 Welcome to finding your piece of the rock on Think Tech Hawaii. I'm your host, Abe Lee. I have been a licensed real estate agent since 1973. I'm the owner of Century 21, our property's Hawaii, and I work with close to 100 wonderful real estate agents. I started AB seminars in 1980. I have taught over 11,000 students to help them get their real estate licenses and have taught continuing education classes for licensees to renew their license every two years. Our show is dedicated to helping buyers and sellers understand the process involved in a real estate transaction. Our special guests will talk about legal issues, escrow, title, getting our loan, surveys, home inspections, contracts, rules and trust, and developments. And we're so lucky today to have the premier of affordable housing developer named Peter Stapio. Peter, thank you so much for being with us. My pleasure to be with you, Abe. Peter and I started developments about the same time like decades ago and Peter went big time and I went small. So Peter's a big affordable housing developer and we'll talk about that a little bit, but Peter, for those of you, audience that may not have heard of you before, which I find very hard to believe, why don't you give us a little background of where you grew up, your family, and how you got involved in real estate? Well, I'm a local boy born in Hilo, raised on Oahu, went to St. Louis High School, University of Hawaii. Then only time I went away is like I went in the military and then came back, my mom was in real estate. And because of that, I used to help her with the paperwork. So at about nine years old, I started understanding real estate and by the time I was 11 or 12, I was full of real estate knowledge, bought my first property at 15 and have been in real estate ever since. So something I was raised with. Great. Like I say, you're the guru of affordable housing. So today we're gonna talk about a very unusual topic, which is condominiums of photovoltaic solar farm, which is unheard of. So to begin with, why don't you tell us what a condominium is? Okay, it's interesting because everybody thinks of a condo as a subdivision where you're subdividing a parcel and it is absolutely not that. A condominium is an ownership concept and it is a concept, it's a law that allows one building or one property to then be fractionalized into individual ownership interests so you can get a separate mortgage, a separate tax map key and buy and sell that interest independently, but it is not a subdivision. It is just the concept of ownership where you have a homeowners association and you're part of that, they maintain the common area but you own your unit and like I said, you can mortgage it, sell it, et cetera. So don't think of it as a real estate subdivision, think of it as ownership. Now you can condominium, condominium is almost anything, can't you? Pretty much so, as long as there's a built portion, not just land, well, I guess you can do land nowadays, so yeah, pretty much anything. Okay, so now today we're gonna talk about a really unusual system which you're developing called the photovoltaic solar condominium. You're telling us before that it's the first one in Hawaii, it may be one of the very few in the nation if you're not the first. So tell us about this concept and how you came up with it. Yeah, well, okay, part of the problem here in Hawaii is photovoltaic works best for someone who owns the home. So it turned out to be a program for the wealthy, for the homeowner and not for the individual renter or a business that's leaseable because to put the panels on a roof, you have to know you're gonna live there for the next 20 years or it doesn't make any sense. So the solar programs allows for something called community solar where you do a solar farm but it's owned by the community. But again, it was, to me, it didn't go far enough. You were just part of a huge Huey that owned an interest and you got a percentage of it, et cetera. And I thought, well, why not take that photovoltaic farm? Maybe it has 2,500 owners who are putting it in a farm rather than on their roof. And I thought, why not do it as a condo so they'll actually own it as a real estate interest? If they move, it goes with them. If they decide to go to the mainland, they can sell it. If they go into a unit where electricity is provided, they could also rent it to somebody else. So I was trying to take the photovoltaic community service program and make it more flexible. The other motivation was when you have the developer stay behind, you're paying him money. He's taking some of the potential of the profit. In my program, the developer develops, sells, gets out and the owners have a condominium association that manages it and takes it forward. But all of the potential, all of the value goes to the individual owners. So again, it was a structure designed to help local people who rent to be able to subsidize or get rid of their electric bill just like the owner of a house could do. Okay, that's really intriguing. Because no one has ever done this before, right? As far as, when we started, we assumed it was the first time. We couldn't find anywhere we could have been done. When we started to do the research about from a tax perspective, does it work? Is internal revenue gonna classify this as real estate or are they gonna classify it as a security? And I was pretty confident it was real estate because it's no different than what I do for an apartment building or an egg condo. It has photovoltaic panels, but other than that, it seemed to work. Well, when we actually started to check there was one property in Texas that had just received a verification from internal revenue that a photovoltaic condominium is real estate, not a security. So we know of one other