Review of Front Street Apartments Transactions Launched

Maui County Mayor Alan Arakawa has instructed his administration to examine the transactions of the owners of the 142-unit Front Street Apartments in West Maui which had reportedly sought to withdraw from providing low-income housing to tenants.

Front Street Apartments. PC: Google 2012.

According to the Front Street Apartment Tenants Group, several million dollars in benefits were given to Front Street Affordable Housing Partners LLC, including more than $2 million in tax exemptions, with the understanding that the apartments would be used as low-income units.

The item has been identified by the Mayor as one of three legislative priorities for Maui County for 2018.  In a letter to lawmakers, Mayor Arakawa said the county is in support of preserving the Front Street Apartments as an affordable rental housing project going forward.

The Front Street Apartment Tenants Group further asserts that the county provided the rezoning of parcels and issued waivers on parking requirements and waivers on the contribution of 1.5 acres of park land.  The tenant group also states that the owner was granted up to $15.6 million in federal and state tax credits, and more than an estimated $20 million was paid in rent and federal subsidies by tenants in the past 16 years.

“We’d like to thank Mayor Arakawa for taking the lead in this inquiry. All of that adds up to a lot of public investment in the apartments,” said Barbara Henny, co-chair of the Front Street Tenants Group, an organization representing tenants.

“Hawaiʻi’s taxpayers deserve an answer and deserve to get back what it can, whether it’s a rollback in zoning, benefits and the imposition of penalties or the withdrawal of tax exemptions.”

Henny said her group asked Mayor Arakawa to take a hard and thorough look and was grateful that he was exercising what he called “due diligence” in reviewing the issue.

Adam Dornbush of the Honolulu-based Dornbush & Co., the group speaking for Front Street Affordable Housing Partners, reportedly said he was open to negotiations, according to information provided by the Tenants Group.  Maui Now reached out to the firm over the weekend, but a request for comment was not returned by the time this story went to publication.

The landowner 3900 Corporation, a tax-exempt 501-C2 firm, bought the eight acres of land from Amfac for $778,000 in 1993, and agreed to lease it to Front Street Affordable Housing Partners in 2001 for 50 years.

The lease rent was scheduled to go up in 2017 to $310,000 a year, according to documents filed with the state.  The Tenants Group claims the partnership is using a 2012 IRS tax amendment to pave the way to raise rents to market-price levels for the apartments by August, 2019, an action that they fear would “effectively evict the low-income tenants.”

Several groups, including the more than 2,000-member West Maui Taxpayers Association, have sent letters to state legislators, saying they want the low-income tenants to remain at Front Street Apartments.

Representatives with Ka Hale Ake Ola Homeless Resource Center reportedly told the Tenants Group that any evictions would increase the number of homeless in Lahaina at a time when the Center is “at capacity.”

State Sen. Rosalyn Baker and state Rep. Angus McKelvey plan to introduce measures in the 2018 session to retain Front Street Apartment as low-income rentals.

Front Street Apartment Tenants Group compiled the following list of reasons to support state legislation in keeping rents low at the Front Street Apartments.

1. Why should the state of Hawaiʻi get involved?

The state is already involved. Hawaiʻi taxpayers have already paid millions of dollars to develop Front Street Apartment. There is a public investment of some $40 million put into Front Street Apartments, including upwards of $15.6 million in state and federal tax credits, more than $20 million in tenants payments including renters’ money and federal rent subsidies, and an estimated $5 million in Maui County benefits given to the building and land owner, including more than $2 million in property tax exemptions. The building owner promised as early as 1999 it would operate the Front Street Apartments as low income for 50 years.  The Tenant Group claims the owner is now “trying to use a 2012 IRS loophole to convert the 142-units to market-priced rentals and evict the tenants who have been renting in good faith.”

2. Who are these tenants?

In an attempt to be competitive, Hawaiʻi’s visitor industry relies on services that often result in low-paying jobs for residents. According to a Tenants Group survey, 70-80% of the tenants work at these kind of low-paying jobs, many working at more than one occupation, including maids, waitresses, cashiers, condominium cleaners, dishwashers, part-time landscapers and construction workers, part-time entertainers, taxi cab drivers, beauticians and substitute teachers. About 10% are retirees living on a fixed income and another 10% are disabled — a woman on dialysis, a veteran fighting cancer, a native Hawaiian with a severe back injury and his wife who has lupus, a grandmother taking care of her Filipino great-grandchild. This is a multi-ethnic, multi-generation community of Japanese, Chinese, Korean, Filipino, native Hawaiian, Tongan, Samoan, Chamorro, Hispanic, Vietnamese, and Caucasians, a number of whom have lived on Maui for decades. Many are single parents with children who are trying to create a new safe life after escaping from abuse.

