 Welcome back to Think Tech. I'm Jay Fidel. We're doing Catching Up with Kaka Ako. And we have a special guest, Jane Sugimura, who is an attorney who specializes. She's been specializing in this for 30, 40 years already in terms of… Well, it's condo governance. Yes, condo governance. Condo governance. And so we're going to talk about condo governance in Kaka Ako Makai and how a project in Kaka Ako Makai has different and maybe more difficult issues in dealing with the environment there and the requirements for development. Welcome to the show, Jane. Thank you, Jay, for having me. So you've had a lot of experience with water, flooding, and invasion around Oahu and other places in the state. Starting from flooding from the ocean, de-level rise, and climate change type weather events. Can you talk about it? Well, in Hawaii, in Honolulu, along Alamoana for years, there have been high-rise buildings that experience flooding with high tide and king tides. And it is a problem, because it's not like you can move the building. The ocean is right next to… is just a few hundred yards from the building. And you can't stop the tide. And when you get high tides or king tides, the building floods. And what that does is you've got seawater affecting the concrete, the pipes under underneath, and it affects the pipes. And these buildings are aging. And that's one of the issues. That's one of the challenges that all condominiums face, I mean, it affects all the owners, whether you're an owner-occupant or an investor-owner, because you are charged your assessed maintenance fees for the care and maintenance of this building. And with an older building, it costs more money. And with these buildings that are close to the ocean, like the high-rises around Alamoana, which would be Kakaako and into Waikiki, they have special challenges, because they got to deal with this water problem. And as the buildings age, you're talking about pipe replacement. And it's not like you have a building that's inland, where you can dig into the ground and actually replace the pipe. I'm being told that some of these buildings, and I can't remember the building, and I don't really want to say the name of the building, but they were having issues. I mean, they're 30, 40 years old. Their pipes are failing. And we all know, I mean, a long time ago, we all kind of knew that, or we all thought, that clay pipes lasted 75 years. And condos have something called reserves. They have to do a reserve study. Your maintenance fees, some portion of your maintenance fees is allocated to something called reserves. And each building has different reserves depending on the components. In other words, every building has repairs that don't happen every year. You don't replace your roof every year. You don't paint your building every year. You don't replace your pool furniture every year. So the cost of doing that replacement and repair has to be put into a reserve fund. And because you don't spend it every year, it's like out of sight, out of mind. People don't pay any attention. And if you don't do that and your roof fails, or it's time to paint the building, and painting the building, if you've got like a 30-story building, it's going to cost you a million dollars because you've got to fix the spalling before you can paint the building and all kinds of things like that. And so let's take the case of the seawater coming in and deteriorating the pipes. That would be a corrosion problem, and the pipes would fall apart. Is the useful life of the pipes shorter because we're talking about seawater? Yes. And right now, I mean, last year, the legislature had to change the budget and reserve law because the components that were in the reserve study were based on a 20-year projection. And because pipes were supposed to last 75 years, and now we know they don't even last 40, now a replacement of pipes should be in the reserves. But that was never in the budget. And many buildings are just starting maybe the last five or 10 years to put money aside for the pipes. So there's probably the buildings who are affected who have to replace their pipes. There's probably not enough money in the reserves to pay for it. That means that the owners are going to be specially assessed. And everybody knows anybody who lives in a condo, I mean, that's like the worst thing that can happen because with maintenance fees, at least you should know how much is going to be taken out every month. A special assessment is a surprise. It could be very expensive if you're talking about a systemic replacement. But let me add one more factor. Everybody knows that Kakaako Makai is built on landfill, that is garbage. Yes. And sewage. And it has toxins. There are toxins in the land. So let me add the factor that some of this corrosion from the sea water may be also corrosion from the toxins that is already in the landfill. How does that change the calculus you just described? Well, I think that makes it even, you know, I'm not an expert, but I think that makes it even more complicated because that means you've got more factors affecting the building, the concrete, and the pipes. And does that mean that it's going to deteriorate faster? And the problem is, and this one building that I'm going to talk about, they have to replace their pipes. But because of the water from the ocean coming in and flooding the building, it's not like they could dig into the ground and actually go in underneath the building and replace the pipes. They can't do that. You know, you can't because you're dealing with sea water, right? You have to. So what they do in that situation is they put