Land in Kakaako owned by the state Office of Hawaiian Affairs could be worth more than twice as much with four or five condominium towers if the agency can persuade the Legislature to lift a ban on housing development in the area.

That’s a conclusion in a strategic action plan commissioned by OHA as part of an effort to size up potential future value of the 30 acres it received two years ago in a settlement with the state that satisfied deferred ceded-land revenue payments.

The land, which is makai of Ala Moana Boulevard between Honolulu Harbor and Kewalo Basin, was valued at about $200 million by competing appraisers retained by OHA and the state before the settlement.

Yet revenue from the land flowing to OHA currently is only about $1 million a year. Land worth $200 million could be generating about $15 million a year, the report said.

Much of OHA’s Kakaako land is vacant, but limiting development to permitted commercial uses would severely restrict what OHA can earn, according to the report.

If OHA were to develop retail space on 24 acres with the balance in industrial and park use, the estimated value added to its real estate would be just $91 million.

This figure represents a "residual land value" that capitalizes long-term income from tenant rent offset by the cost to develop the property. This value is separate from the appraised value, which is what OHA could expect to get in a sale.

With four or five condo towers along with some retail and park space, the residual land value would more than double to between $203 million and $212 million, report authors calculate.

The dramatically higher figures based on condo development is behind OHA’s initiation of a bill introduced last week at the Legislature seeking to allow residential development on land in the area known as Kakaako Makai.

Lawmakers banned residential development in the area eight years ago to kill a plan by local developer Alexander & Baldwin Inc. that included a pair of 200-foot condo buildings.

The Hawaii Community Development Authority, a state agency regulating development in Kakaako, solicited private development proposals for much of the land in Kakaako Makai, including most of the property now owned by OHA, and selected a plan from A&B that initially proposed three towers, retail, park space and other features.

HCDA’s approval sparked a community outcry that public land was going to be largely used for commercial purposes and diminish public use of the waterfront. A&B scaled back its plan to two towers, but continued opposition prompted the Legislature to kill A&B’s plan by banning residential use in Kakaako Makai.

Much of that public opposition to condos in Kakaako Makai still remains and is expected to produce a strong debate at the Legislature over Senate Bill 3122, proposed by OHA.

Kawika Burgess, OHA chief operating officer, said Wednesday that the agency, which works to benefit Native Hawaiians, wants to achieve returns "consistent with the $200 million valuation."

OHA’s strategic action plan was produced in November by real estate and construction firm Rider Levett Bucknall Ltd., design firm Group 70 International and real estate consulting firm Sanford Murata Inc.

The report is not a development plan, but is meant to provide OHA trustees a foundation and framework to assess development possibilities and guide decision-making in creating a master plan.

OHA intends to balance commercial and cultural use of its Kakaako land, according to the report, which said some cultural uses could include making the area a home site for voyaging canoes, a host site for Molokai-to-Oahu canoe races and a place for ocean purification practices.

"OHA has a tremendous opportunity to develop the Kakaako Makai land parcels in a unique and genuine way, through harmony and the balance of cultural, social, spiritual and economic values," the report said. "OHA can realize the balance of culture and commerce with smart decisions in harvesting monetary returns on its lands and also satisfy its fiduciary responsibilities of maximizing the land value and preserving the cultural history and significance of the land."

One of the development scenarios created in the report dedicates 15 acres as park space, 11 acres for condos and five acres for retail, which would create a residual land value of $143 million.

The report looked at office tower and hotel development mixed with primarily retail but concluded that weak demand for those uses would lead to values of $61 million and $78 million, respectively.

Part of the report generated by Murata noted that limiting development to retail could be a recipe for failure. Murata pointed to the case of Aloha Tower Marketplace, where developers failed to complete a master plan that included condos, offices and hotel units surrounding the retail complex to create a critical mass of people to help support retailers.

"As those additions never materialized, the marketplace has failed," Murata’s report said. Murata also noted how Nimitz Highway discourages downtown dwellers from patronizing the marketplace much the way Ala Moana Boulevard might for a retail complex in Kakaako Makai.

"This is an important and potentially significant impediment to keep in mind," Murata said in the report. "Projects that have a mix of residential, commercial, retail, entertainment and other synergistic uses have a greater chance of success."

The report recommended that OHA seek permission from the Legislature to allow residential development on its Kakaako land to achieve desired planning objectives.

At least two state lawmakers, Senate Majority Leader Brickwood Galuteria (D, Kakaako-McCully-Waikiki) and Sen. Clayton Hee (D, Heeia-Laie-Waialua), have said they expect there will be political support for residential development on only a portion of OHA’s Kakaako land.

A bill introduced two years ago proposed allowing residential development on two OHA parcels fronting Ala Moana, but it didn’t pass despite an endorsement from Gov. Neil Abercrombie.