property. It was like three or four months ahead of us. So it hit, the idea hit me and hit some mainland developer at the same time. Perfect. So how did you come up with this idea? I'm looking at our cost of living and electricity is a huge part of that and it keeps on going up just like rent. So I try to get people into ownership so they can lock in a monthly payment on a house which reduces their cost of living and gives them stability. They get to keep their pay raises. Well, it's the same thing with electricity. If you're constantly paying for electricity and it's constantly going up you may start with an electric bill of $200 and 10 years later it's 400 and 10 years after that it's six or seven or 800 a month. You get pay raises but it's being eaten up by this ever increasing electric bill. If you do photovoltaic then you have the potential to get rid of that cost. So the question was okay, we have like large buildings, hotels, hospitals they cannot use photovoltaic they don't have enough roof area. You got senior citizens living in condominium cannot get the subsidy because they don't have enough roof to put up photovoltaic. You've got people who rent whether it be an office, whether it be a home they don't qualify for photovoltaic because they don't own the roof to put the panels on. So community service kind of solved all of that because the electric company allows it to be owned by thousands of people. And to me the best part which really enticed me into doing it is they do the bookkeeping. They do the accounting. And the condo fit in perfect for that because in a condo you own a percentage of 100% the percentage interest. So my 10 panels may be 1,000 of a share but the electric company when the rent comes in will automatically bill you or put on your bill the money received. To me that was the most complex part of the whole process was for the next 20 years someone doing the bookkeeping to keep track of what your share is. And if you sell it to keep track of it the electric company does all of that. So to me it's actually heaven. Wow, no. I did not know about that part or the electric company will keep records. Yeah. The longer they keep the record tape they also automatically credit to your bill. So it's not like they send you a check and you get your electric bill and it says your bill is $400 minus $300 solar credit or whatever. And that's what happens. So it's really a simple process from the consumer side for the electric company. I'm sure it's nothing more than a really fantastic computer program but if an individual had to maintain that list and they got sick or something happened or they passed away you can imagine the chaos you could have. So the advantage of the electric company as long as you get electricity they're gonna be there. And as long as the panels are producing power they're buying it. So it just made so much sense. So how did you find out about the electric company would do the bookkeeping? I was complaining about photovoltaic and I was saying to be it's a program for the wealthy and it doesn't help the average person. And there's just no real excuse for that. You know, I was saying that the PUC should not allow mainland solar companies to come. All solar should be owned locally, not on the mainland. And somewhere in the process somebody said, well, you just want community solar. I'm going, well, what's community solar? And apparently there was a program called community solar where a developer could develop it and then sell it to members in the community. But to me it's nothing more than a solar farm with a mainland developer taking all the profits and the override and the leftover is kind of coming to us as a, you know, small bonus. I like the, I added the concept of the condominium because you basically, after it's sold, the developer is out of the picture. He shouldn't retain management or anything else. And 100% of all the going forward profits and things would go to the people. Also with the condo, you have a much more stringent disclosure requirement in terms of the condo, how it's structured, all of the facts, all of the studies, all of the reports. So to me it just made a lot of sense. And people in Hawaii, I think understand condo. They have ownership. So, you know, it's not like, well, I own a share of stock or I own a share in an LLC and there's 2000 of us in this LLC and somewhere, somewhere, someone's managing it. I mean, to me, I could see the guy at the affordable level being very uncomfortable investing in something like that. And very difficult to finance. Whereas the condo, you're financing in a particular unit, it's real estate. So to me, the condo just solved a lot of problems. And to me now, the only kind of solar we should allow is community solar when it's done as a condo and it's owned by the people of Hawaii and all of the benefits flow to the people of Hawaii. Okay, so let me get this straight. I was still a little hazy on this. If you develop a condo building and let's say there's 400 units, then there's your community of 400 solar owners. But you're saying a tenant that lives somewhere else can buy into your condo and then you get a credit and they can offset their utility bill as a tenant off of this condo ownership. Is that right? Correct. What happens, it doesn't matter where you live as long as you live on the island of Oahu. The solar farm has to be on the island of Oahu. So you could live in Hawaii Kai and buy a share in this solar condo. You could live in Kailua, Kanoi, North Shore, anywhere on the island. You could live and you could buy a share. And what happens is they have your name and they have your electric bill number in your address and the computer will automatically allocate the income received to the solar farm to everyone who's purchased and give