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State buys land under Maui rental complex

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The state has bought the land under 142 affordable rental town homes on Maui, but a clash with the owner of the apartment complex over drastic rent hikes for low-income tenants isn’t settled.

Gov. David Ige announced Thursday that a state agency paid $15 million for 8.7 acres under Front Street Apartments in Lahaina.

The acquisition was heralded as a step toward protecting low-income tenants in the complex from having their rents raised to market rates.

Maui County Mayor Michael Victorino issued statements thanking Ige and nine state lawmakers from Maui for helping make the land purchase possible.

Yet state and Maui County officials were mum on the prospect for making any kind of deal with the company that owns the complex and has been raising rents to market rates for some units.

Essentially, the land purchase allows the state to collect ground rent payments from the complex owner under a ground lease that runs to 2066.

The linchpin to controlling apartment tenant rents for about 250 residents lies with the owner of the buildings. And that owner, Front Street Affordable Housing Partners, led by local commercial real estate firm executive Adam Dornbush, has been opposed to the state forcefully acquiring the buildings even though the state had an option to buy them for $15.4 million in 2015.

A spokesman for the Hawaii Housing Finance and Development Corp., a state agency that helps produce affordable housing and now owns the land under Front Street Apartments, said the agency can’t comment on negotiations with the complex owner because of pending litigation.

Three tenants and one prospective tenant at Front Street Apartments filed a lawsuit last year now pending in federal court that alleges the complex owner shouldn’t have been allowed to raise rents because of terms the company agreed to in connection with tax credits HHFDC provided to finance construction of the project.

Front Street Affordable built its project in 2001 for $17.7 million and received an estimated $11.5 million from investors by selling federal and state tax credits provided by HHFDC, according to agency documents.

The developer pledged to keep rents affordable for 51 years for residents earning no more than 60% of the median income in Maui County. Additionally, 70 of the units would be reserved for residents earning no more than half the median income.

But there was a provision in federal tax code that allowed the developer to convert the project to market rents after 15 years if a certain condition was met.

That condition involved letting HHFDC buy or find a buyer for the property at a price set by a formula.

Front Street Affordable exercised that option in 2015, which gave HHFDC one year to arrange a purchase for $15.4 million. The agency replied in 2016 that it couldn’t find a buyer.

Kent Miyasaki, HHFDC spokesman, said the agency considered buying the property but under state law could only pay up to the appraised value, which in 2015 came in at $8.7 million for the buildings on the leased land.

HHFDC said the only condition mandating how long affordable rents had to be maintained was governed by the federal tax credits that made up most of the financing. So after the agency failed to find a buyer, it allowed Front Street Affordable to raise rents to market rates, starting with vacant units in 2016, followed by units occupied by low-income tenants as of August or this month under the tax code rules.

Tenants sounded the alarm and flooded the Legislature with pleas to acquire and preserve the low-income project.

“I wake up in the middle of the night crying because I am worried about homelessness,” Carmie Spellman, a disabled resident who moved to Front Street Apartments in 2011, said in written testimony on a bill introduced in 2017 to preserve the affordable rentals.

Low-income tenant monthly rents at Front Street Apartments in 2017 ranged from $758 to $923 for a studio and as much as $1,161 for a two-bedroom unit.

Janet Draper, 72, told lawmakers that she faced a 100% rent increase that was impossible to pay on her Social Security income.

Current rents for available units range from $1,600 for a studio to $2,550 for a two- bedroom unit.

The 2017 bill directed HHFDC to either acquire the complex possibly through condemnation or make some kind of deal to extend affordable rents through at least 2027. The bill, however, didn’t pass.

A Front Street Affordable representative testified in 2017 that trying to condemn the buildings would be a “constitutionally infirm” use of eminent domain and that the company would “vigorously oppose” any such action.

The company said any acquisition would have to be at the prevailing market value, which it claimed was between $31.6 million and $47.4 million in 2017.

Lawmakers last year passed a bill that became Act 150 directing HHFDC to institute condemnation proceedings against Front Street Affordable. But the agency hasn’t initiated condemnation.

Earlier this year yet another bill was introduced to preserve Front Street Apartments. This measure instructed HHFDC to acquire the land under the apartment complex from 3900 LLC, an affiliate of the nonprofit Harry &Jeanette Weinberg Foundation, either through negotiation or condemnation. Act 150 also directs HHFDC to institute condemnation of the buildings unless it can redo the ground lease with Front Street Affordable by Dec. 31.

Representatives of Front Street Affordable did not respond to requests for comment. In April the company indicated in written testimony that it was open to options for retaining ownership and maintaining affordability.

Nancy Silva, who moved to Front Street Apartments in 2001, said she has confidence that the new laws will allow HHFDC to protect tenants.

“A lot of people are still worried,” she said. “There’s really no place to go.”

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