Rental-unit project picked for Kakaako

Rental apartments won out over condominiums Thursday in a competition to build affordable housing in a tower that could rise to 650 feet on state land in Kakaako.

The Hawaii Community Development Authority selected a $293 million rental tower with 804 units proposed by Ohio-based developer Forest City Enterprises Inc.

Forest City beat out Australian-based Lend Lease, which proposed 1,002 for-sale condos.

"We’re very excited to be bringing rental housing to Hawaii," said Jon Wallenstrom, president of Forest City’s Hawaii operation. "It’s needed."

At 650 feet the planned tower would rise 250 feet above current height limits and become the tallest building in Hawaii, which has created significant public opposition.

The selection Thursday advances a plan championed by Gov. Neil Abercrombie, but many details — including costs and benefits to the state and even the final height — remain uncertain.

HCDA, a state agency governing development in Kakaako, requested development proposals for a 650-foot tower in January. Forest City and Lend Lease submitted the only bids for the project known as 690 Pohu­kaina.

Building higher than now permitted should allow a developer to produce more affordable housing through economy of scale for a project not relying on government financial assistance, according to HCDA.

But because HCDA has yet to propose or approve rule changes to allow 650-foot buildings, soliciting bids to develop 690 Pohu­kaina has drawn criticism.

Dexter Okada, a Kakaako small-business owner and previous HCDA board member, said a project proposal shouldn’t be the basis for changing development rules reshaping a community. "This process now to me looks like the cart before the horse," he told board members at Thursday’s meeting.

Others, including The Outdoor Circle, oppose raising the height limit.

"This is a small island," Waikiki resident Herbert Rothouse wrote to the agency in September. "Must you see to it that it becomes a copy of midtown Manhattan?"

On Wednesday the agency received a letter from four state lawmakers and a City Council member concerned about the "big departure" from height limits and a limited extent of public participation. Two authors, Rep. Scott Saiki (D, Moiliili-McCully) and Councilwoman Carol Fuku­naga, also testified Thursday. The other authors were Rep. Tom Brower (D, Waikiki-Ala Moana) and Sens. Brickwood Galuteria (D, Downtown-Waikiki) and Suzanne Chun Oakland (D, Nuuanu-Liliha).

HCDA has held two public hearings on 690 Pohu­kaina, hosted two open-house events and accepted public comment on its website, hcdaweb.org. In total before Thursday’s meeting, about 25 comments had been received.

While public comment has been lean, it has included some strong support, particularly from Faith Action for Community Equity, a nonprofit that advocates for affordable housing.

Forest City’s plan calls for 804 rental units in a single 650-foot tower or two shorter towers. Of those units, 390 would be affordable to tenants earning no more than 120 percent of Hono­lulu’s median income. Another 390 would be for tenants earning up to 140 percent of the median income. These 780 units would remain affordable for 65 years. There also would be 24 luxury penthouse apartments.

Based on federal standards and present income levels, maximum monthly rental rates on the 390 most affordable units would be $1,736 for a studio to $2,580 for a three-bedroom unit. Maximum incomes would range from $69,470 for a single person to $99,240 for a family of four.

If work proceeds smoothly, it could be three years before construction starts on the 2-acre site bordered by Keawe Street, Pohu­kaina Street and Mother Waldron Park.

Lend Lease proposed 1,002 fee-simple condo units for sale in a 650-foot tower and a 400-foot tower. Of those units, 526 would be affordable to people earning no more than 140 percent of the median income. The other 476 units would be sold at market prices.

Lend Lease said market studies it did showed that the community wants to own homes as opposed to renting them, and that mortgage payments would be comparable with rents.

Maximum prices on Lend Lease’s affordable units would have been $286,000 for a studio to $420,000 for a three-bedroom unit. The range for maximum incomes was $92,620 for a family of two to $115,780 for a family of four.

HCDA directors selected Forest City’s plan 9-0.

A committee of three agency directors scored the two proposals based on HCDA criteria, and Forest City scored 480 to Lend Lease’s 461 out of a maximum 500 points.

Forest City outscored Lend Lease in each of four criteria areas: experience, concept, financing plan and state benefit.

The biggest difference was in the financing area.

Lend Lease proposed giving the state a 12 percent return on a $15 million value for the land plus half of any profit. If the project wasn’t profitable, the state possibly could be on the hook for half the losses, the committee reasoned. Lend Lease also sought a state loan guarantee.

One other shortcoming in the Lend Lease plan was that it included financial information for only an initial $169 million phase represented by the smaller 400-foot tower.

Both Lend Lease and Forest City proposed selling affordable housing credits to help finance 690 Pohu­kaina.

Such credits are provided by HCDA to developers that produce affordable housing not required under its rules. Credits can be sold to builders of market-rate tower projects that are subject to rules requiring 20 percent of units be affordable. Instead of providing affordable units, developers can substitute credits.

Essentially, selling affordable housing credits means a comparable amount of affordable housing won’t be produced by other developers who would have had to produce them under HCDA rules. The agency’s committee report said Forest City anticipates selling credits for $40.4 million.

Forest City’s proposal includes a mix of monetary costs and benefits to the state, which the committee said amounted to a significantly lower risk compared with Lend Lease’s bid.

Under Forest City’s plan the developer would pay the state $14 million to lease the land for 65 years, $1.5 million for an environmental impact statement HCDA is preparing, and half of any proceeds from affordable housing credit sales above $40,000 per unit.

With Forest City the state will pay $6.3 million for civic space requested by HCDA plus possible pre-development and permit costs the committee estimates could total $10.2 million. Forest City also is seeking an exemption to general excise taxes on construction spending. The committee estimates the break would amount to $10.6 million.

Details in the proposal are subject to an agreement between HCDA and the developer.

In the meantime, HCDA is working to complete an environmental impact statement and finish drafting proposed new rules expected to allow 650-foot buildings in proximity to the city’s planned rail stations.

Any rule change will require public hearings before HCDA’s board can vote on the matter.

HCDA expects to complete the environmental review and height limit change to allow construction to begin in mid-2016.