it as a credit on the bill. So if you think about it, it's a simple program but an electric company tends to be forever where a developer has a life and he may be here today and God to borrow, you never know. But so with the electric company doing all the accounting, all the record keeping and they're putting it on your bill, if I was a buyer, if I was a renter, I'd be much more comfortable with the electric company doing that than some property management firm or some private individual. Who knows, maybe they'd have, it all goes down to the Philippines or India and some computer doing it there. I mean, here it just makes so much sense with the electric company doing it. That is fascinating. Now, did the electric company come up with this community solar program? Correct. Apparently it's a program that was developed nationwide with this concept of trying to get people in a community to buy into a photovoltaic and help reduce their electric bill. Remember, if you own a house, photovoltaic is wonderful. Put it on your roof, you're done. But if you're renting, if you're a business and you don't have enough roof, you're left out. And here in Hawaii, it's interesting because basically it tends to follow sort of a racial lie because the wealthy tend to be everyone living East Oahu or whatever they can afford it. The guys living out Y and I, they have no hope because a lot of them can't afford it or they're living in condos or they're living in rental units. So it's a question of equalizing the program so everyone benefits, all the people of Hawaii benefit. Now, if I did one on Maui, everyone on Maui could be involved. If I did one on the big island, everyone on the big island could be involved because Hawaiian Electric owns those entities also. But right now it's island restricted. So if you live here, you have to buy it to an Oahu solar fund. So now in the Hawaiian Electric model of the community, it'd be some sort of community like a subdivision or condominium building, but in your concept it's anybody can join your community. Anyone can buy, well, think of it this way, you have a condominium, some people would be owner occupants, some people would be investors from outside, right? So in my solar condo, basically nobody lives in this condo. Nobody's an owner occupant in this condo. They all are investors, but the electricity credit, if you're an owner occupant of a home or an apartment, will go to cover that electricity. If you're renting, the credit will go to cover whatever your electric bill is on your rent. So this is a, if you had to talk about investor owner occupant, this is really an investor owned condo. I think that's why we had this concern about is it a security or not, but our buyers are owner occupants and investors, depending on whether they own the house they're living in or the apartment or they're renting it. So it's kind of a variation of a typical condo because nobody lives in it. You just own it. This is amazing. Now, that's different. Yeah. How long ago did you start this thing and tell us a progression of process where you're now? We came up with the idea, I think about three, four years ago. And we did a little bit of checking. Then the power company came out with a RFP requesting proposals and we submitted and we won. So that's about a year ago. And then we started the process. We have found the law out in my elite and designing it and doing all of the studies and reports that are required. We're at the point now where we have another big hurdle or another step coming where we need to order some additional report to move forward. And we're supposed to have the project finished, I think by January of 2025 or 26 like we got. But there is a long process to go through the approvals and it's this interconnecting that becomes an issue, how you're gonna feed the power into the electric grid. In our case, they want us to have a battery system so they can use the power during the evening. Photovoltec on the roof and everything else works really well during the day. Doesn't work well at night. So they want our farm and I think most of the newer farms they'll probably require batteries because there's a need for the power during the evening. I think we've pretty much got the daytime covered with all the photovolteic and alternate energy programs we have, it's the evenings now that we need to get covered. So ours will be a battery program. So you have to, you say you have to do studies and it's gonna take you a few more years to get all the reports back. What kind of reports do you have to do? The studies will actually be done probably in the next four or five months. That part will be completed. Then the design and construction will start. It's sort of like building a subdivision or any building. There's a process you go for permitting, approval, then construction, then of course completion. And so the construction side should go relatively quickly because you're building basically on the ground but it's still gonna take probably a year, nine months to a year to build it. And again, a lot of it's just the electrical building, the connecting station, et cetera. I'm not an electrician or even wanna pretend I understand how all this process works. I understand the condo component but they say that this is actually a relatively fast process in terms of getting one of these farms online. Okay, so you're building out in Miley? Yes, that's our plan. Yeah, how big is a lot? We're gonna have a 25 acre parcel. We should have enough power for 2,500 to 3,000 homes. So somewhere in that neighborhood of let's say 2,500 investors and like one family may need 10 panels. Another family may need 15, a business site need 25. A hospital might need 30,000 panels. So depending on the size of the customer, the beauty of the condo is