Kukui Gardens case going federal

Opponents to sale of the public housing project plan to lobby officials in Washington

The battle over the fate of the Kukui Gardens affordable housing complex goes to Washington, D.C., this week.

Representatives of Kukui Gardens Inc., the nonprofit corporation that built and operates the 857-unit complex on the edge of Chinatown, plan to lobby top Housing and Urban Development officials and members of the congressional delegation, according to one member of the group traveling to Washington who asked not to be identified.

Tenants and their supporters, who have been fighting the sale since January, will be able to question top HUD officials through a video-conference link from Honolulu that is being hosted by U.S. Rep. Neil Abercrombie.

"The days of one group flying to Washington, D.C., to outflank a local group are over," said Abercrombie, who opposes the pending sale of the project to Carmel Partners Inc.

Details, including the Honolulu location of the teleconference planned for Wednesday, are not complete. In addition to top HUD officials, Abercrombie plans to ask representatives of Kukui Gardens Inc. to join the question-and-answer session.

"We've had trouble getting the owners to sit down with the tenants," said an Abercrombie spokeswoman.

In late January, Kukui Gardens Inc. put the 36-year-old rental project, built for $16 million with Federal Housing Authority money, on the market, claiming in part that it could not afford necessary repairs and maintenance.

Under terms of the 40-year mortgage, the new owners must keep rents affordable until expiration of the loan in 2011.

Carmel Partners Inc., a private real estate firm based in San Francisco with offices stretching from Washington, D.C., to Hawaii, emerged as the buyer with its bid of about $131 million and public assurances it would keep rents affordable through 2011.

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.

Typically, in the sale of a HUD-financed project, HUD must approve the deal and can attach conditions before the purchase is final.

Cheryl Fukunaga, project manager for HUD, said again this week that the federal agency had not received notice or documentation of the sale to Carmel.

Fukunaga said that HUD would raise questions including whether the project, built with federal funds by a nonprofit organization for affordable housing, offered to sell the project to at least one other nonprofit -- a condition of the original loan that was designed to ensure continued affordability.

"Because of the conditions to borrow for this type of property, we first have to know whether it was properly offered to other nonprofits," said Fukunaga. "If it wasn't reasonably offered to other nonprofits, we stop right there. HUD wouldn't even have to review the application."

Fukunaga has also said that the buyer likely will be subject to a use agreement that would require holding rents at their affordable rates until 2011, even if the balance on the loan is prepaid.

"But, of course, we haven't seen any of the documentation about the sale. All we know is what we read in the newspapers or hear," Fukunaga added.

The unidentified representative of seller Kukui Gardens Inc. confirmed that nonprofits did bid, but that the groups could not come up with the money.

Kevin Carney, vice president of EAH Inc., a California-based nonprofit housing corporation that has two projects in Hawaii, said his group tried to guarantee the highest bid by offering to match the highest bid and throwing in an additional $50,000.

"We were definitely the highest bidder, but we were contingent on getting state or federal money," said Carney.

Carney and others familiar with the offering said the sellers wanted $5 million as a down payment and closing in 30 days.

"We depend on government subsidies and financing when purchasing, and that takes time," Carney said. "They went for the more likely chance of getting their money sooner rather than later."

At least two other nonprofits made bids, but none of them made it to the second round of bidding, according to sources familiar with the bidding.

Drew Astolfi, a member of the Faith Action for Community Equity, a multi-faith group that has been organizing residents, said that "anyone using public money to keep the project affordable was effectively excluded from the deal, the way they structured it. I hope HUD looks at that."

Carmel Partners has taken over other HUD projects that are the legacy of former President Lyndon B. Johnson's "Great Society" years, when the government tried to provide financial incentives to private developers to build affordable rental housing.

Kukui Gardens is one of hundreds of such HUD projects that are reaching their maturity and will be up for grabs by a new generation of developers.

In Hawaii, Carmel bought the Aloha Surf Hotel for $15.7 million in June 2005 and is converting the hotel to condominiums. At the same time, it paid $79.5 million for 520 units of housing on the former naval base at Barbers Point.