Strategy for Kukui condos once had luxury spin
A brochure touted Kukui Gardens as a site for upscale units
From the look of the slick brochure privately circulated to potential buyers of Kukui Gardens last fall, the buyer is not likely to be a charity willing to continue the mission of affordable housing for long.
Kukui Gardens Corp., the nonprofit that developed and operates the 857-rental project built at the edge of Chinatown with federal housing assistance, was marketed as "a one-of-a-kind opportunity (that) would allow investors to capitalize on an irreplaceable, premier location" that "would allow for the most significant residential development in downtown Honolulu in over 25 years."
The brochure said that "preliminary analysis based on existing zoning" would allow for a 1.7 million-square-foot residential project consisting of 1,100 units and about 12,000 square feet of retail on the ground floors.
While more upscale housing was the original marketing plan, it is no more, said R. Stevens Gilley, the real estate consultant hired by Kukui Gardens.
Gilley said yesterday that the brochure was drawn up last August when the plan was to sell to a redeveloper who would build more upscale housing that would be possible under existing zoning that allows for construction up to 150 feet in height.
"We went to market with this brochure and soon after got strong feedback from the tenants that this is not what they wanted," said Gilley.
He said the strategy then switched to finding a buyer who would continue to operate the project as affordable rental housing.
Gilley said that by January, they received about 16 offers and threw out 14 because they were based on a total redevelopment of the 21-acre site.
"We immediately threw out the ones that wanted it for redevelopment even though they were asking a lot more for the project than the ones who want it for rental housing," said Gilley.
Gilley again confirmed that one buyer is now in negotiation with the board and is undergoing due diligence, which should take 10 days. During this quiet period, he and the board are under strict confidentiality agreements not to disclose the identity of the buyer.
For weeks, tenants and tenants' advocates have protested the sale, arguing that the corporation is declining to reveal the identity of the potential buyer because they are redevelopers who will raze the project for upscale housing.
Under the 40-year mortgage with the Federal Housing Authority, the owner must keep rents affordable until 2011. Cheryl Fukunaga, project manager for the Department of Housing and Urban Development, has said that once a buyer is selected, HUD will decide whether to approve assumption of the loan. She said that the buyer likely will be subject to a use agreement that would require rents be kept at their affordable rate until 2011 even if the balance on the loan is prepaid.
Fukunaga said, "After 2011, we don't have any other mechanisms to control affordability."
Carol Anzai, head of the Kukui Gardens Tenants Association, said, "We believe they are selling to a for-profit buyer who will not keep the apartments affordable after 2011."
A one-bedroom apartment at Kukui Gardens now rents for $444 a month. In nearby buildings, rents for a one-bedroom range from $1,210 to $1,792, according to the Kukui Gardens offering memorandum.
"We are really investigating hard to find out who the buyer is, but it is all so secretive and hush-hush," said Anzai, who has lived in her four-bedroom apartment for 33 years.
"They want to keep it quiet so that they can rush it through, and we can't do anything about it," she said.
Meanwhile, a bill is being considered in the state Legislature that would take over the complex using condemnation as a way to secure it as affordable housing.
Bob Nakata of Faith Action for Community Equity, a multi-faith group that has been organizing the residents, said yesterday: "We still believe the developer will go high-end. We have no reason to believe Kukui Gardens because they have revealed so little to us."
Nakata also does not trust the corporation because he said at least one nonprofit bid for the project, but the board said none applied.
"I think there were nonprofits who bid; it's just that they were never considered," he said.
Nakata said he believes the buyer is "a private mainland company with a local person."
He said: "We don't care if the new owner makes a profit. We just want the current tenants to have affordable rents in perpetuity."
Gilley declined to confirm the name of the potential developer. He did say that it was a large mainland company that had taken over many similar apartment complexes financed by HUD. He said the developer is HUD-approved elsewhere.
The asking price for the 21-acre parcel with 44 buildings and 857 units currently housing 2,500 is $130 million in cash in "as-is" condition. The project cost $16 million to build 36 years ago.