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Kukui phases in rent rises

    Kukui Gardens tenants will see their rents raised in May, but not as high as some would have thought. That is because developer Carmel Partners will take a slow approach to raising rent, implementing the increases through April 2012 below levels allowed by the state.

Many tenants at one of Oahu’s largest affordable-housing communities, Kukui Gardens, were recently notified that their rent will begin to rise significantly in May — but the increases won’t be as big as they could have been or as substantial as some feared.

Steep rent hikes starting next year were permitted for more than half of Kukui Gardens’ units under a settlement between the state and a private developer that helped save the 857-unit complex on the edge of downtown Honolulu from being completely redeveloped.

Some affordable-housing advocates had feared rent hikes approved by state officials could force tenants out of units some have called home for decades.

Developer Carmel Partners, however, is taking a gradual approach to raising rent and will keep the increases through April 2012 considerably below maximum levels allowed by the state.

Drew Astolfi, lead organizer for a group called Faith Action for Community Equity, or FACE, that helped tenants save Kukui Gardens from redevelopment, said San Francisco-based Carmel has gone "beyond the call" in adjusting rents.

"I think they’ve come full circle from being our opponent to doing more than expected," he said. "I’m really happy about it."

Carmel, in a recent letter to tenants, said it would take a stepped approach to rent increases over 12 months starting May 1.

"We understand that a large increase in rent would be a difficult adjustment and that there is a limited availability of affordable housing," the company said in the letter.

Initial rent increases range from 29 percent to 39 percent for an initial three-month period from May 1 to July 31.

For instance, monthly rent for one-bedroom units will rise from $503 presently to $700. On four-bedroom units, rent will rise to $1,200 from $927.

Additional increases will follow every three months, with rents topping out at $1,000 for one-bedroom units and $1,650 for four-bedroom units in the February-April 2012 period.

Between April 2011 and April 2012, total increases depending on unit size range from about 75 percent to 100 percent. But Carmel notes that the average increase over the 12-month period is considerably less — between 54 percent and 69 percent.

The state had approved maximum rents of $1,491 for one-bedroom units and $2,304 for four-bedroom units, representing increases of 149 percent to 196 percent.

Chuck Wathen, executive director of the local affordable-housing advocacy group Hawaii Housing Alliance, said it’s likely that some tenants won’t be able to afford a 75 percent to 100 percent increase if they are already paying 30 percent of their income toward rent. But he said the increases aren’t as high as affordable-housing advocates feared.

"It didn’t turn out as bad as everybody thought," he said.

The new rents apply only to a portion of units at Kukui Gardens.

Carmel owns 468 units now known as Kukui Mauka and soon to be renamed Waena Apartments. The other 389 units are owned by a partnership between the state and California-based nonprofit developers EAH Housing and Devine & Gong Inc.

Of Carmel’s units, only half, or 234, have a rent restriction imposed by the state effective May 1. The other half may be rented at market rates as of May 1 under the settlement.

However, Carmel decided to apply the stepped increases to all its units that are occupied by tenants who were living at Kukui Gardens as of Dec. 18, 2007, when the company completed its purchase. Frank Striegl, Carmel’s vice president of asset management, said 404 such tenants have been offered the stepped rates.

"We elected to do that," he said. "We’re not going to force (longtime tenants to pay market rates next year)."

Rent for Carmel’s other 64 units will be increased to market rates, which Striegl said likely will be more than the controlled rents but less than the state-allowed maximums.

About 30 tenants who moved into Kukui Gardens after the sale to Carmel are presently paying monthly rents ranging from $1,100 for two-bedroom units (no one-bedroom units are rented by newer tenants) to $1,500 for four-bedroom units set by Carmel. Those rates are fixed through April 2012.

In May 2012, Carmel would again have the option to increase rents up to the state maximum for as many as half its units for another year. Then in May 2013, Carmel has the option to set rents for all its units at market rates.

On the nonprofit side of Kukui Gardens, a different rent structure exists that allows EAH to raise rents to cover any increases in operating expenses.

Like the for-profit side, the nonprofit side holds rents down more for tenants who were living at Kukui Gardens as of Dec. 18, 2007. For these tenants, monthly rents range from $565 for one-bedroom units to $1,041 for four-bedroom units, and reflect an increase that occurred in July.

Newer tenants have yet to rent any units on the nonprofit side, though any available units are projected to rent from $1,010 for one-bedroom units to $1,518 for four-bedroom units. These rents are governed by federal low-income-housing tax credits that were used to help the nonprofit partnership purchase its piece of Kukui Gardens now on state-owned land.

The rents for both sides of Kukui Gardens have rent structures that are a departure from federal Department of Housing and Urban Development rules that had historically applied to the property.

HUD imposed its own rent guidelines because the project’s original developer, Clarence T.C. Ching, built Kukui Gardens with HUD financing.

As part of the arrangement, HUD rent limits would have expired at the end of a 40-year term this year, allowing the project’s owner free rein over rents or use of the property.

A nonprofit created by Ching, who died in 1985, moved to sell Kukui Gardens in 2006 and accepted a $131 million bid by Carmel.

Carmel envisioned developing 3,700 housing units plus commercial space on the property. 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, EAH and Devine & Gong.

As part of the deal, Carmel agreed to rent restrictions. Both Carmel and the nonprofit partnership are renovating their portions of Kukui Gardens at a combined cost of roughly $30 million, including dramatically improved landscaping and some interior upgrades.

The state had envisioned new rental apartments would be built on the nonprofit side of the property to replace affordable units lost on the Carmel side, but the turmoil in financial markets upended that plan. Kevin Carney, a vice president with EAH in Hawaii, said the nonprofit partnership is re-examining the possibility of building more units.

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