Issue #151, Fall 2007

Keeping Kukui Gardens

Faced with the prospect of losing their homes, residents of a Honolulu affordable-housing complex defied Hawaiian cultural traditions, getting organized and vocal and achieving a victory for affordability in one of the country's most expensive cities.

By Kari Lydersen

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For more than three decades, Carol Anzai and Rosella Newell have called Kukui Gardens home. An 857-unit affordable-housing complex on the edge of Honolulu's Chinatown, it is a place where 2,500 residents - many of them senior citizens - look out for each other, taking walks in the local park and fishing in the nearby river. In a city known for upscale tourism and luxury vacation homes, such affordable housing for senior citizens and working families is increasingly rare - one resident calls the development "a blessing."

So residents were terrified when they heard that Kukui Gardens, built in 1970 by a nonprofit foundation, might be sold and transformed into market-rate housing. What resulted was a multi-faceted campaign in which residents, interfaith leaders, national housing advocates, and local politicians gained what - if everything comes together as planned - is a historic affordable-housing victory.

Kukui Gardens was one of hundreds of affordable-housing projects built in the 1960s and 1970s under a federal program created by the 1937 National Housing Act in which the U.S. Department of Housing and Urban Development (HUD) would subsidize building costs, provide a low-interest loan, and insure a mortgage for private developers constructing affordable housing. The mortgage terms mandate the developments stay affordable for 40 years, allow rent increases only to cover operating costs, and require regular inspections, specific tenants' rights, and other provisions.

"It was built mostly as a reaction to [failed] public housing," said Drew Astolfi, a lead organizer with the Honolulu interfaith group FACE (Faith Action for Community Equity) who cut his teeth fighting to preserve HUD-subsidized affordable-housing projects in Massachusetts and Chicago in the 1990s. "It's the nicest subsidized housing there is. If we could do this now we wouldn't have a housing crisis in America."

Over the past two decades, as property has gotten more valuable in many of the areas where HUD-subsidized affordable projects were built, owners have sought to turn the projects into market-rate housing by prepaying their mortgages and releasing themselves from the HUD restrictions. A 1983 amendment to federal fair-housing law says that at many projects including Kukui Gardens, where the original charter granted HUD approval rights over prepayment, this can only be done if several conditions are met. Those are that the project no longer meets a need for affordable rental housing; that residents are notified of the prepayment plan and allowed to comment on it; and that displaced residents are given relocation assistance.

In January 2006, it became known that Kukui Gardens Corp., the nonprofit company that runs the development, was seeking to prepay the $2 million balance remaining on its $16.1 million HUD-insured mortgage and sell the development for about $130 million to the San Francisco-based Carmel Partners development company. (These details were later confirmed in announcements by Kukui Gardens Corp. and Carmel Partners).

"People were very upset and worried because there would be no place for them to go," said Anzai, 58, who raised four kids at Kukui Gardens and now lives there with her husband, who was in the military. "I can't imagine my life not living here in Kukui Gardens."

The Kukui Gardens Corp. said the mortgage prepayment was necessary to obtain funding for needed repairs. Once the mortgage was prepaid, they would be freed from HUD restrictions and allowed to sell the development. Then profits from the sale would go to the Clarence T.C. Ching Foundation, the nonprofit organization that formed Kukui Gardens Corp. and also runs several Catholic institutions: the Saint Louis School, Chaminade University, and the Saint Francis Healthcare Foundation.

Carmel Partners associate Chris Beda says the development would still have remained affordable, in compliance with HUD restrictions, through 2011. And he said the company was willing to maintain affordable housing in the long term if tax breaks and subsidies could be leveraged, but none materialized.

"Everyone is in favor of affordable housing until money has to be allocated for it," he said, adding that, "people don't realize for-profit companies can be the most efficient at managing affordable housing with tax exemptions and subsidies."

Locals speculate the Kukui Gardens sale was orchestrated to bail out the foundation from recent financial troubles. The foundation's 2006 tax filings showed that it lost more than $630,000 - about one-fifth of its assets - in a poorly performing Morgan Stanley junk-bond issue overseen by a Morgan Stanley employee who is the son of a former Ching Foundation trustee. This spring the Hawaii attorney general's office began investigating complaints of conflict of interest in the foundation's investing.