3. What would happen without affordable rentals at Front Street Apartments?

Many of the more than 250 tenants would become homeless in Lahaina, a tourist town second only to Waikīkī as a destination. They earn 50-60% of the median income in Hawaiʻi, that’s half of what a person normally earns. They can’t afford market-price rents on Maui. Rents are going for $1,300 for a studio and $2,300 for a two-bedroom in West Maui. An eviction will expose Front Street Apartment children, the elderly, and disabled to unsafe conditions, add to health problems, and add to the cost of feeding and housing the homeless. Homeless shelters are at capacity and the waiting list for affordable housing is about two years, according to the Maui-based Ka Hale Ake Ola Homeless Resource Center.

4. What are federal officials associated with the US Housing and Urban Development saying about sites like Front Street Apartments?

A study done by HUD’s Office of Policy Development and Research said top priority should be placed on retaining low-income housing in high rent areas because such housing will likely cost more to replace and the presence of such low-income housing promotes diversity. Front Street Apartment fits into this description. “This investment may be the most cost-effective way to encourage or maintain some amount of economic integration and diversity.”— (HUD Study 2012, Pg. 80, Affordable Housing at the 15-Year Mark, US Department Of Housing and Urban Development’s Office of Policy Development and Research; ABT Associates, August, 2012.)

5. Where does the state and Maui County stand on this issue?

Discussions are still developing, as more information becomes available. The Maui County Council on Dec. 5, 2017 unanimously voted to urge state lawmakers and Gov. David Ige to keep rents affordable at Front Street Apartments. Maui elected officials including state Sen. Rosalyn Baker and state Rep. Angus McKelvey, both West Maui residents, plan to introduce enabling legislation to keep rents affordable at Front Street Apartments. The Front Street Apartment Tenants Group feels state lawmakers need to pass enabling legislation that keep rents affordable for low-income tenants — whatever that solution is. 

6. Has the state ever intervened in halting an eviction and providing housing?

Yes. The state helped hundreds of tenants at the multifamily, low-income Kukui Gardens in Chinatown in 2006. In the 1970s, the state built low-rent housing with an option to buy for Filipino residents of Ota Camp who relocated to Honolulu city land at Westloch in Waipahu. Also in the 1970s, Gov. George Ariyoshi successfully led a move to buy hundreds of acres of land at Waiahole and Waikane to preserve farming communities in Windward Oʻahu.

7. How much will it cost?

It’s too early in the process to tell. The building owner has asserted that the appraised value was $8.7 million in 2015 and has asked for $15.3 million for the building based on a formula it said was developed under rules provided by the Internal Revenue Service. But no other appraisal and counter to the asking price is known to have been offered by government entities. The Tenants Group feels state and county officials should take a hard look at the figures used to prepare the appraisal and at the asking price by the Building owner. The Tenants Group also thinks it’s important for taxpayers and government entities such as Maui County to look at rolling back benefits and imposing penalties to the building owner, and perhaps use the money from the rollback along with penalties toward purchasing the property.

8. The Building owner is claiming it is simply following IRS rules and that private entities, the state and the county had an opportunity to buy the property when it was offered in 2015 and that opportunity has come and gone. What’s your response?

The Tenants Group feels it is important to note that less than six years after proposing a 50-year commitment for low-income housing at Front Street Apartments, SunAmerica was part of an investor coalition in 2007 that lobbied for the IRS changes.  The Tenants Group believes “this crisis requires extraordinary measures to save this public housing resource in Lahaina and that the state needs to intervene, given the lack of effort by investors and the building owner to negotiate in good faith.”

9. How are tenants at Front Street Apartments doing?

The more than 250 tenants are hopeful that a just and fair solution will be found. The Front Street Apartment Tenants group meets regularly at a nearby church hall to receive new information and organize to fight the eviction. Under federal rules, the Building owner is required to keep rents at low-income levels at Front Street Apartments until early August, 2019, and the Tenants Group hopes the state and county will be able to find a solution to keep rents affordable before then.