The state has chosen a New Jersey-based company to undertake a $316 million redevelopment of Kuhio Park Terrace and Kuhio Homes, which will include a one-for-one replacement of public housing units along with the addition of 276 subsidized, senior and market rate rental units.

Construction is expected to begin in 2011, and is expected to last about 10 years.

Michaels Development Co. beat out a California affordable housing development company for the Kalihi project. Michaels has completed several similar rehab projects at public housing projects on the Mainland.

Chad Taniguchi, executive director of the Hawai'i Public Housing Authority, said the two 16-floor towers at Kuhio Park Terrace will remain standing as part of the redevelopment plan. At least one mid-level high-rise will be added to the property.

He said the project will be done in phases to minimize relocations of current tenants. And he stressed that no public housing units — for the poorest residents — will be lost.

In addition to rehabilitating units and adding new ones, the project includes the installation of "green space" on the property and will also improve street circulation and pedestrian walkways.

About 2,500 people live at Kuhio Park Terrace and Kuhio Homes.

The two are among the largest and oldest public housing projects in the state. KPT and Kuhio Homes have 748 units combined. KPT was built in 1965; Kuhio Homes opened in 1953.

The redevelopment comes 10 months after KPT and Kuhio Homes filed a class-action lawsuit against the state over conditions at the projects, saying they were squalid and unsanitary.

Taniguchi said Michaels and HPHA will work with tenants to give them information on the redevelopment and to make sure that relocations to new units go smoothly.

"This is another important step in a process to improve conditions at Kuhio Park Terrace and Kuhio Homes," Taniguchi said yesterday.

Over the next 18 months, Michaels will be coming up with designs for the redevelopment and will be seeking permits.

The makeover will be modeled on successful public housing redevelopment projects in other states, which add near-market or market units to a property to bring in more money for maintenance and to deconcentrate poverty.

State officials have said that the project won't require much in the way of direct state appropriations, though it will need state low-income housing tax credits, loans and other subsidies to pencil out. The state is also seeking money from the federal government for the work.

The Hawai'i Public Housing Authority board chose Michaels at its Aug. 20 meeting. In a news release, board chairman Travis Thompson said the redevelopment "marks a turning point for public housing residents and the neighborhoods they live in."

Affordable housing advocates are also applauding the authority's decision, though they stress they will continue to watch the redevelopment to ensure there is no reduction in the number of affordable units at the projects.

"The board has made the best decision out of their possible choices," said Jun Yang, of Faith Action for Community Equity, which has been working with KPT residents.

He added that tenants are excited about the rehab work.

"Most of the residents have felt for a long time that there needs to be something done," he said.

Michaels officials referred requests for comment yesterday to HPHA.

The redevelopment represents more than a year of work by HPHA officials, who were scrambling to tackle some $162 million in repairs needed at KPT at a time of fiscal crisis.

A class-action lawsuit filed in December alleged tenants at KPT and Kuhio Homes were living in squalid, unsanitary conditions, with elevators that don't work, apartments infested by roaches and rats and faulty sewage lines that cause "brown wastewater to fill housing units."

The suit is still making its way through the courts.

Under the redevelopment plan, the state will lease the land under the projects to Michaels, but retain ownership. And while management of the projects will be privatized, the state will continue to oversee operations.

State housing officials have said if the mixed-income redevelopment works at KPT, it could be replicated at other public housing projects in need of major repairs.