 and thank you folks for tuning in on this. We want to share with you today some input about one of the most critical areas in Hawaii, not only in COVID but on out for the future and that's housing, affordable adequate housing for the people. We have Kali Watson, Kevin Carney, Craig Watase, three of the leaders in this area, progressive, innovative people. They're building this with dedication, with understanding, with respect for people in communities and culture. Kali, a little bit of background on who you are, what you do. Yeah, hello everyone. I'm Kali Watson. I'm the president and CEO for Hawaiian Community Development Board. We're a nonprofit housing developer. We've been around about 20 years. We're kind of focusing on the Hawaiian communities, but we've done a bunch off site and we're excited to be a part of this forum. Fantastic. Craig? Craig Watase, I'm the president of Mark Development, a second generation developer. My family's been involved in affordable housing for since 1977. We've had the pleasure of developing a lot of projects for Hawaiian homelands, including the former chair of Hawaiian Homes, Kali Watson, which he didn't bother to mention there. We've built about over 2,000 affordable units in the state of Hawaii. Kevin? Good morning. Kevin Carney, I'm vice president of EAH Housing. EAH stands for Ecumenical Association for Housing. We're a 52-year-old nonprofit. We operate in California and in Hawaii. And in our portfolio, we have a little over 10,000 affordable rental units, primarily serving those at 60% and below of the area median income. Okay. Gentlemen, housing is certainly one of the most critical life element areas in Hawaii and one of the most problematic. We have homelessness, extensive. We have Hawaiian homelands, weightless that are offensively long. We have many, many, many people who can't, not only can't buy homes, can't find adequate homes to rent or be able to manage to stay in them, especially after the COVID economic impacts. If you folks could envision dealing with all of that, where do we go from here? What might that look like in your vision? How do we get there? And what's in the way of that? You want to get us started, Kevin? Sure. I mean, for what we do, and again, you know, we are primarily low-income housing tax credit developers. What that means is we use the low-income housing tax credit program, which provides basically free equity for our properties to get us started. And it's a public-private partnership in effect, but it's very expensive and it has gotten more expensive over the years. We build conventional multi-family housing, basically. And if we had our druthers, there would be more land available to do what we do and more funding. We know how to fund it, but there's just not a lot of funding available because it takes a great deal of subsidy to keep the rents low to serve that AMI level. Our properties serve levels all the way down to 30% of the AMI. Below that, you're looking at public housing. So the bottom line is available land, infrastructure, and funding. So if you could get a sample land area that might be available, how do you get the community, government, and private support on board with that, especially now? Is that addressed to me or one of our other? Wide open. Kali, Craig, jump in. Well, I think that, first of all, you know, you comment about the homeless, as well as the long waiting list for DHHL. I mean, both conditions are prevalent among the Hawaiian community, homeless about a third of the Hawaiian. So our nonprofit was developed or created about 20 years ago with that objective of trying to address the lack of housing for Native Hawaiians. And with respect to educating the existing leaders, we can look to the past. You know, I got a point to Craig's group in their development of the whole Lima Lima project, which was a rental process or approach that uses low-income housing tax credits. Home ownership, that's a big thing. So by doing this approach, not only do you can address those that no longer can qualify for mortgages because of this COVID situation, you know, maybe half the households in a way, at least one member of the household has lost their job. So to qualify for mortgages, that's all of the question. So the alternative, which I think we would be able to provide, is to use a life tech approach where, you know, the homeowner or the person would be, or the household would be renters for 15 years. At the end of the 15-year period, convert and become homeowners. But I'll let Craig kind of address that, but it is a matter of educating our existing leaders to this potentially very valuable and practical approach. Yeah, and Cully fails to mention that we were able to do that demonstration project when he was the chair of Hawaiian homelands. He gave me land, and we had to actually go get permission from the United States attorney that said it is okay to use federal low-income housing tax credits on Hawaiian homelands and only rent to native Hawaiians, which sounds like discrimination based on race. But they, but we were able to demonstrate that it, that they were a political class, and we were able to do that, get tax credits on Hawaiian homelands, which added $13 million of equity on a, or excuse me, about $9 million in equity on a $10 million of equity on a $13 million project. So when we converted to sale, the renters who had been there for anywhere from, you know, three or four years to 15 years, were able to buy their homes, and it's