A small downtown Honolulu parking lot that was once home to a restaurant and sports bar could become high-rise affordable rental housing for seniors under a plan that won preliminary state support Thursday.

The site at the corner of Alakea and Beretania streets is being proposed for a 16-story tower with 223 residences and monthly rent as low as $488 for seniors with low incomes.

A partnership between California-based development firm Coastal Rim Properties and local nonprofit Affordable Housing and Economic Development Foundation hope to start construction on the $85 million project next year.

The partnership, Alakea Senior LP, received an endorsement Thursday from a state agency that helps finance affordable housing.

Board members of the Hawaii Housing Finance and Development Corp. unanimously gave a preliminary financing commitment in line with the agency’s staff recommendation despite some concerns over the project’s cost compared with other affordable high-rise housing projects assisted by HHFDC.

Leilani Pulmano, a board member, said at the Thursday meeting that she understands the challenges of developing a tower on a pretty small site, which makes construction more expensive.

“It is a small site,” she said. “It’s going to be very challenging in this area. I’m supportive of a project that really creates a significant number of (affordable homes) in our urban core.”

The site is 12,842 square feet, or a little bigger than the once-traditional 10,000-square-foot lot for a single-family home in suburban Honolulu.

Paul Silen, commercial division vice president for project contractor Hawaiian Dredging Construction Co., told the board that factors contributing to added costs include having no space on-site to store equipment and materials. “You have a logistical problem that does contribute to the cost,” he said. “It adds to inefficiencies.”

Silen also said the developer’s desire to provide at least some parking, 34 stalls, requires extra structural elements in the building to incorporate four floors of parking under residential floors.

Some board members questioned the building’s construction cost per square foot, estimated at $627. HHFDC Finance Manager Darren Ueki said the high cost per square foot presented a “tough call” for staff on its recommendation decision but that the project cost per unit was in line with other HHFDC- financed projects.

Coastal Rim and AHED are asking HHFDC for $46 million in tax-exempt bonds, a $36 million loan from the state rental housing revolving fund and a mix of state and federal tax credits worth $27 million that the developers would sell to repay some bond debt.

The project, tentatively named Kokua, would provide studios with just under 300 square feet of living space. Most of the units would be for seniors earning no more than 60 percent of Honolulu’s median income, which equates to $49,020 for a single person or $55,980 for a couple. These units would rent for a projected $1,037 a month. Twelve units in the project would be for seniors earning 30 percent of the median income and rent for $488 a month. Affordable rents tied to incomes would be in place for 61 years.

The developers have arranged to buy the lot for $6.2 million from an affiliate of Illinois-based Next Realty. The site was the former home of Alakea Bar &Grill and Players Sports Bar, which closed in 2002. Today the site, bordered by the condominium tower Pinnacle Honolulu and a Hawaiian Telcom office tower, is a parking lot.

Coastal Rim and AHED anticipate they can start construction in 2020 and finish Kokua in 2021 if HHFDC grants the requested financing.