Developer axed from $100M housing plan for Kalihi

A more than $100 million public-private partnership to add new low-income rental homes to the state’s largest public housing project has unraveled, and a state agency and a private developer are blaming each other for it.

The board of the Hawaii Public Housing Authority unanimously voted Thursday to terminate a 6-year-old master development agreement that enlisted New Jersey-based affordable-housing development firm The Michaels Organization to build about 450 new homes mostly for low-income residents in Kalihi next to the Towers at Kuhio Park.

The developer said the decision means construction costs will rise and completion will be delayed. The board said an impasse in negotiations led to the cancellation of the contract.

“So many families need this housing. I ask you to keep the project going,” Brandon Hegland, managing director of Michaels affiliate Interstate Realty Management Co., which manages the Towers at Kuhio Park, told board members before the vote.

HPHA and Michaels, along with Seattle-based developer Vitus Group, teamed up and completed an initial $135 million phase that revitalized the twin 16-story towers formerly known as Kuhio Park Terrace in 2012.

But a subsequent phase that would have replaced 176 obsolete one- and two-story public housing units known as Kuhio Homes and Kuhio Park Terrace Low-Rise was yanked from Michaels at the special HPHA board meeting.

The board and HPHA Executive Director Hakim Ouansafi offered the public little insight as to what went awry.

Ouansafi said during the meeting that negotiations with Michaels for the more complicated second phase had gotten stuck after four years of talks.

“We have been and remain at an impasse,” he said.

Ouansafi said the same negotiating team produced deals with two other developers for public housing projects at the agency’s headquarters site in Ka­lihi-Palama and at Mayor Wright Homes.

He said terminating the development agreement with Michaels would allow the agency to find another developer and do the project while saving taxpayers money and expediting the work. He noted that there have been some tenant concerns about management in the first phase, but said this wasn’t an issue with the move to terminate the Michaels development agreement.

Time increases costs

The board, after holding private discussions with state attorneys for about an hour, voted 8-0 to terminate the agreement “for convenience” with no public discussion.

Board Chairman Pono Shim said the board concluded that HPHA staff negotiated with Michaels in “good faith.”

After the meeting, Ouansafi said he couldn’t disclose issues surrounding the impasse because the state public housing project receives operating subsidies from the federal Department of Housing and Urban Development.

He said he is hopeful that by year’s end HPHA can solicit new proposals from developers to advance the project.

Elizabeth Char, a Michaels development officer, said HPHA wanted to change terms in the development agreement and that working with the agency changed after Gov. David Ige’s administration, which includes Ouansafi, took over in 2014.

“When we entered into the contract, we thought that’s what we would follow,” she said.

Brandon Hegland, managing director of Michaels affiliate Interstate Realty Management Co., which manages the Towers at Kuhio Park, said Michaels was ready to start the second phase right after completing renovations to the towers.

Hegland said inaction by HPHA to start the second phase has wasted time in providing badly needed housing for low-income families and made the work 30 percent more expensive because of construction cost increases over the last several years.

According to a draft transformation plan for Kuhio Park in 2014, the first phase was successful in not only improving deplorable conditions in the two towers containing 555 apartments, but it reduced gang, drug and other criminal activity in the neighborhood through social service programs, community member engagement and better management.

“The seeds of optimism for the future have been planted,” the plan said.

The second phase, according to the draft plan, had two primary options. One would have added 503 new homes, including 452 affordable units and 51 market price units, at an estimated cost of $151 million. The other would have added 403 new homes with a largely undetermined mix at a cost of $121 million.

Kuhio Homes, which comprises 134 townhouse units, was built in 1953. The towers were built in 1962. Another 42 homes making up the low-rise component of the towers were added in 1965. The draft plan said the 176 units around the towers received improvements in past decades but don’t meet current building codes and have major structural and exterior deficiencies.