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Maui lawmakers introduce two bills to keep rent low at Front Street complex

A pair of bills in the state Legislature aim to keep affordable rents at the Front Street Apartments in Lahaina from rising to market rates in 2019.

Maui lawmakers introduced the identical bills in the Senate and House. They would require the state to reach a deal with project owners to keep the units affordable — or, as a last resort, have the government acquire the property by eminent domain.

House Bill 1553 will be heard by the Housing Committee at 9 a.m. Thursday. Senate Bill 1266 will be heard by the Senate’s Housing Committee at 3 p.m. Thursday. Public testimony can be submitted online at capitol.hawaii.gov.

“What’s the sense of building something new if we’re not able to maintain what we already have?” said Rep. Angus McKelvey, whose district includes West Maui, Maalaea and north Kihei.

The privately owned Front Street Apartments opened as a 142-unit affordable housing project in 2001. That could change due to a loophole in federal tax code.

Low-income housing projects are supposed to be affordable for 50 years, county Department of Housing and Human Concerns Director Carol Reimann explained last month. However, due to the IRS loophole, project owners are allowed to put the project up for sale after 15 years. If no one buys the property within a certain time frame, the units can be rented at market rates.

Last year, project owner Front Street Affordable Housing Partners tried to sell the project for $15.4 million. The state was unable to purchase it because it was over the appraised value of $8.7 million. And, by the time the county found out last June, it was too late to buy it, Reimann said.

While rent isn’t supposed to increase until 2019, vacant units are already being rented at market rates, said Chi Pilialoha Guyer, vice president of the Committee for Residents at the Front Street Apartments.

Residents include seniors, people with disabilities and families with children who could not afford to stay if their rents went up, she said.

“We’re good tenants,” Guyer said Tuesday. “We’re not in some kind of slum. It’s just that we got stuck between a rock and a hard place because we were guaranteed we’d have affordable housing until 2051.”

Guyer said she was “so happy” about the bills pending in the Legislature, but she knew the process would not be easy.

The bills lay out two options: one would be to provide funding to help the project owners keep rent affordable through at least 2051. (The bill says 2027 but that is a typo, McKelvey said.) The other would be to work out a deal to purchase the property at the appraised value.

If either of these fail, the state would have to use eminent domain, a last-resort power that allows the state to acquire private property.

“Nothing is guaranteed, but this is the best path forward to rectify the situation,” McKelvey said.

It wouldn’t be the first time the state has purchased a housing project to keep it affordable. In 2006, the Legislature passed a bill that allowed the state to buy the Kukui Gardens affordable rental project on Oahu. It’s the only time that’s happened over the past decade, said Kent Miyasaki, spokesman for the Hawaii Housing Finance and Development Corporation. The Front Street bills are based on that purchase, McKelvey said.

Both state and county would have to partner up to provide funding and make sure the units stay affordable in the future, since the state no longer does “state-only” affordable housing, McKelvey said.

Maui County officials said they were on board with the bills.

“Anything to avoid flipping it to market rates,” said Council Member Elle Cochran, who holds the West Maui residency seat. “So far this is our best option out there and I’m willing to support it.”

As for whether the county has the resources to maintain the project, “I don’t think we have a choice,” Cochran said.

“If we care about the people that are living there  . . . then yeah, we have to figure out how to make it happen,” she said.

Landowner 3900 Corp. is the for-profit arm of the Harry & Jeannette Weinberg Foundation. Calls to the foundation office’s in Honolulu were not returned Tuesday.

The project was developed in 2001 by the Front Street Affordable Housing Partners, SunAmerica Affordable Housing Group and Lahaina Homes LLC, according to published reports. Bill Dornbush, the Hawaii representative and minority owner of the project, failed to respond to repeated messages seeking comment last month and on Tuesday.

McKelvey called the Front Street Apartments situation “a canary in the coal mine” and was concerned “this could be the start of many of these housing projects starting to fall into the same IRS loophole trap.”

“We’re calling out the congressional delegation to fix the loophole so it doesn’t happen over and over again,” he said.

The state provides points to developers who choose not to sell their projects after 15 years, Miyasaki said. Points help determine who gets low-income housing tax credits. Many have chosen not to sell their projects in order to get points.

Victor Geminiani, an attorney who is working with the Front Street Apartment tenants, said he hoped a solution could be found for residents who “have no certainty” of where they’ll live.

“When they went in and signed their leases, they thought their lives were going to be secure for the long term,” said Geminiani, co-executive director of nonprofit law firm Hawaii Appleseed. “And they find out now that all bets are off. They really are not equipped  . . . to deal with a dislocation.”

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

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