And Wallace Ching, the only Kukui Gardens Corp. board member who opposed the Kukui Gardens sale, was voted off the board after questioning its financial accounting and management. In August 2006, he sued the company and its board, alleging the foundation mismanaged assets and didn't provide him with details of the sale.

When Anzai heard about the proposed sale, she called Rod Tam, a city councilman who had previously represented the area as state senator and helped defeat a proposed rent increase at Kukui Gardens. Tam, a well-known firebrand, was incensed at the news.

"I contacted Carmel Partners and told them openly they're not welcome here in Hawaii," he said. "I called them carpetbaggers. They didn't like that. It was a matter of telling them we will fight you. Once things started happening, they realized they had to deal with the residents."

Tam contacted FACE, which works on housing, jobs, and other economic and community-justice issues. The stakes were clearly high: Kukui Gardens is the state's largest HUD-insured affordable-housing project, and one of the larger ones nationwide. With such a severe shortage of affordable housing, the transformation of Kukui Gardens into market-rate housing could mean homelessness or drastic upheavals for many of the residents, who pay on average $444 to $818 a month for one- to four-bedroom units. Market rates are exponentially higher.

HUD data show that more than 50,000 renter households in the city are paying more than they can afford or living in overcrowded units. A 2003 Hawaii housing policy study commissioned by state and local agencies showed "very low or no" production of new rental units, causing "low-income households to be squeezed out of the market altogether."

"It seems like everything is being built for luxury and people with a lot of money," said Newell, 82, who raised four kids as a single mother at the complex. "People just come for a few months and don't even live here. But where are the local people going to live? That's why we have so many people living on the beach, all these working homeless who are working but still can't afford a place to live. I don't know what I would have done (if the sale went through), I don't want to be a burden on my children, but it might have come to that."

Anzai rallied residents to fight for their homes, and FACE organizers launched a campaign that brought together local and state politicians, clergy, and national fair-housing experts. They formed alliances with groups and individuals who were coalescing to fight sweeps of homeless people on beaches and parks. In March 2006 after city officials evicted almost 200 homeless people from Ala Moana Beach Park, protesters marched to City Hall and camped out there.

"A lot of sympathy developed around that because there were working families with kids who were becoming homeless," said the Reverend Bob Nakata, a former state representative (1982-1986) and state senator (1998-2002) and pastor of the Kahaluu United Methodist Church on the windward side of the island. "Where previously there was the attitude of get the homeless out of our communities, now there was a much more positive attitude. With Kukui, the connection was made quickly, that affordable housing had to be preserved. There was a lot of dovetailing between the homeless advocacy movement and Kukui Gardens."

Hawaii Governor Linda Lingle called the prepayment plan illegal and spearheaded the passage of legislation in July 2006 allowing the state to use eminent domain to prevent the sale. However, in order to invoke eminent domain, the state would have needed to condemn the property. Lingle said she would take that measure only as a last resort, if efforts to turn the project over to a nonprofit developer failed. As it turned out, Lingle didn't need to invoke eminent domain to save the affordable development. But FACE organizers say her support and willingness to intervene was invaluable.

In October 2006 the Kukui Gardens tenants' association and FACE filed a lawsuit in U.S. district court in Hawaii charging the planned sale would violate the National Housing Act provisions regulating HUD mortgage prepayments. The suit also argued that the sale would constitute discrimination against non-white tenants, because they are about 1.5 times more likely to lack affordable-housing access than white tenants. Federal law mandates nonprofit groups be given a "reasonable" chance to acquire HUD-subsidized developments put up for sale. Four nonprofits originally expressed interest in purchasing the development; the lawsuit charges Kukui Gardens Corp. did not fairly consider their offers before negotiating with a for-profit developer.

"The issue of HUD permitting owners to pre-pay the mortgage when they don't have to has come up repeatedly, and HUD has for years taken a position that is contrary to plain language" of federal housing law, said Jack Cann, attorney for the San Francisco-based Housing Preservation Project, which represented FACE and the tenants in the lawsuit. "So anyone who wants to sue HUD has pretty good grounds to do so."

Meanwhile, organizers and residents knew community pressure and public opinion would be essential to their struggle. Using an approach that interfaith groups nationwide have applied to workplace struggles, FACE enlisted local clergy to talk to Kukui Gardens Corp. board members and other stakeholders. This was especially appropriate given that the Ching Foundation is a faith-based Catholic organization.