a bladder, let's say a pipe is cracked. And under ordinary circumstances, you would just send, you know, you would dig into the ground, you would remove that section of pipe and you would replace it with a new piece of pipe. You can't do that with these buildings that are affected by this water. So what they do in that case, and I was talking to one of the engineers who was involved in this because it was something I had never heard of. They take a bladder and the bladder has an adhesive around it. And they insert that into the pipe and they have to do it at low tide, right, because there cannot be any water anywhere. So they wait till low tide, they insert the bladder and then they inflate it. And then the adhesive then sticks to the outside inside of the pipe. And that's how they fix it. But, you know, my question is, how long does that last? And how long does it take if you can only work at low tide? I'm told that they can do it, but it means that they have to wait for low tide. They insert it and they kind of wait. And then they have to inflate it. It would then supposedly adhere to the inside of the pipe and therefore that thereby fix the crack. So you're saying the fix isn't necessarily going to last a long time? Well, we don't know. I mean, they say, well, you know, with this technology, with this, you know. But, you know, because it's new, we don't know how long. And in the end, we know that the outside pipe, right, is still there. We know it's crumbling. We know it's cracked. And what happens if it deteriorates and you have this adhesive that's stuck to the inside of the pipe? I mean, it's almost like, you know, if the exterior of the pipe deteriorates, how good is that lining that bladder going to be? It doesn't sound like a good fix because the corrosion is going to be happening to this pipe where it touches the water. Right. And the water is coming on the outside. So you have corrosion on both sides. Right. Inside and outside. And gee. Now, are you, you know, you must deal with the fixes, right? And I don't deal with the fixes. I deal with people who have to deal with the fixes. Got it. And the problem. Is there technology out there in Hawaii today that could remediate and ameliorate this problem? Or is it kind of where these buildings wind up trying something, but it's entirely experimental and they have not have a high level of confidence that it will work? Is there technology that we can rely on? They assured me that this bladder technology, you know, kind of works. And then I was told that they were talking about, you know, for future buildings, they would build the building with a membrane underneath the building. You know, the membrane would be underneath the building and then the pipes would be inside the membrane. But then if you've got water, that means how do you go down and fix these pipes? You know. How? I don't know. You're asking me, I'll ask you. Yeah, I don't know how. And they weren't able to explain it in a way that I understood it. You know, and I'm, you know, I think I'm pretty intelligent. But you know, I'm not, you know. No, but you've been around this subject for long, long time. Right. And, you know, it seems very complicated. And, you know, and. And it hasn't been done yet. Well, they are working on this, you know, and, and, but to me, you know, this is, this is a concern, at least, you know, as far as managing the building and marketing the building, because, you know, when you sell a condo, and I would think even with the new developers, they need to make disclosures, you know, in the public report. And it's no secret that the buildings along Haka Ako have water problems caused because they're close to the ocean and the water coming in, the tides come in and they went to the, you know, they flood the building and it's been going on for years. So if I buy a newly developed multimillion dollar condo along the shoreline, beautiful fisters and everything, beautiful Christine location for millions, millions that would, you know, Hemeter was trying to develop a Loha Tower at one point. And he was talking about condos there on the water, facing the harbor for five million dollars. So this is a high priced neighborhood. But what happens then is, you know, you have to disclose the problem that is going to happen pretty much going to happen with the infusion of the water and the corrosion of the pipes and the need to fix the pipes inside and out. It's a surprise assessment. And it could happen multiple times, even 20 years at a time or even more frequently. Right. How does that affect the marketability of the condo? It depends on, you know, how they make their disclosures. And, you know, for the people who buy early, I think, you know, it's not going to make, you know, that much of a difference, especially if they feel that, you know, within, you know, less than five years are going to just, you know, flip it and sell it. It's the people down the down road, you know, after the building's been sitting for 10, 15, 20 years, and they're going to be paying the cost of maintenance. And and and hopefully by then there will be improvement in technology that can address these problems. But right now, to me, you know, I would be concerned. I wouldn't want to, you know, buy a unit and, you know, for long term purposes, you know, in that area, because they're going to be, you know, problems down the road, I wouldn't want to know. How are you going to be dealing with the water intrusion problem because you're so close to the ocean and high tides and king tides and and the buildings already there are experiencing it. What's to say that the