REGIONAL REPORT

WEST

Building and Saving Housing in Hawaii

BY DONNA KIMURA

AFFORDABLE HOUSING FINANCE • NOVEMBER 2007

HONOLULU—EAH Housing is at the center of two major affordable housing deals in Hawaii this year. One is a notable preservation project, and the other is the nonprofit developer’s first new construction deal in the state.

EAH is co-sponsoring with San Francisco-based Devine & Gong, Inc., the acquisition of roughly half of the vast 857- unit Kukui Gardens development in Honolulu to preserve it as affordable housing. The project was originally financed by its owners under the Department of Housing and Urban Development (HUD) Sec. 221(d)(3) program, and its affordable housing userestrictions are scheduled to expire in 2012.

The nonprofit owner, Kukui Gardens Corp., put the development on the market and a for-profit buyer stepped forward, raising huge concerns about the property’s long-term affordability for residents. The potential loss of the affordable units triggered one of the biggest housing fights in the state in years, according to Drew Astolfi of Faith Action for Community Equity (FACE), a local community- justice group that has been working with the residents. FACE sued HUD, saying the department could not allow for a prepayment of the mortgage.

As part of a negotiated settlement of tenant litigation seeking to block the proposed sale, the Kukui Gardens project is proposed to be subdivided, with 389 units going to a limited partnership sponsored by EAH and Devine & Gong, and the remainder to be sold to Carmel Partners, which has agreed to maintain the property as rental housing. Under the plan, the state is expected to purchase the land under the 389 units around the end of the year. Devine & Gong has been instrumental in negotiating the settlement.

The state is looking at using a combination of state appropriations and bond funds to acquire the property, said Dan Davidson, executive director of the Hawaii Housing Finance and Development Corp. (HHFDC).

His agency, which is responsible for awarding tax credits in Hawaii, is also trying to boosts its development activities. It works with developers to build affordable housing in Hawaii, including on state land. Davidson estimated having about 1,065 affordable units in the pipeline.

EAH is also about to begin site work on a 192-unit affordable housing development, marking its first new construction deal in Hawaii.

It’s a milestone for the organization, which has focused on acquisition and preservation since entering the state in 1996. Headquartered in Northern California, EAH is a longtime nonprofit organization that has developed more than 5,400 units. It owns and manages a combined total of more than 1,000 units in Hawaii.

The new development will provide affordable rental housing at Ewa Villages on Oahu. Grading is scheduled to begin in November, according to Kevin Carney, EAH vice president in Hawaii. Vertical construction on the first two phases is anticipated to begin around April 2008.

The development is significant in an area strapped for affordable housing. Renters, especially the state’s many service workers, have it particularly hard. Hawaii renters paid $1,116 per month on housing costs last year, the highest median amount in the country, according to the Census Bureau.

The new project’s 64-unit first phase and 76-unit second phase received a combined total of about $2.1 million in federal 9 percent tax credits and about $1 million in state tax credits from HHFDC this year. In addition, the state has committed $6.8 million in Rental Housing Trust Fund loan proceeds, and the city of Honolulu will provide about $6.4 million in HOME funds to make the project possible.

The first phase will cost about $26 million, and the second phase, $27.5 million. A third phase, which will cost roughly the same amount, is also planned.

EAH initially planned to build 240 affordable units on the 24 acres, but because of the costs of development and the infrastructure needed on the site, it agreed to transfer eight acres to a for-profit developer to build 50 single-family homes. In exchange, the for-profit company will build a large portion of the infrastructure needed for the rental project.

Construction costs are roughly 20 percent higher in Hawaii than in Northern California, estimated Al Bonnett, EAH’s senior vice president for real estate. He cites four major issues making development especially challenging in the state—the need to import supplies, an excise tax on materials, a small labor pool, and the high cost of land. In addition, Hawaii is unique because there is an international demand for housing there, with people from Asia and other regions eager to own property.