FACE organized pickets and demonstrations and took residents and clergy to visit City Hall and the offices of Kukui Gardens Corp. and Carmel Partners. They interrupted a Kukui Gardens Corp. board meeting. At an "Accountability Assembly" in March 2007, 850 people rallied in a cathedral demanding local elected officials do their part to save affordable housing.

"FACE's style of organizing is somewhat more assertive than Hawaii is used to," said Nakata. "It was like a reintroduction of the tactics of the heyday of the labor movement. A lot of that was carried by the tenant organizing. They were loyal, 30 to 50 people could be counted on to turn out at all the rallies and demonstrations."

Most residents - many of them senior citizens of Chinese or other Asian ethnicity - had never participated in community organizing or activism.

"We're new to this," said Anzai. "We had rallies, demonstrations, sign-waving, going to the capital, to the offices of the developers and the sellers. We were all nervous, totally. We'd never done anything like this before. Hawaiian people just don't go out in public, especially Asian people; we are really conservative and shy. I'm not one to go out and hold up signs. But we had to do it, so we did it."

After about 14 months of campaigning, in the spring of 2007, an unofficial agreement was reached which residents and organizers see as a big victory. As this issue of Shelterforce went to press the final details of a settlement, which will essentially split Kukui Gardens in half, were being ironed out.

The state will buy half of the 22-acre development and turn it over to a nonprofit development company that will maintain it as affordable housing for at least 55 years. Carmel Partners will be able to develop the other half as office, retail, and restricted-income housing - meaning tenants can make no more than a designated percent of the state's median income. Beda declined to give exact details of the income restrictions, but said it would include units for people making 80 percent of state median income for a certain amount of time; and later on the limit would be raised to 140 percent of median income. While this arrangement doesn't put a ceiling on the rent Carmel can charge, Beda characterizes it as "affordable."

"The rents might need to be artificially lowered to fill the units with that restriction," he said.

And if things go as planned, low-income tenants currently living in Carmel's part of the property will be relocated into new units which will be built on the affordable half of the property.

The settlement was negotiated in large part by the development firm Devine & Gong and their development consultant, Chan U Lee, a Hawaii native who grew up across the street from Kukui Gardens and worked pro bono for a year and a half with FACE and the residents. "We couldn't have done it without them," said Astolfi.

The affordable half of the development, which is estimated to cost about $80 million in rehabilitation, new construction, and rent-subsidy costs, will be financed through state funds and federal tax incentives. Half of those units will be allocated for residents making less than 30 percent of the state's median household income, and the other half for those making less than 60 percent of median household income. That means $11,000 to $29,000 a year; and $22,000 to $58,000 a year, respectively, depending on family size. Current Kukui Gardens residents who don't meet those income ceilings will be allowed to stay until 2011.

"Implementing the settlement will involve lots of people moving within the project," said Cann. "It's a less than perfect resolution, but on the other hand the federal mortgage would be completely paid off in 2011 and then nobody would have any leverage at all. So the fact that they tried to sell it before 2011 in a way that violated federal regulations was propitious. It gave the residents a chance to step in and force negotiations."

In the next four years, HUD-insured mortgages will expire on at least 394 projects with more than 40,000 units nationally, according to Cann. Organizers hope that the Kukui Gardens victory can provide lessons for housing groups nationwide fighting both HUD mortgage pre-payment efforts and fighting to keep projects affordable once HUD-insured mortgages expire.

And in Honolulu, the fight for affordable housing is far from over. Even as the Kukui Gardens victory was falling into place, in February 2007 Honolulu Mayor Mufi Hannemann announced he wanted to sell 12 affordable-housing projects owned by the city, claiming they are too costly to maintain and manage. The mayor said buyers would be obligated to keep the projects affordable, but residents and housing activists are skeptical.

Nakata thinks the success of Kukui Gardens residents will help protect affordable housing at the city developments. "For the future in housing, this has had a very positive impact," he said. "This will be a major part of the solution to the housing problem here. The government and key House and Senate leaders came around to being very supportive, and we helped make housing and the homeless one of the top issues in the state."

"This is a lesson for people who come to Hawaii and try to invest," added Tam. "Hawaiian people are soft-spoken generally, but don't get us upset!"

"This has made people more confident and stronger," confirmed Anzai. "We thought we could never do what we did. Now we know we have that power. It's people power, that's what it is."

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