Front Street Apartments purchase could keep rents affordable

Maui County is preparing to advance $250,000 to help fund an appraisal of the ground lease for the affordable Front Street Apartments, where rents are set to go to market rates in 2019.

The county would need to put up the money if Gov. David Ige signs Senate Bill 2293, which calls for the state to start the process of condemning the ground lease for the Front Street Apartments. Both the state and the county would provide $250,000 each to help cover the cost of the appraisal and other preparations for condemnation.

“The big picture is no matter whose fault it is, or who brought on the situation . . . $250,000 is far less than what it would cost for homeless services for many of the 250 tenants who are now facing the potential of being evicted when the market price rents go up,” Gary Kubota, community liaison for the tenants, told the Budget & Finance Committee Tuesday.

Committee Chairman Riki Hokama said the council needs Mayor Alan Arakawa to make a formal request for the funding first.

The Senate bill also sets aside $30 million to fast track the construction of the Leiali’i affordable housing project in Lahaina by 2021.

Maui lawmakers have spent the past two years trying to save the 142-unit Front Street Apartments, which were built as an affordable housing project in 2001. The owners, Front Street Affordable Housing Partners, have said that they plan to raise rents to market rates by August 2019. A loophole in federal tax code allows the owners to do so after they were unable to find a buyer for the development.

Lawmakers considered trying to extend rents through 2027, as well as providing subsidies for tenants, before finally settling on seeking to appraise and acquire the ground lease from Front Street Affordable Housing Partners, which leases the land from 3900 Corp.

“We cannot begin any kind of meaningful discussions without getting an appraisal,” said West and South Maui Sen. Roz Baker, one of the lawmakers who introduced the bill. “We also know that there’s a rationale for engaging the county in this effort because some of the actions that the Front Street Apartment folks took actually is contrary to the intent that this council made when they provided them with some tax credits and other benefits.”

Council Member Stacy Crivello asked what would be the benefit of acquiring the ground lease.

“If we’re the ground lessee, we could charge the current rents,” explained Craig Hirai, executive director of the Hawaii Housing Finance and Development Corp., which helped fund the apartment project. “We just have to pay the ground lease to 3900 (Corp).”

“And they can up it if they wish?” Crivello asked Hirai.

“Well, it is what it is,” Hirai responded.

However, Baker added that if the state can get the ground lease, “then the tenants will be able to access the subsidies that are available for keeping something affordable.”

“So you have that ability — because you’re in control of that lease — of setting the terms and conditions for the rents and making sure those properties stay affordable,” she said.

Council Member Don Guzman said he was supportive of the county chipping in $250,000 because it would show the county’s support while putting “the onus on the state to proceed with the condemnation.”

Although council members have reiterated that Front Street Apartments was a state project, the county has taken steps to support the tenants. The council passed a resolution urging the state to save the apartments, and Arakawa instructed his office to look into the tax benefits given to the Front Street Affordable Housing Partners. In April, the council also passed a resolution allowing Council Chairman Mike White to contract for an appraisal of the apartment buildings.

However, owners representative W. Adam Dornbush has denied the county entry to the property to do an appraisal. He said in a May 11 letter that Front Street Affordable Housing Partners “is not interested in selling its interest in the subject property,” and said that the council’s resolution “contains numerous factual inaccuracies and a fundamental misunderstanding of the applicable law involved in this matter.”

Dornbush added that the owners have been “engaged in good faith negotiations with HHFDC to retain affordable rental rates in the project beyond the rent hold period” and that it appeared the Legislature and the county were “not on the same page, and do not understand the law.”

On Tuesday, Hokama asked Hirai if the state agency has been in “good faith discussions” with the owners.

“It’s a little complicated, but the answer is not at this time,” Hirai said. He explained that the state had spoken with the owners while an earlier version of the bill was being discussed, but then that version changed completely.

Hirai said it’s “further complicated” because the HHFDC, Front Street Affordable Housing Partners and 3900 Corp. are all co-defendants in a lawsuit filed by tenants in May challenging the rent increase. Hirai said he could not discuss the ongoing lawsuit.

As for whether Ige would sign the bill, Baker said she has “every expectation that he will.” She said that the reason he hasn’t yet is likely because lawmakers have asked for a public signing ceremony, which takes longer to arrange.

On Tuesday, the committee also discussed a request to transfer $240,000 within the Fire & Public Safety Department to cover the costs of sending Maui County firefighters to Hawaii island to assist with volcanic eruption response efforts.

Budget Director Sandy Baz said money would be transferred into the fire/rescue operations program. The funds would cover only overtime costs, not travel, which Baz said could be covered by a grant, or lodging, which Hawaii County could cover.

According to Fire Services Chief Rylan Yatsushiro, 10 members of the department’s All Hazards Incident Management Team were sent to Hawaii island from May 5 to 13, while 14 members were sent May 20 to June 2. Nine more members were sent Thursday and will return Friday.

Deputy Fire Chief Lionel Montalvo said the county expects to be reimbursed by the Federal Emergency Management Agency. The agency generally reimburses 75 percent of the costs, though that could take anywhere from six months to a few years, Baz said.

Hokama was supportive and deferred the matter so that the council could discuss it Friday.

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

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