An unconventional state initiative to build more homes for Hawaii residents with moderate incomes is approaching a critical test to see whether homebuyers want high-rise condominiums with 99-year land leases.
A more than $200 million tower is envisioned in Honolulu with 360 units and leasehold prices ranging from $456,400 for units with one bedroom and one bathroom to $862,600 for units with four bedrooms and two bathrooms.
The Hawaii Community Development Authority, a state agency pursuing the plan at the direction of Hawaii’s Legislature under a
law enacted in 2023, is seeking a $30 million appropriation from lawmakers over the next two fiscal years to help pay for the ambitious project.
However, it’s not yet clear whether enough interest from
prospective buyers exists, or if enough funding for the envisioned tower can be arranged.
“If there is buyer demand, we still see assembling financing for the project as a hurdle,” Craig
Nakamoto, HCDA executive director, said in an email. “If there is buyer demand and if financing can be assembled, we see the pilot project as a new model for developing affordable housing for local people, that can be replicated.”
The idea for the state to develop and sell leasehold condos on state land was initially proposed as legislation in 2019 by Sen. Stanley Chang (D, Hawaii Kai-Kahala-Diamond Head) based on a model used by the government in Singapore to provide lifetime housing for residents at affordable prices.
As envisioned for Hawaii, such housing would come at no long-term cost to the state because revenue from unit sales would fully repay development expenses as a “revenue neutral” investment. At the end of a tower’s 99-year lease, during which condo buyers would pay for all upkeep, the state would take ownership of the entire property.
To carry out the plan, the Legislature in 2023 passed Senate Bill 865, which became Act 97 and appropriated $1.5 million to HCDA for preliminary work.
The agency hosted focus sessions with developers, economists, lenders and real estate brokers in 2024. Then HCDA sought bids from developers to take on the project, and selected Ko Laila LLC, a company whose principals in 2024 completed a mainly midpriced 328-unit condo tower in Kakaako called Ililani.
Ko Laila, led by Henry and Kenneth Chang, is
expected to finish preliminary design, cost and site evaluation work for a leasehold condo tower this summer. Then the company intends to solicit nonbinding purchase reservations to gauge interest from
prospective buyers.
To qualify, prospective buyers would have to meet certain requirements under Act 97 that include not earning more than 140% of Honolulu’s median income. This limit equates to about $156,000 for a couple and $195,000 for a family of four.
Nakamoto said HCDA also aims to make units affordable to households earning the median income, which equates to about $111,000 for a couple and $139,000
for a family of four.
In 2024 on Oahu the
median sale price for single- family homes was $1.1 million, a point at which half the homes sold for more and half for less. For condos the figure was $515,000.
Leasehold condos have been developed in Hawaii previously on private land. Most of these units produced decades ago were converted to fee-simple ownership, though some still exist today.
A 2021 study ordered by the Legislature and updated in 2022 concluded that buyer demand would likely be high for leasehold condos with two bedrooms and two bathrooms priced at $400,000. The study by the Hawaii Budget and Policy Center of the nonprofit
Hawaii Appleseed Center
for Law &Economic Justice said a comparable fee-
simple unit built by a private developer would
cost $600,000.
Part of the difference is attributable to financing costs and profit for a private developer, as well as the cost of land.
Yet the land cost for
individual unit owners in a high-rise can be relatively small.
For instance, the city
for property tax purposes values the land in a one-
bedroom and one-bath unit in the 423-unit Ke Kilohana tower, which opened in
Kakaako in 2019, at $20,200, compared with $543,700 for the unit itself and other shared interest in the building. This unit is currently listed for sale at $560,000.
A site for HCDA’s envisioned leasehold condo tower has not yet been decided. Nakamoto said potential sites exist in Kakaako and along the city’s Skyline rail route.
If sufficient interest from buyers is received for the envisioned tower, HCDA and Ko Laila would still have to arrange financing.
Nakamoto said an initial analysis indicated that the project may not be able to attract private financing to pay for construction, so HCDA and Ko Laila are exploring other options including state funding for the more than $200 million
project.
“If there isn’t sufficient buyer interest or if the means of financing the development is not available, the pre-development will conclude and no further work on the development will be conducted,” Nakamoto said.