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Tenants look to Legislature to keep rent affordable

Renters at Front Street Apartments are facing market-priced increases in about 18 months

By Colleen Uechi 9 min read

LAHAINA -- Four generations of Sean Farrington's family have lived in Lahaina, but slowly they've all been pushed out by rising rent and property taxes.

Farrington's mom lives in Maalaea. His dad moved to Las Vegas. Now the 26-year-old Lahainaluna graduate is the last of his family still living in the town where he grew up. But even that's up in the air, now that rent at the affordable Front Street Apartments where Farrington lives is set to rise to market rates in 18 months.

"All my friends, all my family are slowly leaving, and I'm slowly about to get pushed out too," he said. "I see all the families in here, and this is all they can afford. What are they supposed to do after that?"

Farrington is among the many tenants who are putting their hopes on the latest bills introduced by state lawmakers to keep the apartments affordable. Senate Bill 2293 and House Bill 2006 call for the state to negotiate with Front Street Affordable Housing Partners, the apartment owners, and 3900 Corp., the landowner, to either maintain affordable rents through 2027 or allow the state to purchase the complex. If negotiations don't pan out, the state would use eminent domain to condemn and purchase the apartments.

Last year, two similar bills stalled in the Legislature. But this time around, residents are banking on the rise in public awareness. In December, the Maui County Council passed a resolution urging the state to keep the apartments affordable. In January, the Mayor's Office launched an investigation into the benefits the apartment owners received. Churches, nonprofits and community associations have sent letters of support to lawmakers.

"We have support," said Barbara Henny, co-chairperson of the Front Street Apartment Tenants Group. "People are more aware of the whole situation. Maui desperately needs to retain affordable rental housing."

On Tuesday, both measures passed unanimously out of each chamber's Housing Committee. Senate Bill 2293 has been referred to the Ways and Means Committee, while House Bill 2006 has been referred to the Finance and Labor and Public Employment committees.

"If they want to keep the property, they need to come and work with the state," West and South Maui Sen. Roz Baker said. "If they don't care about the property, then we can take it by eminent domain."

Promises reneged?

The 142-unit Front Street Apartments opened in June 2001 and was supposed to stay affordable for 50 years. At least that's what local officials were expecting when they gave funding and tax exemptions to the project.

Front Street Affordable Housing Partners developed the project with SunAmerica Affordable Housing Group and Lahaina Homes LLC. The $15.3 million project received funding from Sun America Housing Fund 753, First Hawaiian Bank and the state Housing and Community Development Corp. -- now the Hawaii Housing Finance and Development Corp. -- according to news reports at the time.

The project was also granted $1.2 million in annual federal tax credits and $360,000 in annual state tax credits.

The apartments sit on land owned by 3900 Corp., an affiliate of the Harry and Jeanette Weinberg Association. Developers signed a lease with 3900 Corp. through 2066. According to the ground lease, rent totals went from $18,900 to $25,900 a month, or $310,800 a year, beginning July 1, 2017.

Now, Front Street Affordable Housing Partners may be able to raise rents on tenants due to a loophole in the federal tax code. In 2012, the code was amended to allow investors to sell low-income projects after 15 years. When Front Street Affordable Housing Partners put the housing complex up for sale, the state was interested in buying it. But because it was listed for $15.4 million, above its appraised value of $8.7 million, the law prevented the state from making the purchase. By Aug. 4, 2016, one year after the property went up for sale, no buyers had come calling, allowing the apartment owners to raise rents to market rates by Aug. 4, 2019.

But Don Couch, executive assistant to Mayor Alan Arakawa, says the apartment owners are walking back on promises made in 1999, when they came before the Maui County Council and asked to fast-track the project. Couch, a former South Maui council member, is heading up the county's investigation into the benefits the Front Street Affordable Housing Partners received.

While the county didn't fund the project, it did grant a number of exemptions that allowed developers to save money, Couch said. The county allowed the project to reduce parking and waive requirements on rezoning part of the land, setting aside 1.6 acres of parkland and placing off-site utility lines underground. Couch said the exemptions were given based on the premise that the units would stay affordable for 50 years.

"They made promises to the council that they're now reneging on," Couch said.