stipulated by the Internal Revenue Code that we can only sell it for remaining debt. So there, we split up the three and a half million dollars, three million dollars among the 70 families, and it came out to like 60, $70,000 a home for three and four bedroom homes. Meanwhile, the Department of Hawaiian Homelands was developing and selling homes for $250,000, $290,000 of similar size and quality. So, you know, you could see that, that they had affordable rentals for 15 years, and we had 15 years to train them on how to become homeowners, did financial education, homeownership education, and it was a great project. But until just last year, you know, nobody, nobody wanted to duplicate it, nobody wanted to copy it, you know, I'm sure if Cully had remained as chair for, you know, we'd have five or six, seven projects like that, because Hawaiian Homelands gives us free land and free infrastructure as a developer, you know, so. Craig, let me jump in on that point too though. You know, Craig and I, we partnered up, we went in on the bullet drum to put in a proposal, we're looking at doing over 200 units, and one of the things that the department, which is, I don't understand why, restricted it to purely rentals. We went in with our proposal and suggested, hey, let's do the rentals, but let's also do and add the option of them turning into owners, a rent on scenario, like how Craig did in the whole Lima project. We got penalized for even suggesting that. And to me, it is a lack of understanding of the benefit, because it didn't end the day as a renter, the homesteader has nothing. He walks away, the family receives nothing, whereas for as to a rental owns scenario, that family would inherit, not only should that person pass away, but more importantly, it creates equity, like how Craig did in the whole Lima project that is passed on to the family. So there's accumulation of value that is created by using this approach, which I don't understand why the department didn't adopt that and use that more. Yeah, no, and that's a really important point, I think, Craig and Collie, because culturally, this is primarily an Asia Pacific constituency here. Culturally, the connection to the Aina, whether it's Hawaiian, Asian, Pacific, or other, is part of the connection among the generations of the family. You can't dissociate those. So how do we get government, private sector, and community buy in on that rent to own model for affordable housing? Let Kevin answer that. Kevin, you've been very active in the legislature. I'd like to be able to answer that question, but we are strictly a rental developer. Our board of directors has not expanded our operations into home ownership, and so we focus strictly on rentals. So I really don't have an answer for that. Well, I think the rental approach would be appropriate, especially for our Kupuna and elderly, because with them, that's a different setting and situation. They typically go after one bedroom or studio. The cost or affordability is a big issue. We can do a lot more density with the Kupuna house. We're doing one in Moelili, about 105 units. It's costing us about 32 million, but we're funding it through tax credits and stuff. But getting back to the rent to own, when you look at the fact that DHHL has over 200,000 acres, lands on all the islands, they have about 100 million in the bank that's just sitting there from the 600 million that was tamed a while back 20 years ago, they could leverage that to get more tax credits. I would suggest that the legislature, while they're doing the conversion to bonding of the 250 million for the rental housing revolving fund, that they act in a timely fashion so that we can use that funding for our gap funding that we need. But the process of doing a rent to own, I would say, is really the answer, not only for DHHL, but for the general public, because with this COVID situation, a lot of people are not going to be able to afford or qualify for mortgages. You know, Chuck, I think it's important to note that the department of Hawaiian homelands did, in fact, put out to bid and award a rent to own concept project that was modeled after the project that Cully and I did in Kapolei. They did that at Laipua on the Big Island. So I don't think that started construction yet. We bid on that project, and it went to somebody else. Of course, I'm a sore loser. I'm a competitive guy. But they gave it to a good developer, and hopefully they'll have success on the Big Island. So they are trying it again. I'm a little miffed that it took 17 years for them to do something that was clearly a successful demonstration project. And I want to say that the secret to that stuff is really in the property management and the homeownership training that goes on in between the time that you put them in as renters to try and turn them into homeowners. Because if you don't do the homeownership education, if you don't do the financial training and come time to buy the home, it could be a disaster. And we had some families where we led them to water, but they refused to drink. And that was really challenging. So it's really important to get them to buy in, to do the education, because many times these are generations that have no idea what it takes to become homeowners. Not just the financial responsibilities, but the housekeeping, the yard work, the maintenance on the house. So there's a lot that goes into being a homeowner versus a renter. And that education piece, that social training is