State officials recently agreed to sell a collection of low-income housing to a private developer for less than originally planned, after an examination of the more than 1,200 rental homes showed a need for substantial renovations.

The board of the Hawaii Housing Finance and Development Corp., a state agency that primarily helps finance affordable housing for private developers, voted last month to modify a June leasehold sale agreement with a company formed by local developer Stanford Carr and Los Angeles-based Standard Communities.

Six properties on three islands are being sold. They are Kauhale Kakaako, Kamakee Vista, Pohulani Elderly and Kekuilani Courts on Oahu; Lailani Apartments on Hawaii island; and Honokowai Kauhale on Maui.

Under the revised sale agreement, the Carr- Standard partnership, Komohale LP, will pay $130 million instead of $170 million, a 24 percent reduction. But the partnership will spend more to improve the homes — $85.1 million instead of $53.9 million as originally planned. Overall, the deal value decreased 4 percent to $215.1 million from $223.9 million.

Craig Hirai, HHFDC executive director, said in a statement that Komohale’s total investment was higher than best offers from five competing bidders that responded to the agency’s request for purchase proposals in 2017.

“Even with the adjusted sales price, when combined with the increased renovation program budget the buyer’s total investment is still higher than any other offer that we received,” he said.

Komohale negotiated a lower deal price after inspecting the 1,221 rental apartments and finding that more improvements were needed in part because HHFDC property condition assessment reports didn’t fully disclose deferred maintenance, the agency said. Construction costs also were higher than originally anticipated.

Another factor was that HHFDC required a buyer to renovate every apartment that wasn’t previously renovated. Komohale, however, found that some prior renovations were partial in nature and inconsistently completed, the agency said. The modified agreement calls for all 1,221 homes to be renovated.

Improvements will include replacing cabinets, countertops, plumbing, appliances, flooring and paint. Common areas will be upgraded along with building systems such as elevators, facades, roofing and windows.

Money for renovation work will be set aside, and the work must be completed within three years.

HHFDC sought to sell the homes because owning and managing affordable housing isn’t part of its core mission to increase the supply of such homes. The agency figures the roughly $40 million in sale proceeds after paying off debt on the properties can be used to finance new affordable homes. HHFDC also said it will save $6.3 million annually by paying off the debt, and that a private company can maintain the homes better because state work was slow and produced low-grade results under low-bid procurement rules.

“Leveraging private funds through partnerships like this is a more efficient use of state resources,” Gov. David Ige said in a statement. “It’s more cost-effective to sell the leasehold interest and have the buyer pay for renovations and other capital improvements through the sale.”

Under the leasehold sale, the state will lease land under the homes to Komohale for $1 a year. Leases for five properties will last 75 years, after which building ownership reverts to the state. For Kamakee Vista, land is owned by a foundation and a lease runs through 2056.

While the deal is characterized by the state as being fiscally beneficial and resulting in better homes, tenants served will shift over time from mostly low-income residents to moderate-income residents.

Most tenants today earn no more than 60 percent of the local area median income, which equates to $49,020 for a single person or $69,960 for a family of four on Oahu.

Komohale is limited on how much it can increase rents for existing tenants, and must keep rents for new tenants at rates that are affordable for households earning up to the median income for some units or 80 percent of the median income for other units.

If current tenants move out, Komohale can raise rents to the income-related maximums.

At the 80 percent of median income level, maximum monthly rent could be $1,634 for a studio and $2,426 for a three-bedroom unit on Oahu. At the median income, those figures are $2,042 and $3,032 respectively.

Monthly rent last year ranged from $942 to $1,268 for studios up to three- bedroom units.

For current tenants, rent can’t rise more than 2 percent a year over the first five years and then 5 percent annually for another 30 years, except at Pohulani where the 2 percent cap would continue for current tenants as long as they stay.

A 2 percent annual increase on $942 would make rent $1,040 after five years. A 5 percent annual increase after that would put rent at $1,327 in the 10th year.

As a way to further help the most needy tenants, HHFDC will extend and increase a subsidy it provides to many tenants.

About 580 tenants last year received assistance up to $250 a month. At Pohulani, which serves seniors, maximum assistance will rise from $250 to $300 and continue for 20 years. At Kekuilani Courts, where HHFDC doesn’t provide assistance, up to $500 a month will be available for five years starting in 2023 when an initial term of rental rate limits expires.

At the other four properties, maximum assistance will increase from $175 to $225 for five years and then to $500 for another five years.

Another contribution for tenants will be education and counseling services provided by Komohale. HHFDC said the developer will focus on areas that include exercise classes, health screenings, financial literacy, computer learning, English and general equivalency diploma classes.

“We look forward to collaborating with the state to improve the quality of life for residents,” Carr said in a statement.

The sale is expected to close in March or April.