Couch said the Mayor's Office, the county Department of Housing and Human Concerns and the state are working together on the investigation. He said the county is "looking at what our options are if they break the agreement," which he thinks the apartment owners are doing by opting out of affordable housing.

"The feds and the state gave them tax credits," Couch said. "They went to the community and said, 'Yes, this is going to be affordable for 51 years.' . . . The county did not get money that they should've gotten. They did not get requirements that they should've gotten."

But William Meyer III, attorney for the Front Street Affordable Housing Partners, wrote to the Legislature on Tuesday that his clients were "automatically freed" from the restrictions of their agreement with the state after no buyer could be found for the housing project. Meyer warned that litigation could follow if the state chose to pursue eminent domain.

Pursuing the apartments

Both of the bills at the state level give the Hawaii Housing Finance and Development Corp. the authority to try to purchase the Front Street Apartments. If negotiations fail, the agency wouldn't have to come back to the Legislature for approval to condemn and purchase the property. Baker said the agency would be able to take money out of the state's Dwelling Unit Revolving Fund.

"I think it makes it workable for the agency. It gives them the necessary legislative authority to do what needs to be done," Baker said. "I think there were some other issues surrounding the bill last year."

The bills also call for the state and the county to put in $250,000 each toward negotiations. Adam Dornbush of Dornbush & Co., the group speaking for the apartment owners, has said he is open to negotiations, though he could not be reached for additional comment last week.

But County Council Member Elle Cochran, who holds the West Maui residency seat, is skeptical of the bills, which she said are essentially the same as last year.

"I don't know if there's any momentum to pass it again at the state this session, and the council Budget (Committee) chair last year wasn't supportive of putting $250,000 into soft negotiations with no end plan," Cochran said.

That's why Cochran is most interested in taking the eminent domain route, though she knows it's not easy and could be expensive. However, she argues it's much more difficult and costly to build new housing for the more than 250 tenants, many of whom live on fixed incomes and said they could not afford to rent at market rates.

Cochran also suggested using the $250,000 to pay for an appraisal of the apartments instead. Meyer has estimated that the apartments could cost anywhere from $35 million to $50 million, though Cochran didn't trust those numbers, "as they have a history of inflating the sales price, which is why the state couldn't buy it in the very beginning."

"I think the only responsible, action-oriented thing to do is get the building appraised," Cochran said. "Plus, the attorneys are talking about fair market rates as a value, when there is still a big dispute about whether those apartments should be at fair market rates, or at affordable rate, which is going to affect the appraised value of the building a lot."

Nowhere else to go

As for the tenants, they just hope the state can work out a deal before August 2019. Farrington tried living in a market-rate apartment and struggled to pay his bills every month. He's a waiter at Star Noodle and works part time at an Olowalu tomato farm. If rent increased, he said, he'd "have to get another job for sure," and is still debating whether he should stay at the Front Street Apartments, where he pays $975 for a one-bedroom unit.

Helen Bullion, 76, is also worried about young tenants like Farrington.

"We've got to keep this, not only for our seniors and disabled, but for the younger generation," Bullion said. "That's what I want for the younger generation, is to be able to go to work, come here, make an application and then say, 'Wow, I got an apartment I can afford.'"

Born and raised on Molokai, Bullion worked as a bank officer on the Mainland before moving to Maui after the death of her husband. She lives on a fixed income and takes the Maui Economic Opportunity shuttle to dialysis in Kahana three times a week. Her son has diabetes and recently had a right toe amputated, so she plans to look after him as well.

Bullion said she waited a year to get an apartment at Front Street, and that she'd have to wait even longer to get into senior housing at Hale Mahaolu.

As for tenant Gary Sherman, he said it would be "back to the tent" for him if rents went up. Sherman is a disabled veteran who served as a medic in the Gulf War. He's fighting stage 4 throat and pancreatic cancers and goes to chemotherapy every other week. In 2012, he and his wife, Leann, moved back to Maui from Kentucky to take care of Leann's mother. They lived in a tent for more than a year until they were able to move into the Front Street Apartments.

"I just hope the thing passes," Sherman said of the state Legislature bills. "It's going to hurt a lot of people if it doesn't."

* Colleen Uechi can be reached at cuechi@mauinews.com.

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