Hawaii taxpayers are going to help the developer of a year-old Honolulu condominium and hotel tower complex make some of its required affordable housing more attractive to buyers.
A state agency recently decided to purchase partial interests in 26 available condos at The Flats at Sky Ala Moana East that have been on the market for two years and are reserved for households with moderate to high-moderate incomes.
Board members of the Hawaii Housing Finance and Development Corp. agreed in August to spend $1.7 million to purchase 15% to 20% stakes in 24 studios and a pair of two-bedroom units in an effort to make these Sky Ala Moana units less costly to prospective buyers.
Under HHFDC’s program, participating buyers should work in a profession with a critical shortage, including health care, education, law enforcement, corrections and agricultural labor. Which homebuyers are targeted is determined by HHFDC on a project-by-project basis.
In return, households that purchase the subsidized units essentially will co-own their homes with HHFDC, and must pay back the agency’s investment plus 1% annual interest and a share of appreciation within 30 years or under other conditions that include selling or renting the home.
HHFDC’s investment in each studio ranges from $62,000 to $67,200 and cuts the price for buyers by 20%, to between $248,000 and $268,800, down from between $310,000 and $336,000 previously.
For the two-bedroom units, the agency is buying 15% stakes for about $81,000 to reduce the price to $459,850 from $541,000 on one unit and to $462,400 from $544,000 on the other unit.
The funding is coming from a $10 million pilot program created by the state Legislature in 2023 to help middle-income Hawaii households buy their first home.
HHFDC so far has mostly used the appropriation to subsidize sales of affordable housing that developers agreed to deliver in return for project approvals and benefits including exemptions to height and density limits.
Sky Ala Moana at 1390 Kapiolani Blvd. was developed by an affiliate of JL Capital, and includes 300 hotel units above the 84 affordable condos in one tower, and 390 market-priced condos in a second tower that sold out at prices from $568,800 to $1.3 million before the project opened in September 2023.
Selling the 84 affordable condos has been a challenge.
According to HHFDC, 64 remained unsold as of July 10, which led JL Capital to seek an investment from the agency.
Spencer Lee, a JL Capital representative, told the agency’s board at the August meeting that selling the affordable units has been a struggle in part due to a 30-year resale restriction for the 84 units.
During this period an initial buyer wanting to sell must sell their home back to the city or another qualified buyer at a price capping appreciation at 1% per year.
JL Capital and its former partner in the Sky Ala Moana project, local development firm Avalon Group, opted for the 30-year restriction partly to reduce the number of affordable units they had to produce. The city also has options that require a greater number of affordable units with 10- or five-year resale restrictions.
Lee also said a city requirement that limited debt-to-income for buyers at 33% was another inhibitor of sales and made it so that buyers needed to make down payments representing 30% to 35% of the purchase price.
“That really, really killed a lot of our deals,” he told the board.
The debt-to-income limit was removed earlier this year, and in 2023 the 30-year resale provision was reduced to 10 years on 42 of the 84 affordable units, including the 26 units HHFDC agreed to partly buy.
Gary Mackler, HHFDC board chair, said during the August meeting that such an investment would benefit both the developer and households that buy the 26 condo units in partnership with HHFDC.
“I think at this time, with the interest rates that we’re dealing with, that this subsidy is timely and it can help families who otherwise would not be able to qualify and to participate in homeownership,” he said. “It’s a dual benefit, but it does certainly reach the buyers.”
Ivan Hou, a representative of the UNITE HERE Local 5 union representing hotel workers, expressed concerns to the board about using public money to help a private developer enhance the attractiveness of affordable housing required in return for project benefits.
“The responsibility should be on the developer, not taxpayers, to make their community benefits (affordable housing units) viable to buyers,” he said.
Hou said subsidizing a developer’s required affordable housing could encourage more developers to produce undesirable affordable housing.
“It’s a form of a race to the bottom in terms of producing quality housing units,” he told the board.
Sky Ala Moana is the third condo tower project to seek and receive help from HHFDC’s $10 million Dwelling Unit Revolving Fund Equity Pilot Program.
In February, HHFDC agreed to spend $2.4 million on stakes in 23 affordable condo units in the Kuilei Place tower being built in Moiliili, seven months after a lottery was held to sell 603 affordable units in the 1,005-unit planned tower by local firms BlackSand Capital and Kobayashi Group.
At the time, Lorna Kometani, head of HHFDC’s real estate services section, told the agency’s board that staff recommended approving the new subsidy program for Kuilei Place even though it wasn’t an ideal use.
Since February, HHFDC agreed to purchase stakes in five more Kuilei Place condos, upping the investment there to $2.8 million.
HHFDC also is investing $1.7 million to buy stakes ranging from about $60,000 to $79,000 in 25 market-priced condos at a project called Modea, where part of the Davies Pacific Center office high-rise in downtown Honolulu is being turned into 352 residential condos by Avalon.
In a statement Wednesday, HHFDC emphasized that a primary goal of the pilot investment program is to keep workforce households and young professionals from leaving Hawaii over housing expenses.
Lee told HHFDC’s board that he hopes the agency’s investment in Sky Ala Moana, which the developer is promoting to prospective buyers, will jump-start sales of the affordable units.
Since July the number of available affordable units has decreased to 62 from 64, according to the project’s website.
