(Source: Honolulu Star Advertiser)
About 1,000 mainly low-income Hawaii households have a new private landlord after a more than two-year effort by the state to shed a portfolio of affordable rental housing.
The change, which has worried many residents, affects five properties on three islands now and a sixth property soon.
Komohale LP, a partnership between local developer Stanford Carr and Los Angeles-based Standard Communities, now owns Kauhale Kakaako, Pohulani Elderly and Kekuilani Courts on Oahu; La‘ilani Apartments on Hawaii island; and Honokowai Kauhale on Maui as part of a $130 million purchase from the Hawaii Housing Finance and Development Corp. that closed Friday.
A sixth property, the 226-unit Kamakee Vista on Oahu, is included in the sale pact but is scheduled to be transferred on or before July 15 because it is on land owned by the Atherton Family Foundation and leased to the state through 2056.
The five other properties are on state land and were sold with 75-year land leases under which Komohale pays the state $1 a year in ground rent. At the end of the lease, the state automatically reclaims ownership of the buildings.
As part of the deal, Komohale must spend $85 million to renovate all the homes within three years.
The renovation work includes exterior building improvements but equates to $69,615 per unit.
HHFDC initiated the sale by deciding in late 2016 to seek competitive bids to buy its portfolio. Komohale was selected in late 2017 as making the best offer among six bidders.
State officials say the privatization will allow more efficient and quicker improvements to the aging complexes containing significant deferred maintenance because HHFDC was not set up to own and maintain affordable housing.
The agency’s primary mission is to help private developers finance new affordable housing.
“It’s more cost effective to sell the leasehold interest and have Standard Communities and Stanford Carr Development bring private capital to pay for renovations and other capital improvements through the sale,” Gov. David Ige said in a statement. “Leveraging private funds through partnerships like this is a more efficient use of state resources.”
Additionally, HHFDC plans to help produce more low-income housing with $40 million in net proceeds from the sale after paying off debt on the properties.
This, state officials have said, will help offset an expected long-term shift for the six properties from serving mostly low-income tenants to serving only moderate-income residents.
Craig Hirai, HHFDC’s executive director, said in a statement that in the long run the transaction will generate more affordable housing that serves residents with a broader range of incomes.
Under terms of the sale, the new owner can’t raise rents for existing tenants more than 2% a year over the first five years and then 5% annually for another 30 years, except at Pohulani where the 2% cap would continue for current tenants as long as they stay.
HHFDC also said it will continue, and in some cases increase, rent subsidies it provides to many existing tenants.
Despite the assistance and rent limitations, some tenants fear that a private owner will be motivated by profit to churn tenants and maximize rents.
“The people (in my building) are very afraid,” said Gordon Lindsey, a retired state worker who lives at Kauhale Kakaako. “A lot of people are thinking of where they are going to go.”
Lindsey said he was recently notified that his monthly rent is scheduled to rise by $30 as of July.
Monthly rent last year at the six properties ranged from $942 to $1,268 for studios up to three- bedroom units.
For new tenants, Komohale can raise rents to HHFDC-set limits deemed affordable for households earning up to the median income for some of the homes and up to 80% of the median income for other units.
Currently, most tenants in the six properties earn no more than 60% of Honolulu’s median income, which last year equated to $49,020 for a single person or $69,960 for a family of four on Oahu.
At the 80% of median income level, maximum monthly rent could be $1,634 for a studio and $2,426 for a three-bedroom unit on Oahu. At the median income, those figures are $2,042 and $3,032 respectively.