2 nonprofits challenge sale of Kukui Gardens
U.S. housing officials will review the bidding won by a for-profit firm
Two nonprofit organizations say they were not given a fair shot at buying the Kukui Gardens affordable-housing project before it was sold to Carmel Partners Inc., a for-profit California-based real estate firm.
The federal Department of Housing and Urban Development will examine whether nonprofits were given a fair opportunity to buy the 857-unit complex in Chinatown when it reviews the sale. If the agency determines they were not, it can nix the sale.
The pending sale of the rental unit complex comes under HUD jurisdiction because it was built for $16 million 36 years ago with a mortgage backed by the Federal Housing Administration. Under terms of the 40-year mortgage, the new owners must keep rents affordable until expiration of the loan in 2011.
"They (Kukui Gardens board members) just blew us off and said we weren't competitive," said Fran Wagstaff, president of Mid-Peninsula Housing Coalition of Foster City, Calif., a nonprofit that manages about 6,000 affordable rental units in 80 properties.
Wagstaff said their bid was "was timely but rejected because it was not high enough. We are a big nonprofit housing manager, and they just blew us off."
And last week, another nonprofit told the Star-Bulletin that no nonprofit could have participated because nonprofits depend on getting state or federal subsidies, which take time to negotiate.
"They wanted $5 million down and 30 days to close. That's impossible for any nonprofit to do," said Kevin Carney, vice president of EAH Inc., a California-based nonprofit housing corporation with two projects in Hawaii.
Carney said his group guaranteed it would be the highest bidder by bidding the highest price plus $50,000.
"We were definitely the highest bidder, but we were contingent on getting state or federal money," he said.
But Scott Gomes of CB Richard Ellis, which is brokering the deal, dismissed suggestions that nonprofits were somehow excluded.
"We think we addressed it (the issue of nonprofits) appropriately," said Gomes, "and we will be able to demonstrate to HUD that we acted correctly. We gave them every opportunity to participate."
The issue of nonprofits was raised yesterday during a video conference between Washington, D.C., and Honolulu hosted by U.S. Rep. Neil Abercrombie.
In Honolulu, regional and local HUD representatives attended, along with Christopher Beda, managing partner of Carmel Partners; tenants; tenants' advocates; and state officials. In Washington, top HUD officials were joined by representative of Kukui Gardens Inc., the nonprofit that built the complex and put it up for sale in January.
HUD officials have not yet received the deal and therefore have not started the review process.
"The goal of HUD is to keep housing affordable," said Bev Miller, director of asset management for HUD. She said HUD prefers that a nonprofit "sells to an eligible nonprofit, but if that's not the case, we will work with a for-profit entity."
Janet Brower, director of multifamily housing for HUD in San Francisco, said HUD requires the seller to reach out to other nonprofits, but if there "are no nonprofits willing or able or interested," then it could be sold to a for-profit.
Brower said that as part of its review, HUD would evaluate whether nonprofits were given a fair chance to participate.
Another HUD constraint discussed yesterday was that proceeds from the sale must be put into a third-party trust, and money -- with HUD's approval -- may only be spent on affordable housing through 2011.
Yesterday, Carmel Partner's Beda read a statement saying: "Our long-term business plan is to operate Kukui Gardens as rental housing. We would like to put to rest the wildly speculative statements about razing the property.
"We are in complete support of holding the rents in place until 2011 even if the loan on the property is prepaid to HUD."
Since January, tenants and tenants' advocates have been protesting the sale, arguing that new owners will gradually hike rents to drive out current tenants and then raze the project for upscale housing. The complex is home to about 2,500 residents, many of whom work in Chinatown.
"We have a truly major housing shortage here and huge homeless problem. The loss of this property would be a local disaster," said Nancy Young, a member of the Faith Action for Community Equity, a multifaith group that has been organizing residents.
Lawrence Ching of Kukui Gardens Inc., speaking from Washington, said they needed a loan of $10 million or $11 million to make repairs and did not get it and decided to sell. He said the trustees have a fiduciary responsibility to take care of the buildings and "preserve the quality of life" for tenants.
Carmel's Beda said yesterday that Carmel is willing to work with state and federal officials and even a nonprofit to develop a subsidy plan for tenants after 2011.
"We believe that our company will offer a far more efficient and productive management team for the property than a nonprofit," said Beda.