The partners withdrew their application for approval under a state fast-track housing law on Sept. 26, about a week after the County Council's Policy Committee imposed additional conditions on the project, including lengthening the time that at least half of the units have to be rented to families below 80 percent of median income.

"After much consideration, we feel it is in the best interest of the community to take a step back, to more fully evaluate the comments and suggestions for the project," said Leiane Paci, a Maui Lani partner, in a letter to the council.

The Policy Committee discussed the Maui Lani affordable project at several meetings in September, facing a deadline of next Monday for the council to make a decision to approve the application with or without revisions – or to disapprove the project.

If the council did not act to disapprove the project, it would have been considered accepted as proposed.

Maui Lani's letter to withdraw its application is on the council agenda as a county communication for Friday's council meeting.

The proposed rental apartment complex was planned on 2.5 acres next to Pomaika'i Elementary School.

Paci said Tuesday that the condition extending the affordable term "did affect the financing for our project.

"That was the one that affected us most financially," she said. "The others, we were able to work with and make compromises on."

Mayor Charmaine Tavares said Tuesday that she understood the developer's position for withdrawing its application and added, "I hope we can salvage this whole thing."

She said Maui Lani's failed attempt at advancing a fast-track housing project shows the need to get the county and developers on the same page in planning projects.

Policy Chairman Danny Mateo said Tuesday he was "disappointed" that Maui Lani had withdrawn its application and hopes it will come up with another affordable project. He said he thought that extending the length of the affordable units "was doable."

The conditions that the committee imposed were "fair," Mateo said, and added that he wanted to keep the project affordable for Maui residents.

Mateo said he understands that costs of development affect the bottom line, but for him, "I can't look at it as such."

Housing Director Vanessa Medeiros said it is "unfortunate" that the application was withdrawn. But she said she understands how the requirement to extend the time frame for maintaining the project as low-cost rentals was the "deal breaker."

Medeiros recommended approval of the project under the state fast-track law after reviewing the full application. During the administration review process, the housing division asked the units be kept affordable for a longer time.

Maui Lani proposed to keep its rents at the 80 percent median income level for 15 years, but then proposed to make the units available for sale or rent to the "gap" group – those making 120 percent to 160 percent of the median income for an additional 10 years.

Policy Committee members wanted the low-cost rentals maintained for 25 years, allowing rental charges on half of the 72 units to rise to be affordable to families earning less than 160 percent of the median income after 15 years. But the remaining 50 percent of the units were to remain available to families earning below 80 percent of the median income.

The county would also have had a right to purchase the project during the first 15-year affordable rental period at the fair market value.

Medeiros said the Maui Lani project was the first in Maui County to fall under the state fast-track housing law, HRS 201H, which allows the county agencies reviewing an affordable housing projects to impose modifications on the application.

Previously state law providing for fast-track processing of affordable housing project allowed the County Council to either approve or disapprove without any modifications, she said.

The fast-track housing law sets guidelines on government review while allowing exemptions from state and county land-use and development standards. Medeiros said the fast-track application is usually used by nonprofit organizations that want to save money in order to build affordable housing, by reducing costs of some infrastructure and from lengthy reviews.

"In a long run, it may be easier to support a 201H project that is 100 percent affordable," Medeiros said.

"In a sense it's a blow to affordable housing," she said. But she added that the Maui Lani experience might assist other developers considering the fast-track process for their housing.

Paci said Maui Lani Partners remains committed to providing housing as required by the zoning for the 1,200-acre project district. The proposed affordable rentals were to count toward a requirement on the overall Maui Lani project district to provide 5 percent of its homes for rent or sale to families earning less than 80 percent of median income.

"We will continue to work on our affordable housing conditions," Paci said.

She added that Maui Lani may use the construction plans in other Maui Lani developments such as a village mixed-used site, which will be developed after the extension of Maui Lani Parkway is completed.

Assistant City Editor Brian Perry contributed to this report. Melissa Tanji can be reached at mtanji@mauinews.com.