A state agency plans to sell a Waianae rental housing complex serving low-­income residents after struggling with management and financial troubles at the property.

Board members of the Hawaii Housing Finance and Development Corp. unanimously approved a plan Thursday to sell the 72-unit project called Kulia I Ka Nuu with a land lease.

The agency expects that a private investor acquiring and operating the property under a 75-year land lease can better serve tenants by adding on-site support serv­ices while maintaining affordable rental rates for households with low incomes.

A sale of Kulia also would complete an eight-year effort by HHFDC to dispose of its affordable rental housing portfolio inherited from a predecessor agency.

HHFDC, which exists mainly to help private developers produce new affordable housing, has sold eight apartment projects with 1,405 units since 2014. A ninth sale on Hawaii island is pending. Kulia would be the last disposal, and is perhaps a less enticing prospect given the property’s difficult history.

Kulia was built on state land in 2008 as Kahikolu Ohana Hale O Waianae at a cost of $16.4 million, mainly with local taxpayer funding, by the Hawaii Coalition of Christian Churches.

The complex is within the 440-home Uluwehi subdivision developed in the mid-1970s by the Hawaii Housing Authority around Waianae Intermediate School, and replaced a 60-unit apartment complex that had been demolished because of condition issues.

Kahikolu was designed to provide emergency, transitional and permanent housing for the homeless, and the project with 72 studio and two-bedroom apartments, a 40-bed dormitory, a preschool, day care, a commercial kitchen and social services was touted as a model for more similar projects.

But management problems surfaced quickly and dashed high hope.

Within six months, four social workers had filed religious discrimination complaints with the Hawaii Civil Rights Commission against the leader of the church organization who managed the property and spearheaded its development. Some tenants also complained that participation in religious activities was being tied to occupancy.

The Rev. Wade “Boo” Soares, a popular Waianae pastor who formed the church coalition and managed Kahikolu, denied the allegations, saying at the time: “I cannot shove my Jesus down anybody’s throat. It would be against the law.”

In 2009, the church organization’s board placed Soares on administrative leave from his executive director position, and state officials terminated the organization’s 55-year land lease due to “material lease defaults.”

Another nonprofit succeeded the church coalition running Kahikolu, but its state lease ended in 2013. This nonprofit, named for the housing project, and the church coalition sued the state in 2013 over the lease terminations. HHFDC settled the litigation in 2016, paying the two nonprofits $50,000.

Meanwhile, HHFDC renamed Kahikolu after gaining control in 2013, and repositioned the property as permanent affordable rental housing. This change, however, produced its own challenges financially.

The agency said occupancy at Kulia has generally been over 90%, but that a substantial number of tenants who receive temporary rent assistance to help them move in can’t keep up with rent after a few months or so.

“There’s a lot of churn,” Chris Woodard, HHFDC’s real estate portfolio manager, told the agency’s board Thursday. “And that leads to a lot of legal expenses and a lot of repair and maintenance costs.”

The project has no financial debt from construction because financing was entirely from state grants along with a $3 million contribution from The Harry and Jeanette Weinberg Foundation. Yet the complex, managed in recent years by Hawaii Affordable Properties Inc., produced deficits for HHFDC in two of the last four fiscal years — a $1.7 million loss in 2018 and a $552,906 loss in 2019 followed by positive cash flow of $92,003 last year and $1.1 million this year.

Now, HHFDC is ready to sell Kulia under a land lease that would allow a new owner to operate the property for 75 years.

The agency said an opportunity exists for a new owner to reuse the former 40-bed dormitory currently used for storage, and to establish education and counseling services on-site.

“It is believed that a private party that offers on-site support services would more effectively own and operate Kulia, thus better serving the Waianae community,” HHFDC said in a staff report.

There is also an undeveloped 1.3-acre parcel next to Kulia’s six two-story buildings that could be turned into an amenity for residents such as a community garden or playground.

The commercial kitchen is leased by Kahumana Kitchen, which provides meals to schools and charitable entities plus job training. There is also a Head Start early childhood learning program at Kulia run by Honolulu Community Action Program. Space once occupied by a preschool is vacant.

As part of a sale, a buyer would be required to keep rents under an HHFDC limit deemed affordable to households earning no more than 60% of Honolulu’s annual median income.

This limit currently equates to $50,760 for a single person, $58,020 for a couple and $72,480 for a family of four.

The corresponding monthly rent limit is $1,269 for studios and $1,632 for two-bedroom units. However, actual Kulia rents mostly run from $944 to $1,418 because that is what the market will bear, according to Woodard.

Kulia also includes four apartments rented at lower rates for households earning no more than 30% of the median income, and a buyer would have to maintain this arrangement as long as those existing tenants remain.

HHFDC has retained commercial real estate firm CBRE to market Kulia, and bids will be scored by an agency committee that makes a recommendation to the board.

Woodard anticipates a request for purchase proposals will go out in January, followed by a potential selection recommendation in March or April.

Agency staff plan to introduce a winning bidder to Kulia residents and inform them of planned improvements and other changes.