Kona Apartments Part of State Leasehold Sale
The State of Hawai‘i Housing Finance and Development Corporation (HHFDC) closed on the leasehold sale of Lailani Apartments in Kailua-Kona as a property in the Affordable Rental Housing Portfolio to Komohale LP, a partnership between local developer Stanford Carr Development, LLC and Los Angeles-based Standard Communities.
The leasehold sale achieves the dual goals of rehabilitating the properties for long-term preservation and fulfilling the State’s promise to minimize displacement of existing tenants. The terms of the leasehold sale ensure the properties’ long term-affordability while enabling substantial renovations to be completed faster than possible under the State’s ownership. Divesting itself of the rental housing portfolio also frees up HHFDC’s existing resources, as well as provides new capital, that will enable HHFDC to further focus on its primary goal of increasing the supply of new affordable housing.
“Leveraging private funds through partnerships like this is a more efficient use of State resources,” said Gov. David Ige. “It’s more cost effective to sell the leasehold interest and have Standard Communities and Stanford Carr Development bring private capital to pay for renovations and other capital improvements through the sale.”
The Portfolio consists of the following six affordable rental housing and mixed-use properties with 1,221 residential units and approximately 86,000 square feet of commercial space:
Property Location Type Units
Lailani Apartments Kailua-Kona, Hawai‘i Family 200
Pohulani Elderly Kaka‘ako, O‘ahu Elderly 263
Kauhale Kakaako Kaka‘ako, O‘ahu Family 268
Kamakee Vista Kaka‘ako, O‘ahu Family 226
Kekuilani Courts Kapolei, O‘ahu Family 80
Honokowai Kauhale Lahaina, Maui Family 184
The closing of Kamakee Vista is scheduled to occur by July 15, 2019 upon resolution of ongoing discussions with Atherton Family Foundation,the property’s landowner.
Sales Proceeds to Go Toward More Affordable Housing
Estimated net proceeds to HHFDC from the $100 million portfolio sale price for the first five properties are approximately $26 million, and Komohale will be investing approximately $85 million of private funds to complete capital improvements and renovations at the properties. In addition to its prior commitment to use net proceeds for the development of new affordable rental housing, the HHFDC board has established a subcommittee to consider additional uses of the transaction proceeds.
“By using the proceeds to add more affordable units to serve the 60% Area Median Income (AMI) demographic and having the private sector preserve the existing 80% and 100% AMI demographic of the RHS portfolio, we serve a greater percentage and broader range of households,” said Craig Hirai, executive director of HHFDC.
Standard Communities Co-Founder Jeff Jaeger added, “We are excited to partner with HHFDC for this transaction to accomplish our shared goal of providing high-quality affordable housing, which these properties will certainly be following the planned renovations, to residents who need it most. This is a rare opportunity to have a positive impact on more than 1,200 families, and we look forward to continuing our work to improve the properties and strengthen these communities for years to come. While we are busy renovating these properties, HHFDC will be putting the proceeds of the transaction to work for the benefit of thousands of additional households throughout Hawaii.”
On Dec.13, 2018, the HHFDC Board of Directors approved the leasehold sale of the Portfolio to Komohale for $130 million, with the buyer committing to undertake a major renovation program at an estimated cost of $85.1 million, which is projected to be completed within three years. All required renovation funds were set aside at the transaction closing, and Komohale will reinvest any cost savings in additional property improvements.
100% of the Portfolio’s units will be renovated, minimizing long-term replacement budgets and providing a uniform standard throughout the properties.
Long-Term Rental Housing Affordability Preserved
Rents at the properties will remain affordable throughout the 75-year[i] ground lease terms, with maximum rents of no greater than either 80 or 100% of the U.S. Department of Housing and Urban Development AMI rent guidelines.
For existing residents at Pohulani Elderly, annual rent increases will be restricted to no more than two percent (2%) for the duration of the tenants’ residencies (subject to the AMI rent limits.)
For existing residents at the five family properties, annual rent increases will be restricted to no more than 2% for the next five years and 5% for the subsequent 30 years (subject to the AMI rent limits.)
The residencies of existing tenants who earn in excess of the AMI limits will be grandfathered, allowing them to stay in their units.
Rent Subsidies Increased and Extended
In connection with the portfolio restructuring and preservation, the HHFDC board awarded $23.8 million in project-based Rental Assistance Program (RAP) contracts to Komohale. The contracts increase and extend existing rent subsidies for households who currently participate in the program and earn less than 80% of the AMI.
At Pohulani Elderly, HHFDC will provide an initial 20-year RAP contract that increases the maximum monthly subsidy from $250 to $300.
At the four family properties where RAP subsidies are currently offered, HHFDC will provide 10-year RAP contracts that increase the maximum monthly subsidy from $175 to $225. In the sixth year of the contract, the maximum monthly subsidy will increase to $500.
At Kekuilani Courts, where RAP subsidies are not currently offered, HHFDC will provide a five (5)-year RAP contract through which a subsidy of up to $500 per month will be available to qualified residents beginning in 2024.
Property Renovation Program
Komohale has committed to a $85.1 million renovation program for common-area and unit renovations to be completed within the first three years. Improvements will include replacement of cabinets, countertops, plumbing, appliances, flooring, and painting in units. Common areas will be refreshed with new paint and carpets, and community rooms will be renovated. In addition, building systems such as elevators, facades, roofing, and windows are budgeted for repair/replacement. The defective building siding at Honokowai Kauhale will be replaced, as will the exterior stair systems.
Resident Education and Counseling Services Program
Komohale will offer residents a robust package of education and counseling services to enrich the lives of the properties’ tenants and their families, with focus on the following areas:
Education, including after-school tutoring and enrichment, computer learning opportunities and English as a Second Language as well as General Equivalency Diploma (GED) classes;
Financial literacy, including budgeting, credit utilization and debt management, income planning, and homeownership preparation; and
Health, including screenings, diabetes prevention, exercise classes, and food distributions.
Komohale will retain current property management agent Hawai‘i Affordable Properties, Inc., which currently manages over 3,000 residential apartments in 41 projects throughout Hawai‘i.