Kyo-ya’s plan to raze the existing Princess Kaiulani Hotel to make way for Waikiki’s first all-hotel tower in 40 years took a critical step forward Thursday in obtaining city approval to build.

Expected to be one of Kyo-ya’s largest investments ever in Hawaii, the project would put a new 33-story hotel tower with approximately 1,009 hotel units on a 4.1-acre site where the Princess Kaiulani Hotel has long stood. All existing hotel towers, retail buildings, the parking garage and other structures, some dating back to the 1950s, would be demolished to make way for the first all-hotel tower development since the Halekulani’s 1987 opening of the Waikiki Parc Hotel, which was just redeveloped into the Halepuna.

But first the company has to engage in a bit of pay-to-play, a major feature of the planned development resort (PD-R) permit, which allows developers to exceed height, density or other limits in exchange for providing community benefits.

The Honolulu City Council’s zoning committee Thursday recommended approval of the project’s PD-R provided that Kyo-ya agrees to pay an additional $500,000 in community benefits over and above those agreed to in 2010 when the company was awarded entitlements for a different plan. That earlier version would have redeveloped the Princess Kaiulani’s Ainahau Tower and added a new tower for a mix of hotel, condominium and condominium-hotel units.

To get that 2010 deal, Kyo-ya paid $500,000 to replenish sand at Waikiki Beach. It also agreed on several other community benefits which were put on hold along with the project, which stalled for about a decade as Kyo-ya struggled through ownership changes, a court land-use battle and more recently a protracted hotel strike.

The city Department of Planning and Permitting did not require Kyo-ya to complete a supplemental environmental impact statement for the latest version of the project. However, DPP’s recommended community benefits are far more substantial this year than they were in 2010.

The largest line item among the new requests specified that $500,000 would go to an interdisciplinary council to support homeless services. That item immediately met with some resistance from some members of the Waikiki Neighborhood Board, who said they were left out of this year’s negotiations for community benefits.

Waikiki Neighborhood Board Chairman Robert Finley said he submitted written testimony in favor of the project and the original 11 community benefits, which were supported by the 11-0 vote that the board took in favor of the project at its February meeting.

“I am protesting the four additional community benefits proposed on the Zoning Committee Agenda as not having been proposed to the Waikiki Neighborhood Board at any scheduled meeting. This project has been at DPP for over 18 months, in the present form, and the city did not have the courtesy to at least bring the additions to our (February) meeting,” Finley said.

Some of Finley’s concerns could be alleviated by the zoning committee’s recommendation to the Council, which is based on a new draft resolution. Proposed by City Councilman Ron Menor, zoning committee chairman, the new draft eliminates the homeless designation for the $500,000 and instead says the Council will divide the sum and make new allocations in a separate resolution.

The Council always has the final say in where community benefits go, but new negotiations would give the Waikiki Neighborhood Board and Councilman Tommy Waters, who represents Waikiki, another opportunity to provide input.

While the project hasn’t been greenlighted by the Honolulu City Council yet, Thursday’s hearing was a key step in a lengthy entitlement process. Next, the project’s PD-R application must go before the full Council, which is expected to vote on the measure as early as Nov. 6. If that happens, the project will be on its way, though it will still need a Waikiki Special District Major permit.

Entitlements are never a slam dunk, but based on Thursday’s hearing, little pushback is expected. One man at Thursday’s hearing questioned how the project would fare with coming sea-level rise, and another questioned Kyo-ya’s right to develop on lands formerly owned by Hawaiian royalty. However, all other testifiers during the hourlong agenda item supported the project, which is rare, since most Hawaii hotel investors aren’t long-term enough to make an all-hotel tower work. Unions, in particular, tend to prefer full-service hotels, which support more jobs than timeshares, condominiums and condotels.

Kyo-ya’s hotel investment in Hawaii goes back to its 1963 acquisitions of the Princess Kaiulani Hotel and the Moana Hotel. It added the Sheraton Maui, Sheraton Waikiki and Royal Hawaiian Hotel to its Hawaii portfolio in the 1970s. Kyo-ya has spent $700 million since 1987 on major upgrades to all of its Hawaii hotels except the Princess Kaiulani.

Mike Takayama, Kyo-ya director of real estate and development, said if entitlements stay on track, demolition is slated for 2022, with reopening planned for 2025.

Takayama said the company plans to mitigate the impact of the construction- related closure on employees by encouraging eligible Princess Kaiulani workers to take retirement and by moving others to jobs at its other properties.

The project is anticipated to generate 1,800 direct and indirect full-time jobs statewide each year of the estimated three-year construction period, Takayama said. Three years after the new hotel opens, it’s expected to generate approximately 1,300 indirect and direct full-time jobs statewide, he said.

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PUBLIC BENEFITS

Here’s what the Honolulu City Council’s zoning committee is recommending that Kyo-ya provide in exchange for getting its planned development resort (PD-R) permit, a crucial step in the construction entitlement process.

>> Allocate $500,000 to fund community benefits, which are to be designated by the Honolulu City Council.

>> Generate additional jobs by building an all-hotel versus a mixed-use development.

>> Increase project open space to 28% from 20%.

>> Enhance walkways on Kalakaua and Kaiulani avenues.

>> Provide a legacy library.

>> Further setbacks for the tower from the corner of Kalakaua and Kaiulani avenues.

>> Relocate the Kaiulani Avenue loading area for buses and other large vehicles to an interior portion of the project.

>> Develop a below-grade site for trash, recycling and delivery.

>> Pay $30,000 to purchase and install high-resolution cameras at the intersection of Kalakaua and Kaiu­lani avenues.

>> Work with Hilton Grand Vacation, which is redeveloping the former Kings Village site, to fund a two-way conversion of Kaiulani Avenue.

>> Provide space for a bike-sharing station.

Source: Zoning hearing