a big piece of it. I wanted to segue into something that your original question, Chuck, on what is this COVID world going to look like? As an advocate of affordable housing, extremely concerned that what I see going to happen is we're going to have a really bad recession, maybe a depression. The city and the state has done a good job in actually adding a lot of affordable housing inventory in the recent years. The converting and enforcing illegal vacations rentals to enter the long-term rental marketplace, we actually saw market prices being driven down to the point where it became hard to perform new projects. Because when we do the market studies, we're like, hey, we're not getting these high rents. The rents are way down there already. Our affordable projects are going to have to compete against the market because the market is that low because of 10, 20,000 illegal vacation rentals entering the marketplace. That's a lot of inventory. Well, with this COVID recession that's coming or is here, when the unemployment insurance runs out, these working families aren't going to be able to afford rent. It's not that there's not going to be units available. They just won't be able to afford rent, period. They're going to double up into families in past recessions and you're going to have this downward slide of rent prices, which means that we as developers can't count on a certain level of revenue from the rentals. Even if it's subsidized, we're going to have to try and subsidize even more, which means that we're going to need more subsidies from the government, but the government's not going to have money. They've spent all their money. I'm very concerned that we're going to be challenged to develop affordable housing under these conditions. I don't know how we're going to be able to perform on some of these projects to move forward. I'm curious to hear what Cully and Kevin have to say. I think part of it is when you look at the budget, especially for site acquisition, where you have to incorporate the cost of the land into it, that's a huge hurdle that needs to be addressed, especially with the remaining debt on your project. However, we can eliminate that either through government lands, whether it be the city or the state or the DHHL. It's one step that I think the net result will be less and more affordable rent pricing. The other thing is, it's very costly to do these projects, so the government administration can take a look at the permitting process, which is a killer. Our last project, we almost went under because it took us so long to get our permits approved. Now, that could be a better streamline. That would be very, very helpful. I go back to DHHL, not only do they have a lot of lands available, the entitlement process, fortunately for those trust lands, are obviated because of the it being trust lands and I guess exemption from zoning and the 218 and various other entitlement process. That adds to the viability of DHHL lands. I think specifically for Hawaii, not only do we address the 28,000 on the waiting list, but the reality is if the state wants to create more economic development, push the DHHL development side. DHHL could be the largest developer in the state, create a lot of jobs not only for construction workers, architects, engineers, what have you, but more importantly, address the housing shortage. And I think as a practical matter, DHHL to a major extent is answered. It's a great idea. I think two things I'm hearing. One is there's a couple of sectors here. There may be homeless or others who may never really qualify or be able to move into home ownership. That's okay. That can be one of the sectors that's dealt with. It has to be because that's significant portion of the population. There's another sector though, that is ready or close to ready to be able to go through a transition period. Then there's that middle sector of people that can grow into it over time. If exactly as you say, a combination of land being made available together with subsidization, tax credits, other packages that can incentivize and make development more cost efficient, if you can design and put something like that together and do that on an individual project level, maybe with some DHHL projects, is it possible to build that into a systemic model that can then be expanded beyond DHHL into other communities? Yeah. Chuck, I've done the performance and stuff and I've advocated. In fact, Kevin was in a meeting with me with Peter Savio. Remember when we were meeting with the mayor and the mayor Kevin and the mayor was asking for ideas? I've actually done the math and the tax credits provide so much equity that if another government agency wanted to throw in their land or it can be done on a non-Hawaiian homeland scenario, the rent-to-own model, I've done the math. It can be done. It's not going to be quite as sweet a deal as Hawaiian homelands, but there's an option to do that. Kevin, you guys manage a lot and own a lot of properties. Are you not worried about with this COVID thing and when unemployment insurance runs out for the unemployed, are you not worried about your tax credit projects that don't have rent subsidies that the tenants will be able to pay the rent? Well, not what. Us worried. No, we're not. Yeah, we're very worried. We've been fortunate so far in our entire portfolio. Our receivables have only dropped by about 5% when we expected a lot more from this. But again, that's mainly, I think, because of the