Production of a mainly midpriced Kakaako condominium tower has run into trouble because of COVID-19, but the developer believes several planned changes that include pricing more units for less will overcome setbacks.
The 42-story project called Ililani held a groundbreaking ceremony in October on a lot fronting Keawe and Halekauwila streets to celebrate construction expected to start in November following high interest from prospective buyers.
That interest included 564 applications for a lottery to buy 165 one- and two-bedroom units reserved for moderate-income households at prices from $312,000 to $657,100.
Another 163 units with two bedrooms were priced from $700,500 to $905,500 and represented some of the least pricey market-rate condos to hit Kakaako in three or four years amid several new luxury towers with average prices of $1 million or more.
However, fallout from the coronavirus pandemic has shattered Hawaii’s economy and left many prospective buyers unable or hesitant to sign purchase contracts for new homes in the Ililani tower, which would take about two years to build.
Ililani’s developer, local architect Ken Chang, began inking sales contracts in February — a month before Hawaii leaders issued stay-at-home orders that derailed so much business activity and employment.
“Between mid-March and mid-May, there were some buyers who were wary about proceeding, which was understandable,” Chang said.
As of late May the developer had 101 contracts for Ililani’s 328 units, including only six market-priced units. Since then, Chang said, about seven more sales were made.
Still, with about a third of units sold, the project’s lender would not release money for construction.
To adjust, Chang’s firm, Ililani LLC, proposes repricing some units, and plans to apply for several city and state fee waivers while also adding more parking and delaying construction until January.
“Ililani LLC believes several changes to the project are necessary in order to stimulate sales,” a lawyer representing the company said in a recent letter to the Hawaii Housing Finance & Development Corp.
The HHFDC is a state agency that granted the developer initial approval for some regulatory fee breaks and zoning regulation waivers in return for making half the project affordable to local households with moderate incomes.
Chang proposes pulling 32 of the higher-priced units down into the moderate category that qualifies as affordable housing under state guidelines.
“We see a continuing need for affordable residences in Hawaii and are repositioning Ililani to increase the number of available units priced for affordable buyers,” Chang said.
This change would make at least 60% of Ililani units moderately priced, making the project eligible for more government fee breaks.
The developer is seeking waivers on paying state general excise tax on construction and paying city water and wastewater system connection fees.
Dentons US LLP, the developer’s law firm, estimated that the tax break would amount to $4.3 million while the two utility charges would amount to $2.2 million.
This $6.5 million savings would largely be offset by an anticipated $7.5 million in losses represented by $6.2 million from reducing prices for 32 units and $1.3 million in extra costs from construction delays, Dentons partner William W.L. Yuen said in the letter to HHFDC.
Previous exemptions obtained for the project saved the developer about $800,000 and included $445,000 for building permits, $25,000 for plan reviews and $330,000 for park space contribution. The project also was approved to be more than twice as dense and closer to an adjacent tower than rules allow.
Overall, the estimated cost of Ililani is $176 million, up from $149 million estimated last year.
Another change proposed is to add an extra floor to the tower’s parking garage to provide 56 more parking spaces.
Chang initially planned to have 410 parking stalls, in part because a city rail station is planned on an adjacent block and because the project intended to have a robust car-share program.
Yuen said in his letter that some interested buyers declined to buy Ililani units because they couldn’t get two parking spaces. He also said concerns over the pandemic might make car sharing less attractive in the future.
Adding an extra parking floor would make the wide base of the tower 85 feet high, up from a previous 76 feet. A state agency that governs development rules in Kakaako, the Hawaii Community Development Authority, has a tower base height limit of 65 feet but has allowed 75 feet or so for a few projects. A new exemption for Ililani to further exceed this height limit is being sought.
“Ililani LLC believes these changes are essential prerequisites to keep the project moving forward,” Yuen said in the letter.
Yuen added that developing the tower would not be feasible without the requested exemptions, and that the developer might have to delay the project until the pandemic is “clearly over” and the local economy recovers.
HHFDC staff recommends approval of the requested changes by the agency’s board. If the board approves, most changes also would need to be approved by the City Council.