Founder's son fights Kukui Gardens sale
Wallace Ching says that selling the housing complex would undercut its original purpose
A son of the man who built the affordable rental housing complex Kukui Gardens says the property's impending sale will harm the low-income families that his father was trying to help.
At a meeting of about 100 Kukui Gardens residents last night, Wallace S.J. Ching said his father, Clarence T.C. Ching, saw Kukui Gardens as "his crowning achievement" and would not have wanted it sold.
"My father contributed generously his time, his talent and his money to make KG a reality, not for financial profit, but rather as a tangible expression of his values and his gratitude to the community," Ching said, according to advanced copy of his remarks.
Kukui Gardens' board of directors, which includes another son, Lawrence S.L. Ching, said last week that they had narrowed the list of potential buyers to three from 17. Yesterday, a spokeswoman said the board has not yet selected a buyer.
In January, Kukui Gardens Corp., the nonprofit developer and owner of the 857-unit rental complex on Liliha Street, announced it was selling the project, which is home to about 2,500 low- to moderate-income people. Kukui Gardens began soliciting offers at $130 million for the complex that cost almost $16 million to build 36 years ago.
Completed in 1970, the complex, which was built with federal housing assistance, is required to provide affordable housing for the length of its 40-year mortgage, which expires in 2011.
In recent weeks, residents have protested and signed petitions against the sale, fearing the complex would be sold to a developer who would level it to make way for luxury housing.
"If this sale goes through, it will add to homelessness, perhaps very significantly," said the Rev. Bob Nakata of the Faith Action for Community Equity, a multi-faith group that has been organizing residents.
The sale is being driven by the 15-member Kukui Gardens board of directors. The board is composed of five members of the Marianist Center, the Catholic religious order that operates Chaminade University and St. Louis School; five members of St. Francis Medical Center; and five members of the Clarence T.C. Ching Foundation, a nonprofit that Clarence Ching established in 1967.
According to financial documents, the elder Ching set up the two independent entities with the provision that if either dissolved or the project was sold, two-thirds of the assets or proceeds from any sale would go to the Marianist Center and the balance to St. Francis.
With 10 of the 15 seats held by representatives of the two organizations, the chief beneficiaries are clearly in voting control of a sale.
"These are well-respected institutions, so it is doubly difficult to understand why this (sale) is happening," Nakata said, adding that "it took courage (for Ching) to stand up and oppose the sale."
Some of the five representatives from the foundation also have close ties to the two religious organizations.
Lawrence Ching also serves on Chaminade's board of regents. Ching did not return telephone calls seeking comment yesterday.
Another trustee, Raymond Tam, is a St. Louis trustee and Peter Ng is a former trustee of the Marianist Center, according to records.
Wallace Ching served as director of the Marianist Center until his resignation last week. He told residents he has been fighting the sale but that he is "a minority of one" on the board.
In a statement yesterday, the board said, "The owners of Kukui Gardens have repeatedly stressed to the leadership of the Kukui Gardens Tenant Association that they have no intention of accepting an offer from a buyer who will kick out the current tenants and raze the complex."
The statement said potential buyers must meet three criteria: readily available financing; approval from the U.S Department of Housing and Urban Development, which financed the project with a 40-year loan; and assurances that "the buyer intends to continue managing the housing complex as it is today."
The statement said the current owners are "working closely with the potential buyers to ensure that Kukui Gardens remains as a low- to moderate-income housing development beyond the expiration of the HUD agreement (2011)."
Cheryl Fukunaga, project manager for HUD, said yesterday that the agency is still "waiting to hear who the buyer is."
She said once a buyer is selected, HUD will decide whether to approve their assumption of the loan. She said the buyer likely will be subject to an agreement that would require them to hold rents at their affordable rate until 2011 even if the balance on the loan is prepaid.
"After 2011, we don't have any other mechanisms to control affordability," Fukunaga said.
Wallace Ching said rents range from $444 for a one-bedroom unit to $818 for a four-bedroom apartment, with residents paying their utilities and parking.
"Today, when rents are skyrocketing out of the reach of more and more families and rising homelessness is a major social challenge, it is wrong to take an action that would further reduce the supply of low- and moderate-income housing in Honolulu," Wallace Ching said.
He told the residents that the trustees "have advised you to trust the new owners, but they won't even tell you who the new owners are.
"If the new owners have honorable intentions, let them come forward and discuss their plans with you in the open."
In their statement, the board said it is "selling Kukui Gardens in order to sustain the viability of the Clarence T.C. Ching Foundation."
The foundation has more than $4 million in cash assets and annual income of $380,000 from rents and investments, according to its 2004 tax return. The foundation, which has a 100 percent interest in Kukui Gardens, lists the complex's worth at $30 million.
Project grew from federal incentives
Kukui Gardens, a housing complex on the edge of Chinatown, is the product of an urban redevelopment project competition of the 1960s, when the federal government was pushing financial incentives to encourage private developers to build and operate affordable-housing projects.
In 1966, the Honolulu Redevelopment Agency and the U.S. Department of Housing and Urban Development offered to sell 19.5 acres for the construction of at least 800 low- and moderate-income apartment units for no more than $15 million.
The development would be eligible for financing under a federal mortgage insurance program backed by the Federal Housing Administration commissioner. Under the deal, the developer would have 40 years to repay the mortgage from earnings off the rental property.
Clarence T.C. Ching, a developer who had built affordable housing on Oahu and was also a fundraiser for then-Gov. John Burns, submitted a proposal with a twist. He proposed that if the complex were operated as a nonprofit organization, it would qualify for 100 percent mortgage insurance under the FHA and be tax-exempt. With such a structure, the project could be built entirely with borrowed money and any income would be tax-exempt.
Ching submitted his proposal to the redevelopment agency, explaining that if he won the project, he would organize a charitable trust that would sponsor the project.
On Jan. 19, 1967, Ching was awarded the project. That August, Ching founded the Kukui Gardens Corp. as a private nonprofit corporation, a 501c4 (a social welfare organization) to purchase, develop and operate the rental housing project.
Ching also formed the tax- exempt Clarence T.C. Ching Foundation to satisfy FHA requirements that any future income generated by the rental project would go to charitable purposes.
According to foundation documents, "although the two organizations are legally distinct and separate entities, the activities of Kukui Gardens Corp. are directly related to the Clarence T.C. Ching Foundation."
According to its incorporation documents, the foundation has no specifically named beneficiaries of the income and is loosely organized for charitable purposes. However, over the last 36 years, millions have gone primarily to the St. Francis Hospital System and two schools established and operated by the Marianist Order of the Catholic Church: St. Louis School and Chaminade University.
The trustees have restraints such as not endangering the foundation's tax-exempt status.
But a key provision says that if the foundation dissolves, two-thirds of any assets will go to the Marianist Order and the balance to St. Francis.
Under Kukui Gardens' articles of incorporation, there are 15 directors: Five are designated to be trustees of the foundation, five are to be drawn from the Marianist Center and five from St. Francis.