you're not locked into just everyone has to buy 10 panels. Everyone has to buy this. It's very flexible. So it's the same thing again where the condo gives you the flexibility you need. The condo makes it work. So it just makes a lot of sense and it's a process we have to go through. So how are you financing the deal? And then you're gonna now sell it to individuals. Right, right now on the financing right now I basically been covering the cost and I've been advancing the funds. At some point it's like any developer we're gonna pre-sale and then we're gonna finance to get them pre-approved. And then when we start construction we'll get a construction loan based on the fact we free sold. And then when we do the takeout financing that's where we get our long-term finance. So it's not much different than any development process on the finance. The hard part is getting the lenders to understand what a photovoltaic condominium is and that it is real estate and that it does make sense. There is an interest you can foreclose on and the key is you can resell it because somebody will wanna buy it especially if there was a foreclosure or something because you'll be able to shelter or reduce your electricity cost. So it's like I say it's new and lenders in Hawaii they don't like new they like all very familiar typical type projects. I do everything a little different so I'm the crazy bad scientist but so far the lenders in most cases have understood what we're doing and most of my programs it's all about benefiting the community not about profit or anything else. And so a lot of times the lenders will finance a project I'm doing only because it benefits the community and they take a risk a little bit and they scratch their head and say well Peter says it's gonna work we'll see but you can't do it without the lenders support you can't do this without community support. People say oh Peter you're doing wonderful things all I'm doing is trying to organize the different groups within the community to get together and make this thing a reality. So which lenders are you working with now or can you say or do you have to wait? I've actually talked to almost every lender before I started or before I even got involved and basically gonna say would you even finance it? And they're all like well we don't finance solar farms or yes we've done a number of solar farms and I'm saying no no I don't want a 20 million or 30 million dollar load I want to loan to finance 10 panels and that's where they go huh what are you talking about? And then you got to explain what it is and you realize we're probably gonna have 30, 40, 50,000 panels in this farm it's huge, right? And by solar standards it's small, okay? But 30,000 panels is a lot of panels, 2,500 families they could each buy 10, 12, 15 panels. Think of a house when you drive by count how many panels are on the roof, right? So every family needs five or 10 or whatever. So that's gonna determine it. For a lender I think it's like everyone who's listening to this. I kind of understand it but how does it work? Or what if this happens or that happens? Well take photovoltaic out of it and say I own my apartment. I default on my apartment what's gonna happen? I move away what can I do with my apartment? So make it a residential apartment in your mind and all of the answers are the same with photovoltaic except you can't live in it. Whether you can rent it, you can sell it, finance it, can be foreclosed on, you have a board of directors they're elected, all the condo statute of price, all the protections are there. I mean it really works. This is amazing. You've taken the mystery out. So now I assume that you have an attorney that's gutsy as you and creative as you to say let's do it. We have a couple but yes, this one you have to have some specialized attorneys on electrical and those kinds of things. The condo side, my attorneys are gonna handle that. I think a lot of people have to understand when you do a condo, you automatically bring stability to whatever you're doing because you've standardized the rules and the regulation. And there's a lot of flexibility in the condo to make it work for any particular situation. But the key to the condo is you have standardized the process. You've standardized the legal standing. You've standardized what laws apply and don't apply. You've taken all the mystery out of it. And so for Hawaii, condos are one of the best structures to use if real estate's involved. And I would love, I wish they would allow condos to be used to, I'm gonna confuse again, but to subdivide because then you wouldn't have to go through subdivision approval and all of that effort. But again, it works well on apartment. It works well on agricultural. It works well with residential. But in residential, you need a subdivision before you can put the condo rules above that. So even if I was to do a subdivision, I would only do a condominium subdivision. All right, Peter, unfortunately we're out of time. We need to have you back again. And give you an update on what's going on because we really would like to see how this is progressing. How do they get a hold of you, Peter? Is it sabio.com or sabio.net? Sabio.com. Okay, sabio.com. Yeah, so get more information from Peter on his group there. And those of you that wanna share this video show, please do so. This is a fascinating show. Probably one of our most interesting ones that I've had in a long time. And use the think that Kauai, they have archives for this show and others that we've done. And if you need more information on the real estate school, we're at ableseminars.com for the real estate school. But Peter, I can't thank you enough. It was really fascinating. Thank you, I appreciate it. Thanks a lot, take care. Okay, folks, see ya. See ya.