Affordable units fill $400M project

Local developer Marshall Hung has a good track record building high-rise housing for the middle class on Oahu. But he’s taking his model to another level thanks to a new state provision he expects will lead to more affordable condominium towers in Kakaako.

Hung recently bought the historic News Building that once housed the Hono­lulu Advertiser and Star-Bulletin newspapers with the intent to preserve the old low-rise for office use and bracket it with two new condo towers.

Now Hung has unveiled details of his $400 million plan with local partner Tradewind Capital Group, saying in an interview last week that he has high expectations that a series of such projects can be developed for blue- and white-collar residents.

The project led by Hung calls for an initial 400-foot tower with 635 units priced from $250,000 to $550,000 and located makai of the News Building. Construction and sales are projected to start next year and be finished in 2015.

A slimmer 400-foot second tower with 400 units Diamond Head of the News Building could break ground once units in the first tower sell out, which Hung expects will be relatively quick.

"This project will help solve the housing shortage that Honolulu is facing," Hung said.

Ryan Harada, a principal with Downtown Capital LLC formed by Hung to develop the News Building site, added: "This is basically a product for the middle class."

Chuck Wathen, founder and executive director of affordable-housing advocacy group Hawaii Housing Alliance, said Hung is producing new homes in urban Honolulu for a target population that’s hard to provide for because of high land and construction costs.

"He’s hitting great price points," Wathen said. "Wow."

The low end of prices in the initial tower dubbed 801 South Street is below the roughly $310,000 median price for all previously owned condos sold this year on Oahu.

The high end of 801 South prices is less than the $620,000 median price for single-family homes on Oahu sold this year, and would buy a 540-square-foot studio at the Colony Surf built in 1959 at the Diamond Head fringe of Waikiki, a 964-square-foot two-bedroom unit in Kailua’s Windward Passage tower built in 1979 or a 1,288-square-foot two-bedroom unit in Kakaako’s One Waterfront Tower built in 1989.

At 801 South, square footage of living spaces range from 411 to 423 for studios, 542 to 579 for one-bedroom units and 776 to 867 for two-bedroom units.

Other developers have delivered condo units in recent years in Kakaako at prices not far from the range of 801 South. But they have produced relatively few units.

For instance, at the Pacifica Honolulu tower makai of McKinley High School completed last year, 124 units were sold from $350,000 to $466,050 under a "reserved housing" rule requiring 20 percent of units in the 489-unit tower be priced for moderate-income residents.

At Keola La‘i, a tower makai of the News Building site, 63 units were sold from $275,000 to $375,000 under the rule of the Hawaii Community Development Authority, the state agency governing development in Kakaako.

Some affordable-housing advocates question state and city policies that assist with or facilitate housing development at the upper end of the "affordable" range that qualifies buyers earning up to 140 percent of the annual median income. That level qualifies a single person earning up to $81,050, or a family of four earning $115,780.

HCDA’s reserved-housing policy aims to produce homes for people with such incomes — a "gap group" the agency says often earns too much to qualify for most affordable housing but not enough to afford market-priced units.

According to the Center for Housing Policy, a $550,000 home in Honolulu would be affordable for a pair of civil engineers or registered nurses, but not a teacher-and-firefighter couple.

The Washington, D.C.-based nonprofit calculates that a $250,000 home would be affordable to several single-income buyers, or a couple working as a bank teller and auto mechanic, or an office clerk and prison guard.

The vast majority of high-rise condos developed in Kakaako over the past decade have been upscale or luxury projects with prices over $600,000.

From 1990 to 2010, developers produced 6,111 luxury condos and 3,482 affordable condos in urban Honolulu, according to Downtown Capital. That compared with 3,944 luxury units and 30,000 affordable units in the preceeding 20 years, the company said.

Hung is taking advantage of an HCDA rule passed in November <@$>that allows twice as much density for residential high-rise construction on a site if at least 75 percent of units are affordable to residents earning between 100 percent and 140 percent of Honolulu’s median income.

At Hung’s project, all the units will meet the requirement.

The Hung project, if approved by HCDA, will be the first developed under the new rule.

The HCDA rule requires that a qualifying project not use government financial assistance.

Government assistance is typically how developers produce homes in Hawaii for low to moderate-income residents. One example is the planned Halekauwila Place tower in Kakaako that received state land and financing.

Another difference for 801 South is that buyers won’t have restrictions on selling, renting or keeping all of the gain from any appreciation, which are imposed on reserved-housing units under HCDA rules.

Not as many amenities will be part of 801 South. For instance, there will be no pool. But monthly maintenance fees are projected to be between $225 and $300 to help keep units affordable.

By comparison, monthly fees are $512 for the Windward Passage unit, $802 for the Colony Surf unit and $1,152 for the Waterfront Towers unit. Pacific and Keola La‘i maintenance fees are between $400 and $500 for units within 801 South’s price range.

Harada, Downtown Capital’s principal, said 801 South is an opportunity for people to move out of rentals or older housing stock, which frees up space in that market, perhaps for people to move out of public housing. This effect, he said, creates more room on a sort of housing ladder that in Honolulu has mostly expanded at the very top with luxury housing.

Colbert Matsumoto, president of Tradewind Capital, said 801 South and its sister tower will be a unique addition to Kakaako’s growing housing base of high-rises.

"We think that our project is going to be something very special for Kakaako," he said. "The vision for Kakaako is that it should be more an inclusionary environment. This project facilitates that."

The density bonus allowed under HCDA’s new rule should allow more such projects, according to Hung, who has developed several affordable towers around Oahu using construction and layout formats that keep costs down.

Hung built the 282-unit 1133 Waimanu tower in Kakaako, which sold out before construction in 1996 at prices from $146,000 to $223,000.

In 1998 and 1999, Hung developed two towers at 1450 and 1448 Young St. at the site of the old Honolulu police station with 446 units that sold out before completion in 1998 and 1999.

Another Hung project is the 251-unit 215 N. King St. tower next to Aala Park downtown that sold out before construction in 2005 at prices between $170,000 and $335,000.

Country Club Village 6 tower in Salt Lake is also a Hung project with 269 units that sold out before construction in 2009 at prices between $224,000 and $407,000.

The Kakaako project would be Hung’s biggest by far.

Hung swooped in on the 3.7-acre News Building site after another developer, Franco Mola of California-based Coastal Rim Properties Inc., had a purchase agreement fall through with the seller, Gannett Co. Hung paid $22 million for the property, according to sale records.

Hung plans to submit a development application for the initial 801 South tower to HCDA this week. If approved, the project would not start construction until a lease expires with the producer of the hit "Hawaii Five-0" TV show, which is based on the property and has converted buildings into offices, a soundstage, sets and other uses.

The show will be able to finish shooting its third season now in production, but will have to find new accommodations after its lease expires on May 31, around which time Hung anticipates launching unit sales through a lottery.