government, the number one unemployment and then the federal government aid is helping out. But that's, like you said, that's going to run out. Going forward, yes, we're very concerned. We're exploring all our options at our corporate level as to what we may or may not have to do as far as initiating some form of forbearance, you know, forgiveness from mortgage companies, et cetera. Not necessarily maybe forgiveness, but a delay on payments because if the tenants don't pay the rent, then we can't pay the mortgage. We need to keep the water going and, you know, the trash getting picked up and things like that. So from an operational perspective, we're very concerned. Going forward, we're also worried on a development perspective because right now there's just a lot of unknowns. You read in the paper every day about another company going into foreclosure, creating chapter seven or whatever. You know, the low income housing tax credit depends on companies buying tax credits. Exactly. And if they're not doing well, they're not going to buy tax credits. And it means that the price is going to go down and down and down. And if the price of tax credits goes down, we rely more on local subsidies. And we're already stretched, I think, local subsidies pretty much to the limit as far as our rental housing revolving fund is concerned. So it puts more pressure on the state and on the counties for more subsidies to build these units to start with. So we're in kind of limbo right now, not knowing how things are going to go. I do expect it to slow down projects that are in the pipeline. And I think the main reason for that is going to be the reduction in the price of low income housing tax credits. Yeah. I mean, we have to remember that back in 2008 in mortgage lending crisis, the prices of tax credits went from like 98 cents on the dollar down to below 80 cents. I recall. And which is a huge drop. I mean, it basically makes projects unfeasible so that they had to pass that para, right? Which actually created a floor at like 86 cents or something. But yeah, projects just went feasible back then under that kind of tax credit pricing, as Kevin mentioned. And I think with respect to the subsidies, the legislature right now, is looking to fund the DERF along with the rental housing and revolving fund. And that fills those gaps, especially of the pricing for the tax credits go down. So it's very important that our legislature recognize that while it may take a while to use those funding set aside because these projects take three to four years to actually develop and then use the funds, it's not funds that are just being wasted. They are critical and the legislature needs to understand that if anything, maybe put more funds into that, because it's going to be very, very challenging for developers. Kelly, where are they going to get the money from? They're not the federal government cannot print money and they cannot raise taxes because there's less businesses operating profitably. I mean, so where does the state government get that money from? Well, exactly where they're getting it now is to look at some of those funds that are just sitting there that need to be swept into different other accounts. Granted that the revenues are not going to be there. So you're correct. But at the same time, I think that's where I prioritize whatever money they do have. The funding is important for housing. And as we come into our last couple of minutes here, we know two things are going to happen. One, COVID economic impact is going to continue long after COVID. D-Beds projected six years to return to status on tourism. We also know that there are going to be more future disasters, disruptions. Preparedness is the key. What is most needed for affordable housing to be sustainable in preparedness for it? Last minute or two. Well, that's a tough question because affordable housing projects don't put out a lot of cash to begin with. And so from a financial perspective, how do we save more to prepare for the unknown impacts down the road? Very, very difficult to do and maintain current operations. Through this whole COVID, we have been essential businesses through this whole pandemic. And our staff, particularly our operating staff or property management staff, they've been working every day at the properties, keeping those properties operational. And it's just hard. And not only that, our costs have gone up because of all the precautions we need to take as a result of COVID. So how do we prepare? I guess, you know, we are absorbing right now lessons learned during this process and trying to document that. And going forward, it's even affecting the way that we're looking at design, particularly in our senior properties, to try to enact social distancing, which is completely opposite to our whole mindset in any type of affordable housing project. We want interaction. I apologize, Kevin, but we're out of time. Any final concluding sentence, Craig, Collie? No, Kevin said it all. My final statement would be that, you know, with respect to this pandemic situation, one of the answers is to support affordable housing development, because it does create jobs. It does create an economy that is generating, I guess, money for a lot of different people, but more importantly, housing. Thank you all. I think we understand affordable housing is essential. Its priority and its support need to be bumped way up from where it has been. Thank all of you. Thank you. Hello. Thank you, Chair.