A $142 million deal to sell Honolulu’s public housing projects to a private developer collapsed Thursday, leaving gaping holes in the city’s budget and potentially submarining Mayor Kirk Caldwell’s ambitious plan to get some of the most chronic homeless off the streets.

City Manager Ember Shinn announced the termination of the sale late Thursday, explaining that the buyer, Honolulu Affordable Housing Partners LLC, had decided to back out even though the two sides had worked for weeks to try and salvage the deal.

William Rice, of Honolulu Affordable Housing Partners, sent a letter to the city Thursday saying the terms put forth by the city for seller financing were too strict. The city had offered to give the development group more time to pay for the complexes as a part of an attempt to keep the sale alive.

Specifically, Rice’s letter said the city’s requirement that Honolulu Affordable Housing Partners put up $35 million in nonrefundable cash by March 31, 2014 was too much for potential lenders to stomach.

Terminating the deal means the the developer wants its $5 million deposit back plus interest. The developer also noted that it spent $4 million working toward a final deal and that it would be open to discussing how to find “possible arrangements for an orderly disposition of these matters in connection with the termination of the transaction.”

Honolulu Affordable Housing Partners has not been shy about what it believes it would be owed should the deal collapse. The development group has been claiming the city breached its contract in December, something that could cost the city more than $2 million to resolve.

The city has long been trying to unload 12 of its affordable housing complexes to a private developer, and in 2012 officials believed they had found a buyer.

Honolulu Affordable Housing Partners LLC had agreed to pay $142 million to take over the apartments, as well as spend up to $50 million to improve the facilities. The development group was made up of Highland Property Development, of California, Honolulu developer Richard Gushman and attorneys Stephen Gelber and Joseph Dane.

The Honolulu City Council approved the deal October 2012, and then-Mayor Peter Carlisle praised it as one of the most important accomplishments of this administration. But the deal began to crumble in December 2013, forcing the Caldwell administration to scramble in an attempt to save the deal.

There were several reasons to justify panic.

The Caldwell administration had relied upon proceeds of the sale when calculating the current fiscal year budget. Without the money the city would be facing a shortfall. Money from the sale would also pay down debt and go toward improving city infrastructure.

But what could sting most is the loss of $7 million that was slated for Caldwell’s “Housing First” initiative, which aims to get some of the city’s most visible homeless off the streets. Without money from the sale it’s unclear how the city will pay for that program.

It’s hard to pinpoint who should be to blame for the collapse of the deal. Many have looked at Honolulu City Council Chair Ernie Martin who introduced resolutions that threatened to cancel or delay the deal because he didn’t like how the money was being spent.

But Martin and other council members said the development group seemed to be using the resolutions as an excuse to back out of the sale, and that maybe it didn’t have the financing in the first place to finalize the transaction.

Read Rice’s letter here:

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Photo via Flickr courtesy of Martin Cathrae
—Nick Grube