A roughly 70-year-old public housing complex in Palolo Valley is slated for refurbishing two decades after being privatized and renovated under an arrangement touted as a state and national model.

The nonprofit operator of the state-owned Palolo Homes I and II community plans to begin a $35 million improvement job by year’s end on the 306-unit complex and finish in mid-2026.

Work on the homes in 63 two-story buildings spread over 32 acres is to include new bathroom fixtures, new kitchen appliances, LED lighting, the addition of solar hot water heating, roof recoating and repainting as part of a 42-year extension of a ground lease by the state to project operator Mutual Housing Association of Hawai‘i.

The arrangement will effectively extend, through 2099, the private operation of the low-income housing complex originally developed in the early 1950s to serve World War II veterans and their families.

“We’re all excited,” said Dahlia Asuega, a Palolo Homes resident who is the community’s resident services manager and was involved in the tenant-backed push about two decades ago to privatize what was at the time a neglected and broken-down public housing complex.

“It’s been a good 20 years,” she said. “Mutual Housing has done a lot.”

Two decades ago Palolo Homes was the state’s largest public housing project and was in pretty bad shape.

At that time, close to 70 units were uninhabitable due to issues with lead paint, asbestos and roof leaks that the state let fester because revenue from rent had been exceeding expenses by around $500,000 a year, and the Legislature would not appropriate sufficient funding to keep homes in decent shape.

Asuega in late 2001 said kitchen cabinets were falling off the walls in some apartments and that some residents were using pans to collect water leaking from refrigerators.

“There’s no time to delay because of the deterioration of the state-owned property,” she was quoted saying in a December 2000 Honolulu Star-Bulletin story.

The Palolo Homes takeover and renovation plan two decades ago represented the first privatization of state-owned public housing in Hawaii and was envisioned to be a pilot project potentially leading to privatization of all such housing in Hawaii.

Then-Gov. Ben Cayetano called the Palolo Homes plan momentous.

Initial renovation work that cost $13.5 million was completed in 2003 and did not include 118 apartments in the vicinity then owned by the federal government now known as Palolo Valley Homes. In 2008 a learning center that included a technology lab, sound and video editing room, demonstration kitchen and classroom space was added using a $1.7 million federal grant. A tutoring program for children provided by college students also was established.

The privatization results were so successful that in 2011, then-U.S. Housing and Urban Development Secretary Shaun Donovan declared Palolo Homes a national model for the privatization of public housing.

Yet, the state to date hasn’t followed through to completely privatize and upgrade public housing in Hawaii, though similar acquisition and rehabilitation projects have happened for some other state projects, and more are currently planned.

Under the new deal with Mutual Housing for Palolo Homes, a partnership led by the nonprofit is buying out the existing leasehold ownership stake held by another partnership led by the nonprofit for a $13.4 million appraised value.

The purchase and renovation plus other costs, including a construction expense contingency, project reserves and developer fee, result in a total project cost of $60.3 million.

Most of this cost is being financed by the Hawaii Housing Finance and Development Corp., a state agency that helps finance affordable housing. HHFDC’s contribution includes state and federal tax credits worth about $28 million when sold to investors, and about $25 million split between bonds and a loan.

HHFDC’s board gave final approval for the funding at a meeting Friday.

As part of the deal, the Hawaii Public Housing Authority, which owns the land under Palolo Homes, is extending its term to provide federal vouchers that allow Mutual Housing to receive fair market rent for some units while tenants pay only an affordable portion of their income in rent. This helps the nonprofit balance revenue and expenses.

The vast majority of households at Palolo Homes earn less than half of the median income on Oahu. This equates to $48,750 for a single person, $55,700 for a couple and $69,600 for a family of four.

Monthly maximum rental rates at Palolo Homes range from $481 for some one-­bedroom units to $1,511 for five-bedroom units.

David Nakamura, Mutual Housing executive director, called the renovation plan a “nice refresh.” He said interior work is to be done in one day for each type of upgrade to minimize inconvenience to residents and that the solar water heating system will reduce electricity bills they pay.

Asuega said the solar water heating addition will be great, especially given high inflation in recent years, which has pumped up prices for so many things.

“I think that’s a huge benefit to the families who live here on the property,” she said. “Never had this with other landlords, where they come in every so often and give your apartment an upgrade. People don’t hear about those kind of things. Your rent just goes up, but not the maintenance of the unit.”