Construction of 120 low-income rental apartments in East Kapolei is slated to begin in February after a roughly two-year delay for the project planned by the state and a nonprofit developer.

The townhouse complex named Kooloaula is between Ewa Villages Golf Course and East-West Road on 18 acres of state land leased to Mutual Housing Association of Hawaii Inc. for 65 years at $1 a year.

The Hawaii Housing Finance and Development Corp., a state agency helping finance affordable-housing development, selected Mutual Housing about four years ago to develop the site in response to a request for proposals.

At the time, Mutual Housing estimated it could start construction in mid-2009. But like several other Hawaii affordable-housing projects, the recession made financing the roughly $35 million project extraordinarily difficult.

The developer over the past two years arranged financing that includes $18 million in Hula Mae revenue bonds, $13.5 million from the state’s rental housing trust fund and $2 million from the city.

Mutual Housing recently selected D.R. Horton’s Schuler Division to build the units that represent the first phase of a two-phase subdivision totaling 308 apartments expected to be built over the next five years.

The impending start of construction of phase one is being welcomed as something that will help move the local economy forward and reduce a critical need for low-income rentals.

"Not only do these partnerships create affordable opportunities for families, they also create construction jobs and help stimulate the local economy," Karen Seddon, HHFDC’s executive director, said in a statement.

Apartments with as many as four bedrooms will be reserved for families earning no more than 60 percent of Honolulu’s median income, with some units reserved for families earning no more than 30 percent of the median income.

At the 60 percent level, monthly rent for a two-bedroom unit would be $1,339 for a family of four earning no more than $59,520 a year under federal Housing and Urban Development guidelines. At the 30 percent level, rent and income levels for the same scenario would be $670 and $29,760, respectively.

Mutual Housing anticipates that a lottery for applicants will be held about a year from now, and that initial apartments should be ready for occupancy in early 2013. Completion of phase one, which also will include a community center and an administration office, is expected by June 2013. Phase two, which needs financing, could be completed by 2016 if plans proceed as anticipated.

David Nakamura, Mutual Housing’s executive director, said Schuler and its contractors helped bring project costs down 10 percent below market rates that made the project financially feasible.

"Kooloaula represents a tremendous opportunity for all parties involved to be part of the solution to provide housing for low-income-earning households," he said in a statement.

Kooloaula is the first project that Schuler, one of Hawaii’s largest homebuilders, has done involving HHFDC.

Mutual Housing is a nonprofit formed in 1992 that owns and manages about 500 low-income rental apartments at three projects — Lihue Court Townhomes on Kauai, and Kekaulike Courtyards and Palolo Homes on Oahu.