new building isn't going to experience a problem? So, you know, they talk about long term leases and talk about fee. But it seems to me that no matter what, the building is going to deteriorate at a more rapid rate because of this location. I mean, I mean, first of all, there's the salt and salt water and the corrosion that comes from that. And it may not be only the pipes, you know, it could be other things. You still have other plumbing fixtures that you still have electrical cabling and various other things that are metal that will corrode for the building. So you know that you're going to have a certain level of corrosion. And by the time you reach year X, whether it's leasehold or fee, you're going to need to ameliorate a lot of things. So it seems to me also that that the value of the building, whether it's fee or leasehold, is going to seriously deteriorate before the end of the lease period. And and it will be very difficult to sell these units. More difficult to sell them as you go on into into the period of of of resilience outside the period of resilience. Am I right about that? Because the value won't last. You're absolutely right about that. And, you know, you mentioned leasehold. And, you know, it's been some time since anybody has built a leasehold condominium, mainly because, you know, my group of Hawaii Council of Association of Apartment Owners and others in the 1990s and, you know, into the 2000s. I mean, we worked on legislation to get rid of leasehold condominiums you know, to make them fee, mainly because of the inequities that result when you get closer to the end of the lease. And, you know, many and there are still some leaseholds, you know, pockets of leaseholds around. And those leases will probably expire by, you know, 2040. At least by 2050, they'll be all gone. And, you know, and, you know, whenever I hear and a couple of years ago, there was talk in the legislature about I think it was Oh, who was going to put up leasehold condominiums in Kakako Makai and we testified against that, mainly because it's why are you creating a problem for future generations? The first 50 years is not a problem. And yes, I agree. It's probably a cheaper source of, you know, housing because it's leasehold. But after the 50 years, you know, if there's this declining value, the closer you get to the expiration, the, you know, the less marketable the unit gets. And then within 20 years of the expiration, you can't sell that. You can't sell the unit because your purchaser can't get a mortgage. And I don't know what it's going to, what, you know, banking is going to be, you know, 50 years from now. But that's the situation that that was a situation that was facing lease. You know, less ease who had condominiums, they couldn't sell their units. They were worth, they were almost worthless. And it was like, why would you be creating this problem for future generations? When we had so many, so it took us so long to get rid of the existing situation. You've got to decline in value. You've got an increase in special assessments while you're having to decline in value. And, you know, furthermore, you know, it seems to me that there's a lot of these condo documents that say when the lease is up, it's the obligation of the individual owners to chip in to remove the building and leave it greenfield again. Yes, or to just walk away. And there have been in the last couple of years, in fact, in Waikiki, there were two condominium buildings, one was a banyan. And, and I know, and, and I guess, fortunately, most of the less ease there were not local. I mean, they weren't owner occupants. They were investors owners. So one day you're a lessie, and the next day you are, you own nothing. Yeah, and well, the alternative is to write a big check and demolish the building. It costs a lot to demolish a building and take away the pieces. That is a real problem, especially when it's it's failing even before the end of the leasehold period. So, you know, going to the bottom line on this, so there's this this bill in the ledge where upon OHA speaks to relieve itself of the requirement or the restriction on not building residential condos, residential anything in, you know, in, in Makai. At the same time, you have all kinds of issues about developing new, new building permit requirements and doing EIS, doing planning for the community, which is really not there. There is no planning. So all these things. And so the question I put to you is all that we've discussed, you and me and and the problems that, you know, come out of condos near the water like this, with the water and other environmental, you know, surprises, well, it's not a surprise, environmental processes. Is it a good time for the legislature to address this or should this be done after the EIS, where we know the, you know, the scope of the problem, the scope of the risk, the scope of the changes that will have to be made in building codes and the like? Well, I think, you know, you bring up a good point. I think that, you know, if these projects are being contemplated, I think it's important that, you know, the that the EIS be done because, especially in Kakako, Makai, because you've got the sea level rise and the ocean right there. Those issues, they already exist. They already know that there are some problems. And, you know, so I think, you know, you need to, you know, at some point, the government's going to have to address the issues. And so, you know, the developer should do the environmental impact statement, you know, to to flush out what some of those issues are going to be. And I think you need them anyway for