Last year, there appeared to be little hope that taxpayers would see repayment of even a portion of the millions of dollars Ka Hale A Ke Ola Homeless Resource Center owes Maui County for construction of the nonprofit's low-income housing projects.
In late June, the nonprofit's 200-unit Wailuku low-income rental project, Hale Makana O Waiale, was running a $20,000 monthly deficit, members of the Maui County Council's Housing, Human Services and Transportation Committee learned.
The nonprofit has been unable to make payments to the county for a loan issued in 1998 for $4,055,000 for development of Hale Makana. (A separate county loan of $4 million was granted in 2005 to Ka Hale A Ke Ola for its Lahaina housing facility.)
The dilapidated sign for Hale Makana O Waiale reflects problems with maintenance and upkeep noted in a management report on the facility heard last week by the Maui County Council’s Housing, Human Services and Transportation Committee. The report by Cirrus Asset Management Inc. contends that improved management could lead to positive cash flow at the 200-unit, low-income rental facility.
The Maui News / MATTHEW THAYER photo
But now, by "normalizing management practices . . . with industry standards" rental income at Hale Makana could increase by $127,000 per year, payroll expenses could decrease by $400,000 annually and other expenses could be reduced by $100,000 per year, according to a study by Cirrus Asset Management Inc. in Honolulu.
The county Department of Housing and Human Concerns paid $15,000 for the study of Hale Makana's management. The Cirrus report has 40 detailed recommendations, ranging from reorganizing staffing to outsourcing landscape maintenance, trash collection and pest control.
As members of the council's Housing, Human Services and Transportation Committee reviewed the report Thursday, Ka Hale A Ke Ola Chief Executive Officer Rebecca Woods disputed it.
"I don't believe it's really accurate," she told committee members. "The agency did not have a chance to respond to the report as most management companies do allow."
During testimony, she did not detail her objections to the report, and she did not respond to a request from The Maui News for further comment.
Daniel Gavin, Cirrus' vice president and principal broker, acknowledged during the committee meeting that property management is a "very difficult job." He said that the aim of his company's Jan. 23 report was to be a "problem-, solution-oriented document."
It contains 40 recommendations, if followed, then "it's a road map," Gavin said. "It's exactly what you need to do to turn it around and make it profitable."
Cirrus officials inspected the Hale Makana property, analyzed its management practices and compared the low-income rental housing project with comparable Maui housing developments.
Two of the comparable properties were low-income projects - one with 142 units and the other with 62 units. A third property, with 288 units, was a "conventional" property, according to the study.
The Cirrus study of financial documents found that Hale Makana's payroll costs are nearly three to four times higher than the comparable affordable properties and three times higher than the comparable conventional property.
Hale Makana's payroll costs are $3,891 per unit annually, while the comparable properties' payroll costs ranged from $1,035 to $1,622 per unit annually, according to the Cirrus report.
A property of Hale Makana's size and condition should have payroll costs of $1,650 per unit annually, the report says, adding that the project is "significantly over-staffed."
For example, the report says, Hale Makana has seven security employees with a total annual payroll cost of $232,000 per year. But, instead of handling security, the seven employees perform many of the functions of assistant managers do move-out inspections (about four per month), distribute notices to residents and handle keys.
"To be fair, security is intended to be the eyes and ears of the management," the report says. It also provided an anecdote to show from Cirrus' observation that security employees "do not perform that function very well."
According to the report's anecdote, two security people were sitting in an office on a Sunday, and while Cirrus inspected the property's common area for nearly two hours "we saw no security staff. When we finally worked our way to the office, the same two security persons were still in the office conversing."
The report went on to say that on a Cirrus property visit the next evening, "we observed a severe flood of water and property damage being caused by a burst irrigation line. A resident passing by informed us that she had reported it three days earlier. It appeared to be there for at least that long, the water having created a cavern under one of the lanais . . . We observed the two security people walk by the unmistakable 'lake' that had formed from this flood. They illuminated it with their flashlights and walked on by. An inspection of their handwritten log book the next day revealed that they did not report the leak to maintenance. None of the numerous irrigation problems was in the log book."
The Cirrus report says that Ka Hale A Ke Ola is "assuming considerable legal exposure by offering 'security' guards at all. Significant, potential liability arises because 'security' places a duty on ownership and management to ensure residents' safety and security. For this reason, professional property managers will be sure to specify that 'courtesy patrol' is offered and not hold out the property as a security property."
According to the Cirrus report, providing security at Hale Makana is not "readily achievable, or even desirable."
Cirrus' report recommends "outsourcing" the "courtesy patrol" to a reputable security guard company.
"They will provide professional, trained guards who will patrol on foot and by car, be on-call 24/7 and maintain a computerized log with daily reports to management," the report says.
The report also was critical of Hale Makana's maintenance, saying it was "very poor and must be completely reformed."
Units that are vacated are worked on but not cleaned until they are rented, "meaning that prospective residents are shown filthy vacant units," the report says.
The report says that "filthy units and poor workmanship is an acceptable practice" at Hale Makana, even by the maintenance supervisor, and that the prevailing attitude is "that's the best we can do."
Woods and Ka Hale A Ke Ola Maintenance Director Joseph Molina disputed this report finding during Thursday's committee meeting.
Molina said that when tenants move out, maintenance crews first do major repairs, then they wait until the unit is nearly ready to be rented out before doing a thorough cleaning.
"We do everything we have to do. We get it done the right way," he said.
Molina said that the Cirrus report was "not really true" about maintenance issues, the number of properties run (the nonprofit has two other properties, one in Wailuku and one in Lahaina) and the acreage handled by maintenance workers.
Woods also said that the units are cleaned after initial work is done to strip and wax floors and paint units. "They're not going to show a filthy unit, ever," she said.
Even though Hale Makana has nine full-time staff members for maintenance (Woods said that the maintenance staff is seven), the maintenance manager told Cirrus inspectors that another six workers were needed for a total of 15 for the 200-unit complex. But the Cirrus report said that appropriate staffing for a complex of Hale Makana's size would be two full-time maintenance staff and one porter.
"Given the deferred maintenance at the property, this can be increased by as many as two additional staff for a short time until deferred maintenance is caught up," the report says.
Woods said that the maintenance staff is spread throughout three housing project sites with 330 units and 33 acres.
"They work very, very hard, but they are spread out," she said. "They don't waste time lollygagging and not doing anything. They're always very busy."
Cirrus' 40-page report makes more than three dozen recommendations, and it provides photos of what appear to be indoor and outdoor apartment facilities in need of repair and maintenance as well as walls painted with graffiti.
Department of Housing and Human Concerns Director Jo-Ann Ridao told council members she would work with Cirrus and use its recommendations to make improvements at the low-cost housing facility and, hopefully, see some positive income that could be used to repay the county loan.
She said she favors outsourcing security for the facility, which would save money and not expose it to liability.
Last year, Hale Makana had about 800 residents and a waiting list of approximately 400 individuals and families. Residents pay about $770 per month in rent, the Cirrus report says.
Council Chairwoman Gladys Baisa said Hale Makana provides an important community service by providing affordable rental housing to low-income residents. It is "an integral, a very important part of our community, and we all want to keep it going," she said.
She asked that the county and facility management work on Cirrus' suggestions for improvements, hopefully being able realize a positive cash flow.
If the facility could get $300,000 a year, the loans could be paid off in 24 years, Baisa said.
The committee deferred action on the matter.
* Brian Perry can be reached at firstname.lastname@example.org.