Division of Dillingham Ranch proceeds

A California real estate investment firm is making a new case to Hawaii regulators for carving up Oahu’s historic Dillingham Ranch and selling pieces to buyers who could build homes on 70 lots zoned for agriculture.

Kennedy Wilson Inc. produced a report published Monday detailing its argument for how its plan complies with rules intended to ensure that such farm subdivisions result in viable agricultural production as a primary use.

The issue is a contentious one, with developers around the state criticized for establishing residential communities on farmland under lax state and county regulations that allow homes as accessories to agricultural activity.

Kennedy Wilson has drawn a lot of flack because the 2,721-acre Dillingham Ranch in Mokuleia would be the largest “farm dwelling” subdivision on Oahu, if approved, and could prompt similar projects.

The Beverly Hills-based company, however, has overcome a critical obstacle that tripped up past versions of its subdivision plan.

The state Department of Agriculture, which objected to prior plans, concludes that the new plan is OK.

Ultimately, the city Department of Planning and Permitting decides whether to issue subdivision permits, but is compelled to if there is a viable plan for agriculture associated with the divided lots.

Some North Shore residents continue to doubt Kennedy Wilson’s position that its plan will establish more than token agriculture.

“It’s not really an agricultural subdivision, it’s a (housing) subdivision surrounded by agriculture,” said North Shore Neighborhood Board Chairwoman Kathleen Pahinui.

Kennedy Wilson contends its plan will increase agricultural production through new lot owners.

“Without selling lots, far less agricultural activity would otherwise occur,” the company said in a draft environmental impact statement. “The range and types of agricultural activities advanced by the proposed project will contribute to the diversity and sustainability of agriculture throughout the state.”

Kennedy Wilson also said its proposed subdivision will foreclose potential future extensive development on the site and will help keep the country country.

The plan calls for continuing or expanding three commercial farm activities on the site — cattle ranching, horse boarding and palm tree sales — as well as commercializing an untended mango orchard, establishing fruit orchards on house lots and starting a hydroponic vegetable farm that trains new farmers.

Past versions of the developer’s plan have run into trouble.

The company bought the ranch in 2006 for $26 million, and in 2008 proposed developing 77 house lots while expanding cattle operations. DPP tentatively approved a subdivision with Agriculture Department support, but Kennedy Wilson dropped its plan amid the Great Recession.

In 2014 the developer submitted a new application to create 106 house lots, but that expired without approval amid Agriculture Department concerns.

A third proposal in 2016 called for 70 house lots but eliminated cattle ranching and didn’t add orchards. That plan elicited more Agriculture Department concerns.

The newest plan passed muster with the department, according to a recent letter.

Cattle ranching under the new plan would be leased to an operator as a tenant of lot owners. Kennedy Wilson said ranching has been marginally profitable in recent years with about 160 animals grazing on 360 acres. This area would shrink to 300 acres, but some pastures would be irrigated, and “initial” rent would be discounted to enhance business. Kennedy Wilson also said unprofitable years of ranching could be subsidized by lot owners.

A similar lease arrangement would be set up for horse boarding, a palm tree farm and a mango orchard on common areas of the subdivision to be owned collectively by lot buyers.

For horse operations, the number of animals would increase under the plan to 175 from about 150, and pasture and equestrian areas would grow to 217 acres from 185.

A palm plantation would be cut from roughly 68 acres to 49 but would shift from being unmanaged without irrigation or replanting to a sustainable irrigated operation.

Five acres of mature mango trees not harvested or maintained would change to a commercial operation expanded to 10 acres. As with the palm farm, Kennedy Wilson would pay for the expansion and irrigation while discounting initial rent for an operator.

A 5-acre hydroponic vegetable farm would be established by Kennedy Wilson and leased at an initial discount to a farmer. The developer also would contribute $50,000 a year for 10 years for an instructor to run a training program at the facility to benefit students at schools that could include Waialua High and Intermediate and the University of Hawaii.

On house lots, Kennedy Wilson would require buyers to plant fruit trees on between 1 and 3 acres, depending on lot size, within three years of purchase. House lot sizes mostly range from 3 to 10 acres, and the minimum total orchard area would be 108 acres.

The developer proposes to give each buyer $9,000 to $20,550 for planting, or $840,000 in all. Kennedy Wilson’s report said it would be up to lot buyers to select the type of fruit trees and whether to engage in sales. The company also said it anticipates that some buyers will hire managers for their orchards and could form a commercial cooperative.

Kennedy Wilson said it will market lots in publications and on websites catering to farmers. And any buyers who lack commercial farming experience or education must agree to participate in a farm course arranged by Kennedy Wilson within two years of their purchase, the plan said.

Still, Pahinui doubts that farmers will buy such lots because they won’t be sold at farmland prices, and she questions whether lot buyers could discontinue agriculture.

The developer has said it expects to spend $60 million to $80 million on the project. To just break even, Kennedy Wilson would have to sell lots for $857,000 to $1.1 million on average.

“I don’t know a single farmer who would buy a couple of acres for $1 million and try to farm it,” Pahinui said.