the disclosure in the public report that they have to make in order, you know, to sell these units. And, you know, that's been a big deal recently because, you know, there was that condominium in Kakako for the maintenance fees when, you know, in the public report seemed to be very, very reasonable. And after the units were sold, they went up. And all of a sudden, the buildings weren't. I mean, the affordable units, the owners, the people who bought the affordable units, they had to go out and get second and third jobs in order to keep their unit. And I think they ended up suing the developer or there was some kind of a lawsuit. But, you know, that that needs to be addressed in the public report. Before and before the legislature makes any decisions based on whoever is advocating for the project without the EIS. Because, yeah, because, you know, these, you know, these condominiums, I mean, the biggest purchase that most people have is buying their home. I mean, that's one of the major life purchases. And when you make that decision and buy this, you know, make the investment, it's not like you can change your mind after you buy it. You're kind of stuck with it. And then if you can't afford it, you know, and you can't sell it and recoup your money, you're going to end up with this major loss. And that's why it's so important to have these disclosures made at the front end so that people can have the information to make this very important decision to buy a home. And, you know, you can't be having these situations where after they buy it, they find out that it's not such a good deal because that would apply to people who happily got it at an affordable price if there is an affordable price for a project like this one. And and it would still be a very high price. And, you know, if you have if you have these special assessments, everybody pays the same special assessment. In other words, the people who got into the building for an affordable quote, affordable price, they pay the same assessment as everybody else. Right. Yes. And the people who got into the building are affordable. They have no benefit over the other owners because the building is failing for everybody at the same time. Right. So my question to you is Native Hawaiians as a group are, you know, that you just it doesn't seem appropriate that Native Hawaiians would would occupy this building at all because it's on the shoreline. That's a property that is the most valuable property, maybe in Honolulu, but because of that, how can they afford? You know, I've asked a few of them. How can how can they afford four or five million dollars or whatever would be charged for these condos? And how can they afford these special assessments? And how can the developer pretest as feasible and, you know, cover the cost of, quote, affordability, end quote, which may not be very affordable at all, given these special unknown expenses that will have to be incurred in doing the EIS and in doing any remediation that is necessary while doing the remediation that is necessary because, you know, there will have to be some. I mean, it sounds feasible to you. Listen, sounds feasible for the state of the native Hawaiian buyer who may not have that much money. This is sound feasible for you, for the developer who doesn't actually know what to expect. Like, you know, given the cost of building and, you know, we all know that it's a lot more expensive now, you know, because of some supply chain problems. And, you know, those of us, you know, who live in condos and are trying to get, you know, proposals, we know that it's a lot more expensive to do repairs now than it was before the pandemic. A lot more expensive because of supply chain issues, inflation and, you know, other factors that have nothing to do with the condominiums, right? It's just more expensive. And, you know, so if you're going to put something out there, you know, where, you know, where the land is very valuable to begin with. I mean, I don't know how you can a developer can build so that the units would be available to affordable housing. I mean, it just seems, what do you call it? Contradictory, you know, affordable housing on on on in on the Kakako Makai, you know, where we're, you know, you know, by right by the ocean. It just seems that, you know, it that just is not going to happen. Oh, it doesn't actually need to build a high rise condo here. There are other things it could do, right? Yes. I mean, they have many worthwhile programs, educational training programs, and they they can build a building to, you know, to so that they can, you know, implement, you know, their their programs in these buildings, you know, they don't have to build a high rise. I don't know, you know, why they would want to build a high rise and deal with all the development and environmental issues, you know, because they could use that, you know, that land to to, you know, implement some of the programs that they have. And they have very worthwhile programs that would provide educational and vocational, you know, resources to the native Hawaiian community. And I think that's what they should be concentrating on. You know, if they've got this land and they've got the money, that's what they should be doing it, because that's going to improve, you know, the the the livelihood and, you know, the future, you know, for for this group of people. Well, thank you, Jane. Jane Sogimura, condominium governance lawyer for many decades. Thank you so much for joining us and answering these important questions. Aloha. OK, thank you for having me. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.