explained.
Darrow said the houses already built can’t be sold because developers haven’t built or installed infrastructure, including roads and wastewater disposal.
According to Darrow, the property is zoned single-family residential (RS-7.5 on the subdivision map) and multifamily residential (RM-4).
“This is all residential, so whoever picks this up can look at different options. If they’re going to go with the proposed zoning, then they will have to build a wastewater treatment facility,” he said. “They may want to consider rezoning to agriculture one-acre, because on one-acre lots, that 50 unit trigger doesn’t apply, that’s only for residential or multifamily. So, if they did one-acre agricultural lots, it allows them to the septic systems, per acre.
“Whoever the new buyer is will also have to do a new bond for the 49-lot subdivision, because the infrastructure hasn’t been put in. And they will have to do a subdivision agreement. There’s a lot of work to be done.”
Lee agreed with Darrow that wastewater disposal is “the biggest challenge” for any prospective buyer.
“A bit of flexibility from the state would probably help a lot in terms of creating more housing everywhere in the state and especially on the Big Island, where municipal sewer service is limited,” said Lee.
“I believe the county requires installing sewer lines if a project is within a few hundred feet of existing service, while the state has a firm limit of 49 lots of less than one acre in area. There are legitimate concerns about space for septic tanks and leach fields on smaller lots, especially with uneven topography, but they seem to fit on most lots that are at least 12,000 to 15,000 square feet. If there were serious concerns about contamination or public health, I don’t think septic systems would be allowed anywhere in the state.
“The state could decrease the minimum lot size requirements for septic systems, or leave it up to the civil engineers who design projects to calculate the area needed for tanks and leach fields. Another option would be to require developers or subdividers to install sewer lines after 49 lots, but only connect to a system when municipal wastewater service reaches the development.
“This would at least eliminate the cost and wasted space of building a treatment plant, which I believe requires land for ‘lagoons’ to discharge the treated water or effluent.”
Darrow said the county Planning Department “will work with whoever purchases the property to provide information and guidance.”
Email John Burnett at jburnett@hawaiitribune-herald.com.
