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Lawsuit filed to pressure developers to keep promise

3 tenants, prospective one sue Front Street Apartment partners

A lawsuit was filed Thursday against the builders of the Front Street Apartments and the state housing agency to challenge the developer’s attempt to convert the complex to market-rate units before the end of its 50-year commitment to keep rents affordable for low-income tenants.

Three tenants and a prospective tenant are the plaintiffs in the lawsuit filed in 2nd Circuit Court against Front Street Affordable Housing Partners and Hawaii Housing Finance and Development Corp.

If the conversion is allowed, nearly all of the more than 300 tenants would lose their housing, a news release from the plaintiffs said. The tenants include seniors and people with disabilities living on fixed incomes and families with incomes of less than $15,000 annually.

Tenants argue that the market rents would drive many into homelessness.

“The owner promised to maintain the affordability of the apartments and got tens of millions in public benefit upfront. Let them keep their promise,” said Victor Geminiani, an attorney with Lawyers for Equal Justice.

In 2001, $15.6 million from the state Low Income Housing Tax Credit program went to the developers for the complex, the plaintiffs’ said. The developers also received more than $5 million in reduced county property taxes, along with waivers from zoning laws under the “fast track” approval process.

In return, the developers executed a “restrictive covenant,” in which they promised to keep the units affordable for 51 years, according to the news release. The plaintiffs said the owners are now abandoning that promise and plan to increase rents to market rates for all tenants in August 2019.

The tenants argue that the developers got more than $20 million worth of public funds and other benefits and that the value of the complex will increase by up to $44 million if converted to a market-rate project.

“It’s alarming that this is a fast-track project,” said Wailuku attorney Lance Collins, who is one of the plaintiffs’ attorneys. “The project got county zoning, parking, park and utilities exemptions because they represented it would be affordable for 50 years.”

Collins said the four plaintiffs named in the lawsuit are not seeking any damages from the developers; only enforcement of their commitment to affordable housing for the 50 years. He said a court judgment would affect all tenants.

“They are basically the people who are not afraid of retaliation,” Collins said of the plaintiffs.

Three law firms are representing the tenants in the lawsuit and all are working pro bono, according to the news release.

The tenants in the suit are Chi Pilialoha Guyer, who has lived in the complex for over seven years; Michael Tuttle, a resident with two children for over two years; and Joseph Vu, who also has lived there for over two years. The prospective tenant is Rayleen Yap, who shares a room in the house of a family member with her five children and qualifies to rent a unit at the apartments.

The income limit for a one-person household at the complex is $39,660 per year, according to the plaintiffs. One-bedroom units rent for between $885 and $1,062 based upon the tenant’s income.

The developers have asserted that they are entitled to break the affordability promise due to a 2012 change in federal tax law, which created a process for certain properties subject to the Low Income Housing Tax Credit program to be released from their low-income commitments after 15 years, according to the news release.

The plaintiffs argue that the owners’ contractual commitment supersedes the law change. And even if the law change applied, the plaintiffs say the developers failed to provide “reasonable efforts” to advertise the sale of the property as required before turning it into a market-rate complex.

In invoking the exemption in 2015, the developers claimed the property was worth only $8.4 million but offered to sell the property to the state or another purchaser for $15.4 million.

The plaintiffs claim that the developers are seeking to sell the apartments for $52 million. The plaintiffs contend that the developers actions violate its affordability commitment and federal law.

Attempts to reach William Meyer III, attorney for the Front Street Affordable Housing Partners, and others connected to the apartments were unsuccessful Thursday.

The lawsuit also targets the state housing agency that oversees the tax credit program that governs the apartments. The complaint alleges that the agency failed to legally convert the property from low income to market rate and released the restrictive covenant without legal authority and without public notice or consent of the tenants.

Kathryn Snyder, co-chairwoman of the Front Street Apartment Tenants Group, said that her group is not part of the lawsuit and hoped that it does not detract from legislation, approved by the state Legislature and awaiting the governor’s signature, intended to help tenants and to increase the housing inventory in West Maui.

“We wish them well,” she added.

“This is not the time to shirk responsibilities because of political squabbles,” Snyder said. “We need to join together to support finding housing solutions.”

Less than a month ago, lawmakers engineered a compromise measure that protects Front Street Apartments tenants from eviction and mandates that the state housing agency negotiate the acquisition of the apartments. If it fails, the property could be condemned through eminent domain.

The tenants group is asking the County Council to support $250,000 in matching funds with the state toward condemnation of the ground lease of the apartment complex, Snyder said.

The land is owned by 3900 Corp., a Weinberg Foundation entity.

The group also hopes state housing officials will move forward with a 200-unit state affordable housing project mauka of the Villages of Leiali’i in Lahaina. State lawmakers agreed to provide $30 million for the project by 2021.

“Our understanding is that there is enough water and sewage treatment service to move forward with the project, and as a result of an understanding involving ceded lands, Hawaiian Homes is in the process of moving forward with a completely separate development,” Snyder said.

West Maui Rep. Angus McKelvey applauded the efforts of the tenants to keep the developers accountable and believes the lawsuit will not have any impact on the new bill.

“I think it’s a good thing because they’re asserting their rights as renters,” McKelvey said. “Anything that preserves affordable housing and sends a message to developers that we’re not going to let you take credits for affordable housing and let you renege on it is a good thing.”

* Chris Sugidono can be reached at csugidono@mauinews.com.