A state-owned affordable rental apartment complex on Hawaii island where more than half the units are vacant and need major renovations will be given to a Christian missionary training school after an unsuccessful attempt to sell the project about 18 months ago.
University of the Nations, a missionary training center affiliated with Youth with a Mission, received approval to take over the 128-unit project in Kailua-Kona, Kama‘aina Hale, which has 60 tenants and 68 empty apartments.
The board of the Hawaii Housing Finance and Development Corp., a state agency that owns Kama‘aina Hale, approved the tentative deal Thursday.
Youth with a Mission is a nonprofit, multidenominational Christian organization.
As part of the transfer, University of the Nations has committed to continue renting to existing tenants. Empty units would be renovated by the organization and then rented to faculty teaching at its campus, which is next to Kama‘aina Hale.
Rents and tenants for all units would remain tied to guidelines reserving about two-thirds of the units for tenants earning no more than 80 percent of Hawaii island’s median income, and one-third for tenants earning no more than 50 percent of the median income, as was the case when the state operated the apartments.
The rent range is close to between $900 and $1,200 a month for two-bedroom units with about 800 square feet of living space.
The transfer is part of an effort by the HHFDC, which exists mainly to help finance affordable housing built by private developers, to sell its collection of nine affordable-housing projects it inherited from a predecessor agency.
The HHFDC decided last month to sell two other projects — Kekuilani Gardens, a 56-unit complex in Kapolei, and Nani o Puna, a 32-unit complex on Hawaii island — to Seattle-based affordable-housing developer Vitus Group.
Giving Kama‘aina Hale to University of the Nations will allow the agency to rid itself of a property that became a serious financial drain in recent years due to escalating costs to rent the land under the complex and maintain the property.
“I think we’re getting a very good deal,” said Francis Jung, an attorney and the HHFDC director, who lives in Kona and is familiar with the property.
“It’s probably as good of a deal as we can get,” added Ralph Mesick, a bank executive and HHFDC chairman.
Kama‘aina Hale originally was a condominium called Kona Gardens. It was built by a private developer in 1976 on land leased from Kamehameha Schools. But that project was hurt by a depressed real estate market at the time, and the units were converted to rentals and bought by the state in 1978 for $3.7 million.
Lease rent for the land soared in 2006 because it was linked to land value that ballooned with the real estate boom underway at the time. Annual lease payments jumped to $385,000 from $57,600 currently. In July annual lease rent will become $420,000. The lease runs through 2031 and rent will likely continue escalating.
Another problem has been maintenance. The agency planned to remove floor and ceiling coverings containing asbestos in 2003, but finished the work on only 60 units at a cost of $600,000.
The empty units and higher ground rent produced deficits averaging $337,000 in each of the past three years, according to agency figures.
In late 2011 the HHFDC issued a request for proposals to buy Kama‘aina Hale. Seven interested parties took a look at the property, but no one bid.
At the time, HHFDC estimated it would cost $1.7 million to rehabilitate the 68 empty units. Now the agency estimates the work will cost $4 million to $7 million.
HHFDC is spending $365,000 to remove asbestos from the 68 units. That work is scheduled to be completed this month. University of the Nations will be responsible for improving the units so they can be rented.
Chong Ho Won, a vice president with University of the Nations, said the organization expects to operate the property more efficiently to reduce expenses while assuming the lease from Kamehameha Schools.
“We’re not in it for money,” he said, “but we don’t want to lose money.”
University of the Nations was established in Kona in 1978 as the Pacific & Asia Christian University after acquiring the abandoned Pacific Empress Hotel, and has expanded the campus to more than 100 acres, including learning facilities and 170 residential units.
Last year a fire on Kamehameha Schools land next door threatened a new media studio complex under construction on campus, which led University of the Nations officials to talk with Kamehameha Schools about the danger. During those discussions the trust mentioned that the state was trying to sell Kama‘aina Hale.
After receiving support from Kamehameha Schools, University of the Nations approached the HHFDC in January to explore acquiring the project.
Karen Seddon, HHFDC executive director, said it wouldn’t be productive to issue a new request for proposals to buy Kama‘aina Hale to see whether a better offer can be found. She said feedback from developers previously was that the ground lease was too big a deterrent because the length of the lease was too short and the rent too high.
Under the prior request for proposals, there was no requirement to keep rents affordable or rent only to residents with low or moderate incomes, which raised concerns for existing tenants.
Seddon said the HHFDC will monitor the project for compliance with a requirement to maintain affordability.
