Kukui Gardens

From dKosopedia

Kukui Gardens Housing Complex, with its 857 rental units for low to moderate-income residents, has become the focus of Hawaii's inability to produce housing for moderate and low income families. This lack of affordability in rental and real estate markets increasingly forces many islanders into homelessness. Kukui Gardens' tenants rent apartments between $444 and $1,100 a month for one- to four-bedroom units. [1]

The complex is located on the edge of Chinatown in downtown Honolulu, on Vineyard Boulevard and North King Street. The property is on 22 acres and has 2,500 tenants. Kukui Gardens, which opened in 1970, was built with financing from the U.S. Department of Housing and Urban Development. Owners of the project must provide low- to moderate-income housing on the property under an agreement with HUD that expires in 2011. The residents had organized to prevent the sale and persuade the corporation to turn Kukui Gardens over to a nonprofit agency, which would keep the rents low. [2]

The Kukui Gardens Corp. in early 2006, put the property up for sale raising the fear among tenants that a new developer would only pursue market-rate housing. Clarence T.C. Ching Foundation, a charity founded by the developer of the Kukui Gardens, will be the beneficiary of the sale. [3]

Besides Kukui Gardens, Clarence Ching's Loyalty Enterprises developed hundreds of single-family homes and apartments in Moanalua and other parts of O'ahu. [4]

In March 2006, the Lingle administration expressed support for a bill in the Hawaii State Legislature that would use eminent domain to acquire the 22-acre property. The Senate Commerce, Consumer Protection and Housing Committee, approved a resolution, in March, urging the owners to sell the property to a nonprofit affordable housing developer. [5]

The Lingle administration was willing, through its Housing and Community Development Corporation of Hawaii, to issue revenue bonds to help finance a purchase of the property and would work with a nonprofit affordable housing organization to preserve the affordable units. [6]

According to a March 23 Star-Bulletin article, the "Trustees for Kukui Gardens have narrowed down a list of 17 prospective buyers to three, all of whom have pledged to keep the 857-duplex affordable-housing complex standing." [7]

An April 13 Star-Bulletin article reported the following:

From the look of the slick brochure privately circulated to potential buyers of Kukui Gardens last fall, the buyer is not likely to be a charity willing to continue the mission of affordable housing for long.

Kukui Gardens Corp., the nonprofit that developed and operates the 857-rental project built at the edge of Chinatown with federal housing assistance, was marketed as "a one-of-a-kind opportunity (that) would allow investors to capitalize on an irreplaceable, premier location" that "would allow for the most significant residential development in downtown Honolulu in over 25 years."

The brochure said that "preliminary analysis based on existing zoning" would allow for a 1.7 million-square-foot residential project consisting of 1,100 units and about 12,000 square feet of retail on the ground floors.

While more upscale housing was the original marketing plan, it is no more, said R. Stevens Gilley, the real estate consultant hired by Kukui Gardens.

Gilley said yesterday that the brochure was drawn up last August when the plan was to sell to a redeveloper who would build more upscale housing that would be possible under existing zoning that allows for construction up to 150 feet in height.

"We went to market with this brochure and soon after got strong feedback from the tenants that this is not what they wanted," said Gilley.

He said the strategy then switched to finding a buyer who would continue to operate the project as affordable rental housing.

Gilley said that by January, they received about 16 offers and threw out 14 because they were based on a total redevelopment of the 21-acre site.

"We immediately threw out the ones that wanted it for redevelopment even though they were asking a lot more for the project than the ones who want it for rental housing," said Gilley.

Gilley again confirmed that one buyer is now in negotiation with the board and is undergoing due diligence, which should take 10 days. During this quiet period, he and the board are under strict confidentiality agreements not to disclose the identity of the buyer. [8]

On April 15, the Honolulu Advertiser reported that a "San Francisco-based real estate investment company that has raised rents after improving property here is purchasing the Kukui Gardens affordable rental complex. Carmel Partners is acquiring the 857-unit, downtown apartment project from the nonprofit Kukui Gardens Corp., people familiar with the deal said." [9]

In a June 4, 2006 Honolulu Star-Bulletin article Sally Apgar reported on those conditions required by HUD before a sale is approved [10]:

Typically, in the sale of a HUD-financed project, HUD must approve the deal and can attach conditions before the purchase is final.

Cheryl Fukunaga, project manager for HUD, said again this week that the federal agency had not received notice or documentation of the sale to Carmel.

Fukunaga said that HUD would raise questions including whether the project, built with federal funds by a nonprofit organization for affordable housing, offered to sell the project to at least one other nonprofit -- a condition of the original loan that was designed to ensure continued affordability.

"Because of the conditions to borrow for this type of property, we first have to know whether it was properly offered to other nonprofits," said Fukunaga. "If it wasn't reasonably offered to other nonprofits, we stop right there. HUD wouldn't even have to review the application."

Fukunaga has also said that the buyer likely will be subject to a use agreement that would require holding rents at their affordable rates until 2011, even if the balance on the loan is prepaid.

"But, of course, we haven't seen any of the documentation about the sale. All we know is what we read in the newspapers or hear," Fukunaga added.

The unidentified representative of seller Kukui Gardens Inc. confirmed that nonprofits did bid, but that the groups could not come up with the money.

Kevin Carney, vice president of EAH Inc., a California-based nonprofit housing corporation that has two projects in Hawaii, said his group tried to guarantee the highest bid by offering to match the highest bid and throwing in an additional $50,000.

"We were definitely the highest bidder, but we were contingent on getting state or federal money," said Carney.

Carney and others familiar with the offering said the sellers wanted $5 million as a down payment and closing in 30 days.

"We depend on government subsidies and financing when purchasing, and that takes time," Carney said. "They went for the more likely chance of getting their money sooner rather than later."

At least two other nonprofits made bids, but none of them made it to the second round of bidding, according to sources familiar with the bidding.

Drew Astolfi, a member of the Faith Action for Community Equity, a multi-faith group that has been organizing residents, said that "anyone using public money to keep the project affordable was effectively excluded from the deal, the way they structured it. I hope HUD looks at that." [11]

A bill that would enable the state of Hawaii to condemn the property in nearing approval and will be signed by Governor Lingle.

In a July 26, 2006 editorial in the Honolulu Advertiser, it is noted that the affordability of the Kukui Garden units till 2011 is tenuous now that the owner of the complex intends to prepay the 40-year HUD note:

But in a surprise move, the corporation invoked a rule that sidestepped the need for HUD approval by simply giving notice that it intends to pay off its low-interest 40-year HUD note.

The legal maneuver is good for Kukui Garden's owner, who is now free to sell to whomever it wants without fear of HUD interference.

But it's bad for the long-term preservation of the affordable Kukui units.

HUD is weighing whether to reject the prepay notice so it can control the sale. Considering the housing crisis, that may be warranted. It also may set an unwanted precedent or open up a long and pointless legal battle.

The state also is prepared to step in after a new law was signed last month specifically authorizing the state to extend the life of Kukui's affordability or invoke eminent domain. That should be a last resort. Condemning Kukui Gardens for a takeover by the state would require public financing that would be costly to taxpayers. [12]