Three years after a state-backed plan was engineered to prevent a dramatic loss of low-income rental apartments at one of Oahu’s largest affordable-housing communities, a big piece of the plan has faltered.
The preservation plan involved building 400 new affordable units at Kukui Gardens to offset the impending loss of a similar number of affordable units when they are converted to market-rate rentals over the next 2 1/2 years.
However, financing difficulties have led to an indefinite deferral of the estimated $100 million expansion, according to EAH Housing, a nonprofit developer working on the plan.
"We don’t have any schedule for getting that done," said Marian Gushiken, director of real estate development in Hawaii for EAH.
Gushiken said financing for the new affordable-housing units on the edge of Chinatown just is not possible in today’s tight financial market and weak economy.
The deferral raises concerns among affordable-housing advocates that an already desperate need for low-income housing in Honolulu will get worse if no replacement units are developed.
Rents on many Kukui Gardens units are scheduled to rise significantly next year and could grow to quadruple present rates in 2013.
"It is distressing because we need more affordable housing," said Rep. Karl Rhoads (S, Palama-Chinatown-Downtown). "But having said that, I’m still pleased that some of the less good scenarios aren’t going to happen at Kukui Gardens."
The expansion plan was one piece of a deal brokered by tenants, affordable-housing advocates and state leaders in 2007 to save Kukui Gardens from being demolished and replaced with new homes, retail space, offices and a hotel.
Kukui Gardens, built in 1970 by local developer Clarence T.C. Ching, features 857 apartments in mostly three-story buildings on 22 acres primarily covering the block bordered by Vineyard Boulevard and Liliha, Beretania and Aala streets.
Ching, who died in 1985, developed the project with funding from the federal Department of Housing and Urban Development, which required that all units be maintained as low-income rentals for 40 years.
In 2006 a nonprofit affiliated with the Clarence T.C. Ching Foundation decided to sell Kukui Gardens to San Francisco-based development firm Carmel Partners for $131 million.
Carmel envisioned developing 3,700 housing units plus commercial space on the property, which is near a proposed rail station in the city’s mass transit plan. But Kukui Gardens residents and community leaders banded together to save the rental complex.
In 2007, after the state threatened to condemn the property to preserve affordable housing, Carmel agreed to sell 11 acres of the land and 389 apartments for $72 million to the state and California-based affordable housing developers EAH and Devine & Gong Inc.
Carmel retained 468 units, which it plans to rename Waena Apartments after numerous renovations are completed in February.
Carmel was unable to complete the sale of the 11-acre portion of the property for close to two years, from 2008 until June, due to financing difficulties on the part of the buyers.
The state contributed about $60 million toward the purchase of the 11-acre piece of Kukui Gardens, and the balance was financed primarily with federal tax credits.
EAH and its partner have started renovating the state’s side of the project, which is slated for completion in February.
Under the deal, the state owns the land and leases the property to the development partnership.
Rhoads said completing the purchase was an amazing accomplishment in itself. "I think it’s still a victory for the residents who fought (the redevelopment plan)," he said. "There are still a lot of affordable units at Kukui Gardens."
Drew Astolfi, lead organizer for a group called Faith Action for Community Equity, or FACE, that helped tenants save Kukui Gardens from redevelopment, agreed that what has occurred overall has been positive. He added that the Ching company’s refusal to reduce its price for the property created difficulty for the state to make its affordable housing replacement plan work.
"It wasn’t total victory," Astolfi said. "It was never a perfect settlement."
Under the settlement, Carmel is allowed to increase unit rental rates over time.
Carmel agreed not to alter the HUD-imposed limits on rental rates and incomes for qualifying tenants occupying the 468 units it owns until May.
Present rents at Kukui Gardens range from $503 for one-bedroom units to $927 for four-bedroom units.
In May, Carmel may increase rents on half its units to market rates and limit occupancy to tenants who earn no more than 140 percent of Honolulu’s median income, which would be $80,070 for a single person or $114,380 for a family of four today. The other half of the units would be limited to tenants earning no more than 80 percent of the median income, which equates to $55,680 for a single person or $79,440 for a family of four.
Rents for 80 percent median income tenants could be as high as $1,491 a month for a one-bedroom unit and $2,304 for a four-bedroom unit — or triple present rates. Carmel said it does not plan to raise the rents to the maximum allowed, but said it has not determined how much rents will rise.
The company plans to notify tenants by the end of this month how much rents will rise in May.
Then in May 2013, rent for all 468 Carmel units may be set at market rates to tenants who earn no more than 140 percent of the median income. Income restrictions disappear after 2062.
On the state’s side, rents for any new renters moving into Kukui Gardens will range from $1,118 for a one-bedroom unit to $1,728 for a four-bedroom unit with a tenant income limit of 60 percent of the median income, which is $41,760 for a single person or $59,580 for a family of four.
Existing Kukui Gardens tenants are subject to the new income limit, but rents for them will only slowly rise to match the level imposed for new tenants.
Because new tenant income limits were created with the division of Kukui Gardens, tenants have been allowed to move from one side to another if that allows them to qualify.
But the impending rental rate increases slated to take effect over the next three years trouble affordable-housing advocates, who fear that more than half of the low-income tenants at Kukui Gardens could be forced to move with uncertainty as to whether comparable housing will be available.
Presently there are waiting lists at many affordable-housing projects, and some are not accepting new applicants, Rhoads said.
Given the time needed to devise development plans, secure financing and complete construction, it does not appear likely that replacement units will be built at Kukui Gardens in time for a seamless transition.
Astolfi holds out some hope that the economic recovery picks up and a financing solution can be found in time. "I’m still optimistic, but I’m not as optimistic as I was a few years ago," he said.