A state board Thursday approved rent subsidies for low-income seniors living in a former state-owned studio apartment building in Kakaako, but it’s a five-year deal instead of 15 years sought by Gov. David Ige.
Residents in the 76-unit Na Lei Hulu Kupuna project have been worried about possible rent hikes for three years after the Hawaii Community Development Authority, a state agency that developed the property at 610 Cooke St., agreed to sell it to local firm Mark Development Inc.
Those concerns grew to an outcry in February after the company informed tenants that a state rental assistance contract for Na Lei was terminated in January and that the company wouldn’t be able to subsidize rents after the end of this year.
Rent for some tenants would rise to $1,099 from $675 between August and January.
Ige announced in February a plan to avert Na Lei rent increases by providing $2.8 million over 15 years for rental assistance through a program administered by the Hawaii Housing Finance and Development Corp., a state agency that helps finance affordable housing and still owns the land under Na Lei.
HHFDC, however, encountered technical problems with quickly executing a 15-year contract. So the agency’s board voted Thursday to reinstate the contract that was terminated in January and let it run through its original term ending in late 2022.
This contract had been in place since HCDA built the rental complex in 1992. Under the contract, HHFDC provided up to $250 a month in rent subsidies for about 50 tenants who qualified.
Craig Watase, president of Mark Development, said the contract that was terminated in January had a condition that would have made his purchase of the building untenable. Watase said the condition requires him to repay HHFDC rental assistance payments if the value of the building was worth more when the contract ended. So he completed his purchase in December without assuming the contract.
Under his purchase agreement with HCDA, Watase was required to renovate Na Lei, which would make the building more valuable and trigger the repayment requirement, Watase said.
“Why would I do that?” he said in an interview. “I might owe (HHFDC) $3 million at the end of the (rental assistance) contract.”
HCDA sought to sell the building because it hadn’t raised rents for decades and didn’t keep up with maintenance. A private developer, the agency reasoned, would be better able to make improvements and keep apartments affordable for tenants, who must be 62 years or older and earn no more than 60 percent of Honolulu’s median income, or $43,980 for a single person.
Watase obtained a $3.8 million city grant for the deal, and he pledged to HCDA that his purchase wouldn’t displace tenants and that he would keep rents for existing tenants within affordable guidelines based on a federal Housing and Urban Development formula.
Part of Watase’s financing plan was to charge new tenants higher rents. Another aim was convincing existing tenants to apply for federal subsidies under a program called Section 8, which pays landlords market rent. Under Section 8, Watase could receive higher income while keeping a tenant’s portion of rent low.
To encourage tenants to apply for Section 8, Watase sent them letters in January that mistakenly led some tenants to believe their rent was increasing in February. A follow-up letter incorrectly stated that the state’s rental assistance program was terminated because the state no longer funds the program. That follow-up letter also said Mark Development would subsidize rents through the end of this year except for a few tenants who earn the most and would see increases start in August.
After the tenant outcry, state attorneys examined the contract and gave an opinion that the condition tied to the property’s value is triggered only when Watase sells the property and not upon the contract terminating in 2022. So Watase agreed to have the contract reinstated.
A few Na Lei residents at Thursday’s board meeting expressed concern that some residents would be forced out if rental assistance disappears and rents increase.
Deborah Eharis said she plans to put off retirement from part-time work and worries about less fortunate neighbors.
“Na Lei has become my home, and I have friends there,” she said. “I don’t want to move. I don’t want my friends to be displaced because the increase is a little too high for us.”
Eharis then became emotional. “We’re a family,” she said. “We’re a family, Mr. Watase. If we had not that high (rent) — $675, $728 or something with the (rental assistance) coming in — it’ll be a little different, you know. It’ll be something we can work with.”
Stan Webb said the previously proposed rent hikes would have been too much for some of his neighbors. He also relies on a subsidy of $138 and pays $537 a month.
“This building allowed me to get off the streets after 12 years of being homeless and 12 years being a drug addict,” he said. “This building is a great treasure in this area, this city, this state.”
Watase said that even though the rental assistance contract lasts to 2022, he can only ensure rents will be frozen through 2019. Tenants applying for and receiving Section 8 assistance are still key to preserving rents, he added.
HHFDC said Watase can apply for a new rental assistance contract before the current one ends.
