The sale of Kukui Gardens by a local nonprofit foundation to a Mainland developer is a flawed deal at best.

In a state faced with a chronic housing crisis, the transaction does nothing to save nearly 900 affordable units on 22 acres of land on the edge of Honolulu's Chinatown.

There still is a way to preserve it, but it will be a far trickier negotiation for the state.

For now, the deal is a good one for the Clarence T.C. Ching Foundation, which receives an early bailout from its existing federal Housing and Urban Development loan, and exits the picture with an estimated $130 million from the new buyers, Carmel Partners.

The transaction does preserve the existing HUD agreement to keep Kukui Garden's housing stock affordable, but only until 2011.

The Ching Foundation could have dealt with a local nonprofit bidder, the Ecumenical Association for Housing, whose goal was to keep those units affordable forever. EAH officials say they offered to pay $60,000 above the highest bid — contingent on its ability to raise financing from state, federal and private sources.

But the foundation's board, intent on a quick sale, accepted the cash bid of Carmel, a real estate venture corporation.

Now, what might save Kukui Garden's affordable units is the state's threat of condemnation of the property by eminent domain, a matter enabled by the Legislature's passing of House Bill 2239.

The bill sets the stage for a new round of negotiations between the state and Carmel.

Housing Committee Chairman Michael Kahikina said he hopes those talks could bypass eminent domain and end up with a win-win situation for both parties. If not, the state retains the hammer of eminent domain that Kahikina said could show Carmel there's a social responsibility involved in doing business in the state.

But use of eminent domain comes at a price and could conceivably cost taxpayers far beyond Carmel's $130 million purchase price.

The only thing that could stave that off is for talks to begin as soon as possible. If they are begun in earnest, the state and the developer could potentially make a new proposal to HUD to preserve the Kukui Garden units in perpetuity.

HUD officials have forged new agreements when affordable housing deals like Kukui Gardens have expired in the past.

There's nothing to prevent a new deal from being put together here. But both the state and Carmel will have to be creative. One possibility might be that in exchange for the affordable units, Carmel would be allowed to develop parts of the 22-acre property at market rates.

It doesn't have to be a costly lesson, if discussions begin soon.