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Deal will keep rent affordable at Front Street Apartments

Residents celebrate as legal battle to keep rent from rising comes to an end

The Front Street Apartments are shown in 2017, when tenants kickstarted efforts to keep rent affordable after learning the project owner planned to raise rents to market rate. Project owner Front Street Affordable Housing Partners is dropping its appeal of a 2020 court ruling after striking an agreement with the state to pay a lower ground lease and keep rent affordable for tenants. The agreement took effect July 1 and is in place for 75 years. The Maui News / MATTHEW THAYER photo

A housing complex in Lahaina where residents have fought for years to keep rent under market rates will stay affordable for the next 75 years under an agreement between the project owners and the state.

Owners of the Front Street Apartments dropped an appeal over a judge’s ruling in 2020 that Front Street Affordable Housing Partners was obligated to keep rents affordable through 2051.

“The incredible stress for so many people, not knowing if they would lose their home, has really taken its toll,” Front Street resident and plaintiff Mike Tuttle said in a news release on Thursday. “It’s hard to put into words the level of joy and relief we all feel now that it’s over, but it’s extremely sad that it had to come to this.

“I thank God for all the wonderful people at Hawaii Appleseed, Lawyers for Equal Justice, the lawyers at Hogan Lovells, and attorney Lance Collins, for saving this affordable housing complex.”

Residents of the Front Street Apartments have been advocating to keep the apartments affordable since 2017 when they learned that the owner planned to raise rents to market rate.

When the 142-unit Front Street Apartments were built in 2001, they were supposed to be affordable for 50 years. But a loophole in the federal tax code allowed the owners to put the project up for sale after 15 years. If they couldn’t find a buyer, they could rent the units out at market rates.

The state was interested in buying the property but couldn’t make the purchase because it was on the market for $15.4 million, above its appraised value of $8.7 million.

Maui’s state lawmakers scrambled to try and save the project, proposing bills in 2017 directing the government to negotiate with Front Street Affordable Housing Partners and the landowner, 3900 Corp., a Weinberg Foundation affiliate. The measures ultimately died, but the next year, the Legislature passed a bill allowing the state to look into condemning the land under the project.

In 2019, the state purchased the land for $15 million.

Tenants secured a major victory in August 2020 when Hawaii federal District Court Judge Jill Otake ruled that Front Street Affordable Housing Partners had to honor its commitment to keep rents affordable for the next 31 years, through 2051.

Front Street Affordable Housing Partners had filed an appeal but asked the court to dismiss it after coming to an agreement with the state to pay a lower rate for the lease and keep rents affordable for tenants, explained Natalie Mesa, an attorney with Settle Meyer Law, which represented Front Street Affordable Housing Partners.

“It didn’t make sense to move forward with the appeal anymore now that we agreed to keep the project in affordability,” Mesa told The Maui News on Thursday afternoon.

The newly agreed-upon ground lease took effect July 1 and lasts for 75 years. When asked why the project owners decided to extend the affordability period, Mesa said, “I think there was a lot of factors that played into that.”

“One was from a business standpoint, we felt like we could, with the new business terms, feasibly operate the project,” Mesa said. “And it takes a lot of time and effort and money to keep litigation going, so we felt that this was the best outcome for the tenants, the best outcome for the owner and for the state.”

Mesa said the owners negotiated with the Hawaii Housing and Finance Development Corporation “to figure out OK, how can we make the project work without an infusion of new financing or new equity?”

Front Street Affordable Housing Partners had been paying an annual base rent of $310,800, with contractual increases of $84,000 every 10 years beginning on July 1, 2027, according to state documents.

Under the new lease with the state, the owners will pay annual ground rent starting at $60,000 with 3 percent annual increases payable monthly in advance.

As of April 7, 18 units were occupied by households that do not meet the 2002 income restrictions. The project will have to be in compliance by May 1, 2023.

Mesa said the project owners will have to keep rents in line with affordable housing guidelines, which means rent could increase but within affordable limits; 70 of the units are for households earning up to 50 percent of the area median income, while 71 units are for households earning up to 60 percent of the area median income. One unit is for the manager.

On July 5, the Ninth Circuit Court of Appeals dismissed the case with prejudice, meaning that the project owners can’t “resurrect any claims to appeal Judge Otake’s ruling,” Mesa said. “I think there’s always a possibility that new plaintiffs could file new claims, but I think we’re done.”

When asked if the owners had any plans to sell the project, Mesa said, “none right now.”

Attorney Lance Collins said that “Judge Otake’s decision ensures that public officials can have confidence that when they approve affordable housing agreements with tax breaks and credits, that subsequent owners can’t back out of their end of the bargain decades later.”

Ray Kong, legal director at Lawyers for Equal Justice, said that the project was a reminder of how “we need to think ahead” about keeping housing affordable before rent restrictions expire.

At the Front Street Apartments, residents have reason to celebrate after years of living in limbo.

“It is wonderful to know that we (will) continue to have a home here at FSA and mahalo to the attorneys for coming to the aid of the folks who live at FSA,” said Chi Guyer, who pointed out that tenants have been waiting with bated breath for over four years “to learn whether or not our homes would be here for us. Many thanks for saving affordable housing at FSA.”

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

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