A state agency hasn’t been a good neighbor to condominium owners in a mixed-use building complex it largely owns in Kakaako, racking up a roughly $800,000 maintenance fee debt.
The delinquency stems from financial shortfalls operating 150 state-owned affordable rental apartments in the Honuakaha complex, which also includes 93 condos
and the historic Royal Brewery building at 545 and 547 Queen St.
The Hawaii Community Development Authority, an agency regulating development in Kakaako, owns and occupies the brewery building. It also owns and operates the adjacent rental apartments through a company where it is the general partner and First Hawaiian Bank is a limited partner.
Technically, the maintenance fee debt is owed by the company, Honuakaha Limited Partnership, and not directly by HCDA.
The predicament is raising questions about the agency’s oversight of the rental housing, which serves seniors with low incomes.
There are also concerns over how condo owners may be affected given that HCDA representatives make up a majority of Honuakaha’s property ownership board that can make maintenance fee decisions.
Leland Reames, who is a condo owner and serves as Honuakaha’s board president, could not be reached for comment.
Deepak Neupane, who learned of the problem after he was hired as HCDA’s executive director in October, said operating shortfalls with the apartments began around the middle of last year and will be resolved. The shortfalls are now about $25,000 a month.
“It’s a difficult situation,” he said in an interview. “It’s a problem. We need to fix it. We’ll figure it out.”
Neupane disclosed the trouble at Honuakaha to HCDA’s board Wednesday, and the board spent about an hour in private executive session discussing issues of liability with state attorneys and agency staff.
After the board meeting, Neupane said there probably will have to be a small rent increase for apartment tenants, and that there is no desire to create an unnecessary burden for condo owners. He said a resolution plan is being formulated and likely will be presented to HCDA’s board next month.
HCDA developed the rental apartments and the condos in 1995 as part of its mission to provide affordable housing in Kakaako, and the unique mixed-use property has given the agency financial headaches before.
Agency leaders in the early 1990s envisioned a parking lot next to the brewery building as a site for affordable housing, and bought the land from American Brewing Co. along with the adjacent brewery building, which dates to 1900 and had been vacant for more than 30 years after producing beer that included Royal and Primo brands.
The five-story brick brewery building was renovated for $2.5 million, but an initial tenant moved out after a few years because of noxious fumes. HCDA received a
$1 million legal settlement over the defect stemming from a termite treatment, but later agreed to pay a contractor $5 million to fix the problem.
Following the fix, HCDA moved into the building in 2015 after the space had been empty for about
15 years.
On the residential site, HCDA built a new 8-story building with about 245 studio and one-bedroom residences.
Of these homes, 93 fee-
simple condos were sold as affordable housing through a lottery, with units priced from $158,000 to $187,000.
Another 150 units were reserved for seniors aged 62 and over with household incomes no more than 60% of Honolulu’s median income. Initial monthly rent was $375, well below the roughly $600 maximum considered affordable at the time for the income level.
First Hawaiian Bank financed the apartment segment of the project that cost about $17 million, largely using federal tax credits provided by the state.
Over the decades, HCDA has kept rents affordable to households earning closer to 30% of the median income. The last time rents
increased was 2013, when they rose by $50 to $600 for studios and $700 for one-
bedroom units.
Recently, Locations Property Management has advertised Honuakaha rentals at higher rates for available units, ranging from $960 to $1,050 for studios and $1,150 for one-bedroom units.
Neupane said seven or eight vacancies exist.
Under current state guidelines, rents could be as much as $1,269 for studios and $1,359 for one-bedroom units while remaining affordable to households earning up to 60% of the median income, which equates to about $51,000 for a single person and $58,000 for a couple.
A requirement tied to the tax credits requires that HCDA maintain affordable rents at Honuakaha for
30 years. This term expires in 2025, though the agency aims to keep rents affordable long term.