Monday, October 5, 2015         

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Funds elude Kakaako plan

A development faces few income-generating elements, as well as state financial woes

By Andrew Gomes


A state agency collaborating with a community advisory council has sketched its vision for developing state land in Kakaako next to Kewalo Basin. That was no easy task, but now comes the hard part: paying for delivery.

A draft version of the conceptual plan for developing primarily 36.5 acres of largely vacant land was completed this month after four years of work by the Hawaii Community Development Authority and the roughly 50-member advisory council.

The plan calls for expanding shoreline parks and promenades, establishing fish and farmers' markets, and building museums of surfing and Hawaiian music and dance.

Other plan elements include a performing arts center, community center, community gardens and a parking structure.

Some restaurants and small shops are also part of the vision, but most plan components are noncommercial public facilities that come with hefty price tags and not much revenue generation.

Total construction cost for the Kakaako Makai plan is estimated by project consultant Keyser Marston Associates at between $250 million and $350 million.

Given the state's strained financial condition, doubt exists about whether the vision can be realized.

The planning effort for the land was launched after an earlier attempt by the development authority was shot down. The prior plan involved a mix of high-rise condominiums, retail and public attractions proposed by Alexander & Baldwin Inc. in response to a request for proposals from HCDA, the state agency guiding redevelopment in Kakaako. A&B canceled its plan in 2006 after public outcry and legislative intervention.

The present plan, which was produced by consulting firms led by Honolulu-based MVE Pacific Inc. based on input from HCDA and the advisory council, lacks significant income-generating elements because they didn't fit the community's vision. Also, residential development in the area was prohibited by the Legislature.

Real estate development projects often are financed by debt that can be repaid with income from what is built. But without significant income, traditional debt financing isn't an option.

The draft plan says financing likely will be left to governmental sources, foundations, philanthropic organizations and creative financing structures.

Specific possibilities mentioned by Keyser Marston include creating fees or taxes that would be paid by landowners in the area, creating a nonprofit conservancy to raise money and operate the public facilities, and bonds that could be paid off using any additional property taxes generated by area development.

One financing idea floated at the Legislature is to assess private owners of land in Kakaako if they develop their property.

Senate Bill 760 proposes such a mechanism with a rationale that landowners on Kakaako's mauka side -- 600 acres bounded by Piikoi, King and Punchbowl streets and Ala Moana Boulevard -- will benefit from the public facility improvements in Kakaako Makai.

The bill was introduced by seven senators led by Carol Fukunaga (D, Lower Makiki-Punchbowl) and Suzanne Chun-Oakland (D, Kalihi-Liliha).

SB760 has yet to be heard, but has been referred to an initial hearing before the Committee on Economic Development and Technology, which Fukunaga chairs, and the Committee on Water, Land and Housing.

No date for the hearing had been scheduled as of Friday.

The bill doesn't specify how much the Kakaako Makai improvement assessment should be, but directs HCDA to determine the contribution.

Anthony Ching, HCDA executive director, said present agency rules already exact fees from developers of high-density projects to pay for public facilities such as parks. Landowners historically also have been charged about 25 percent of any cost for infrastructure improvements such as roads and sewers made by HCDA if the improvements enhance adjacent private property.

Ching said any additional assessments pose a danger of stifling development if the cost is too high.

"If you put it on the back of somebody, they're going to scream and they might not want to play," he said. "You run the risk of getting nothing because 100 percent of nothing is still nothing."

Two major landowners in the area presumably would pay for the bulk of Kakaako Makai improvements under SB760 given their approved plans for numerous condo towers and commercial space in Kakaako.

Kamehameha Schools has approval to build 2,750 multifamily housing units and commercial space on 29 acres. The other landowner is Dallas-based Howard Hughes Corp., which assumed ownership of Ward Centers from General Growth Properties in November, and has approval to build 4,300 residential units and commercial space on 60 acres.

Under present HCDA rules, some fees from developers could be used to help finance the Kakaako Makai improvements, but Ching said the amount wouldn't be too substantial.

For instance, the public facility fee due upon completion of the Pacifica Honolulu condo tower is about $800,000.

But developers have the prerogative to donate land to HCDA to satisfy public facilities contributions. For Howard Hughes, HCDA estimates that the company's public facility contribution could be up to $90 million, though forms of satisfying that could include land and making road infrastructure improvements. Even if such a contribution were made entirely in cash, the payment would be due in pieces as towers are finished, which in the Howard Hughes case is envisioned to take 15 years or longer.

Ching expects it will be possible to get some legislative appropriation money to start work on some parts of the plan -- but maybe not much, given a roughly $700 million state budget deficit.

Wayne Takamine, acting chairman of the advisory council working with HCDA on the Kakaako Makai plan, said financing is a challenge. But he believes several ideas, perhaps used in concert, hold promise, including the conservancy model, taxpayer funding, and grants from private and public organizations.

The council hasn't taken a position on SB760, but Takamine sees it as a potential tool. "It could be a viable way to get more funding in the makai area," he said, adding that all options need to be explored.

"This is the last oceanfront area in Honolulu with lots of land available (to improve for public use)," he said. "We want to make it into a special place."

The analysis by Keyser Marston said the project could benefit from starting with a "catalyst" element -- such as the envisioned Hawaiian Museum of Music and Dance -- that can attract people, transform their view of Kakaako Makai and stimulate further execution of the vision.

Still, Keyser Marston advised that fulfilling the plan likely will be a slow process: "Given the amount of public and nonprofit uses for the district, and given the limited resources from governmental and charitable sources, it is expected that the master plan will be developed in an 'organic' way, in incremental steps, and that full implementation will take many years to achieve."


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