A&B reports qualification challenges in sales of affordable units at Kamalani

Alexander & Baldwin’s president and chief executive officer said Thursday that the company has been “surprised by the slow pace of sales” of affordable units at its Kamalani community in north Kihei.

Chris Benjamin said during a conference call to discuss third-quarter financial results with investors, that “it is not due to lack of interest.” There were 300 interested buyers, identified through homebuyer education courses.

A&B put up 43 units for sale — but less than half, 21 units, are currently under contract, he said.

“It has been difficult for buyers to meet the strict county affordable housing criteria,” Benjamin said, adding that A&B is working with the county on the issues.

County Department of Housing and Human Concerns Director Carol Reimann said Thursday evening that she’s under the impression that the problem in qualification lies more with financial issues than governmental regulation.

She noted that many of those who have qualified for an affordable unit are paying more monthly on rent than a prospective mortgage for a unit at Kamalani.

“People are having difficulties qualifying for a mortgage and coming up with the down payment,” she said.

Since the Great Recession that began in 2007, credit has been more difficult to acquire. “The financial world is different today than it was years ago when practically anyone could get a mortgage and all kinds of credit cards.”

Under stricter federal regulation, “there is a lot more scrutiny and oversight on lending,” she said. For example, those families on the lower qualifying end may not qualify for a mortgage due to a blemish on their credit report or a loan on a vehicle. The median income for a family of four on Maui is $81,500 annually, she said.

“There are a lot of families who are interested in purchasing their first home, but qualifying for a mortgage is a challenge today,” Reimann said.

She said that her department is working to get a first-time homebuyers assistance program in place either at the state or county level “so that we can help families take the first step toward homeownership and alleviate the housing crunch that we are experiencing.”

A&B chose to build the first increment of its 630-unit master-planned community affordable units. The 170 units are “not expected to be profitable” but will help A&B satisfy requirements for market-priced units at Kamalani and other A&B developments, Benjamin said.

The Kamalani website says that two- and three-bedroom condominium homes are expected to be available in 2017. Prices begin in the high $200,000s for two-bedroom units and in the mid-$300,000s for three-bedroom units.

The Kamalani development assessment was part of Benjamin’s presentation that touched upon A&B’s Maui holdings, including Hawaiian Commercial & Sugar Co. and the sale of 268 acres around the famed “Jaws” big-wave surfing spot for $9.5 million in September.

A&B reported a net loss for the July-to-September period of $1.9 million, or 3 cents per diluted share. This included a $9.6 million after-tax loss from the agribusiness sector, which is mostly HC&S, the last sugar plantation in Hawaii in the midst of its last harvest this year.

Despite the losses, Benjamin declared that “the final sugar harvest is progressing better than expected.” The sector actually logged a $1.9 million profit, not counting the costs of shutting down, compared to a $9 million loss in the third quarter of 2015. This was attributed to lower sugar production costs, partially offset by lower power sales margins to Maui Electric Co., said Benjamin.

Including the costs of shutting down the plantation, the agribusiness sector logged a $15.7 million loss — $17.6 million for closing down costs, A&B said in its report.

The good news is that “due to a favorable experience year-to-date,” estimated operating losses and shutdown costs are “expected to be at the favorable end of their previously provided ranges,” Benjamin said. A&B had previously put full-year pre-tax operational losses at between $5 million and $15 million and shutdown costs at between $75 million and $90 million.

For the first nine months of the year, A&B recorded cessation costs of $51.6 million.

Benjamin gave credit and praise to the workers for their dedication.

“I realize that this is not a needle mover for our investors, but it is a remarkable indicator of the hard work and dedication of our employees, who are giving it their all in this the final year of sugar production in Hawaii,” Benjamin said.

“At the time of our next call, we will no longer be in the sugar business, and we will have said goodbye to our colleagues and friends at HC&S, who are going out with class and a tremendous showing of commitment to their company.”

As the company looks to its post-sugar future, A&B said that it has expanded grazing lands by 3,700 acres based on initial trial results. Some of the new grazing land will be irrigated for drought resistance. Other diversified agriculture plans “continue to advance” with crop trials, technology research and financial analysis, A&B said.

Answering a question about the land sale to the county, Benjamin said that while the focus is on turning the 36,000 acres of HC&S into diversified agricultural uses, the closure of the plantation “does give us some more degrees of freedom to pursue some land sales on the margin, whereas maybe in the past it was land dedicated to sugar and would have been more difficult to monetize.”

He explained that the sugar business has a high fixed cost, which requires HC&S to use every last acre of land.

“We probably have some more degrees or freedom here, but our primary focus here is on repurposing our sugar lands to diversified agriculture, whether it is our own operations, leases or in some cases sales,” Benjamin said.

He was asked if the price paid by the county was what could be expected for other agricultural land sales.

“This land is very attractive land, and in a number of respects,” Benjamin said. “It’s probably toward the higher end of what we would expect to get for ag land but certainly not beyond the range of  . . . other transactions in the past.”

He noted that agricultural land has a wide ranging value and “not all ag land have that value” of the “Jaws” area site.

On other A&B Maui properties and operations:

• Sales “have been positive” at the Keala o Wailea 70-unit joint venture project. Construction on 20 units began in December, and construction on another 20 units should begin by the end of the year, based on presales, said Benjamin. He said 45 units are under binding contract for an average unit price of  $1.1 million.

• Maui Paving LLC, a 50-percent-owned affiliate of A&B, had a contract backlog of $19.1 million at the end of September, up slightly from the $18.9 million at the same time last year. A contract backlog is the amount the company is expected to realize on contracts awarded or on confirmed low-bidder government contracts.

* Lee Imada can be reached at leeimada@mauinews.com.