Affordable rents for tenants extended with stay

Owners of Front Street Apartments seeking raise to market rates

Rents at Front Street Apartments will remain affordable beyond an August deadline and possibly into next year, said an attorney for the renters who are fighting efforts by developers to raise rents to market levels.

“There is some breathing room,” said Lance Collins, one of the attorneys representing three tenants and a prospective tenant in the case against Front Street Affordable Housing Partners and Hawaii Housing Finance and Development Corp.

The lawsuit filed last year challenges the developer’s attempt to convert the complex to market-rate units before the end of its 50-year affordability commitment to low-income tenants.

The developers contend that they are entitled to break the affordability promise due to a 2012 change in federal tax law, which allows them to be released from their low-income commitments after 15 years.

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

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

Developers had pinpointed August to raise rents.

“They are relieved,” Collins said of the tenants. “But this process is still very stressful.”

They only are seeking to keep affordable rents in place and no other damages. Tenants include elderly and people with disabilities living on fixed incomes and families with incomes of less than $15,000 annually.

Collins said that the stay on rents, agreed upon by the parties, will be in effect until either the HHFDC becomes the owner of the apartments or four months after the court issues a final judgment.

The next court hearing probably will be scheduled in the fall, and if needed a trial at the end of this year or beginning of next year — pushing the stay past August.

The time extension was agreed upon because the state and the developers feel they can work out their differences, Collins said.

Both HHFDC and an attorney for Front Street Affordable Housing Partners could not immediately be reached for comment on the court case Monday.

Just last year, the Legislature passed a bill that began the process to enable the state to condemn the ground lease for the apartments. Both the state and the county put in $250,000 each to prepare for the condemnation of the ground lease.

So far, all the funds have not been used because the state is in the process of obtaining an appraisal on the project, said Kent Miyasaki, housing information specialist with the HHFDC.

But now, the Legislature has a new bill, House Bill 543, currently making its way through the session. Supporters of the bill feel it is more beneficial to the tenants, community and others because it prioritizes acquiring the lease and fee interests in the project.

If an agreement to transfer the property to the state is not reached within a “reasonable time,” then the state could exercise the power of eminent domain, the bill said. The state would provide public financing for the eminent domain execution.

A third reading on the bill in the Senate is scheduled for today.

In previous testimony submitted on the bill, William G. Meyer III, the attorney for Front Street Affordable Housing Partners, said the partners were not taking a position on the bill but said it is “currently negotiating in good faith” with the state in order to reach an arrangement that is mutually satisfactory to the HHFDC, Maui County and the Front Street partners.

He added that the partners “remains ready and willing” to consider lower cost options for the state whereby the partners would retain ownership of the project through an arrangement with HHFDC that provides affordability and anti-displacement protections for the tenants.

“We remain concerned for the low-income tenants at the Front Street Apartments — especially those living on fixed incomes — and the threat that they could be homeless if the project is converted to market-rate housing,” Maui County spokesman Chris Sugidono said in an email Monday afternoon. “We support the state Legislature’s bill to direct the HHFDC to initiate negotiations and exercise its power of eminent domain to acquire the project.”

Even if things work out with the state and Front Street partners, Collins said the suit still has merit and is important. The plaintiffs have argued that the owners’ contractual commitment supersedes the law change and that they did not follow the proper steps to turn the project into a market-rate property.

For example, the developers failed to provide “reasonable efforts” to advertise the sale of the property as required before turning it into a market-rate complex, he said.

* Melissa Tanji can be reached at mtanji@mauinews.com.