The state plans to sell two affordable rental housing projects that have been a financial drain and a management pain.

Kekuilani Gardens, a 56-unit complex in Kapolei, and Nani o Puna, a 32-unit complex in Pahoa on Hawaii island, would be sold to a private developer under a bid tentatively accepted this week by a state board.

Board members of the Hawaii Housing Finance and Development Corp. voted Thursday to move ahead with a bid by Seattle-based Vitus Group to buy the two apartment complexes and lease the land under them from the agency for 75 years.

Housing Finance has been working over the last few years to implement a strategy to sell its nine affordable-housing projects so it can concentrate on its core mission centered around helping private developers obtain loans, tax credits and state land to create new affordable housing.

Kekuilani Gardens and Nani o Puna stand to be the first sales in that effort.

The rationale for selling such projects is that the private sector can deliver a better product for less because companies aren’t bound by procurement rules and other bureaucratic issues that often make government a poor operator of affordable housing.

Housing Finance contracts with private property managers to operate its affordable-housing projects but has been criticized for lax oversight.

Any money gained from sales would be directed toward financing new affordable housing, which is in critical short supply.

Housing Finance also stands to improve its finances because some properties it owns operate at a loss.

The average annual operating loss from 2009 to 2012 has been $72,000 for Kekuilani Gardens and $132,000 for Nani o Puna.

"When you look at the cost, it’s just obscene,"Ralph Mesick, Housing Finance board chairman and an executive vice president of commercial lending for Bank of Hawaii, said at Thursday’s meeting discussing the sale proposal.

Vitus is an experienced affordable-housing operator with 7,000 affordable units in 14 states, including six projects in Hawaii.

The for-profit company typically acquires and rehabilitates projects using a mix of financing sources that include low-income housing tax credits.

Vitus has proposed paying about $9.5 million for the two properties. Its bid was selected over a competing bid from California-based developer Micon Real Estate.

Most proceeds would go to the U.S. Department of Agriculture’s Rural Development program that largely financed the projects. Housing Finance expects to receive $1.7 million from the sales, which is subject to a property appraisal and other factors yet to be finalized.

Karen Seddon, executive director of Hawaii Finance, told board members USDA has the ultimate authority over the sales because of its lead financing role.

"We’re not in control of it," she said. "They’re going to set the price."

Seddon said Kekuilani Gardens and Nani o Puna are the only two affordable-housing projects that Housing Finance owns with USDA as a partner — a setup that she said has made the properties difficult to manage.

For instance, Seddon said Housing Finance had sought to raise rents so it could better maintain the properties, which are operating with underfunded reserves. But USDA, which provides rental subsidies to tenants who pay only 30 percent of the rent, refused the rate increases.

"We should have been having (rental rate increases) for years,"Seddon told the board.

Vitus has received USDA approval to raise rents and spend $3 million to renovate Kekuilani Gardens, which was built in 1997, and

$2.2 million to renovate Nani o Puna, which was built in 1979.

If the two properties are sold, it would be the first affordable-housing sale by Housing Finance, which owns nine properties with 1,437 rental units.

Most state-owned affordable housing is under the Hawaii Public Housing Authority, which is engaged in its own effort to privatize projects. Housing Finance inherited nine properties from predecessor agencies because Housing Finance administers programs that helped finance those projects.

Housing Finance intends to offer its other affordable-housing projects for sale, but no timetable has been established.

The agency initially tried to sell its first property in late 2011 but received no offers. That effort involved the 128-unit Kama’aina Hale on Hawaii island. It was a difficult sale in part because Kamehameha Schools owns the land under the project, and rent for the land is rising. Housing Finance had been running an annual deficit of about $290,000 on that property.