Nearly 400 moderately priced homes appear headed for construction next year in a Kakaako condominium tower, resolving a dispute between developer Howard Hughes Corp. and the state agency regulating development in the area.
Hughes Corp. recently decided to accept the agency’s decision and will build the project called 988 Halekauwila with 375 condominium units affordable to moderate-income residents. The developer of the Ward Village community must start construction on 988 Halekauwila before its first luxury tower is completed and can be occupied, which is expected by the end of next year.
"Ward Village is looking forward to moving ahead with the for-sale project and bringing it to market as soon as possible," the company said in a statement this month. A binding order could be finalized by the Hawaii Community Development Authority’s board at a meeting scheduled for Wednesday.
Plans for 988 Halekauwila have been in contention by HCDA’s board and Hughes Corp. since February when the company asked to provide 375 affordable rental apartments for 15 years in the tower to satisfy about half of an affordable-housing requirement for its 22-tower Ward Village master plan.
HCDA approved a permit for 988 Halekauwila in 2013 as a 424-unit condo tower in which 375 units would be affordable to moderate-income residents. In the same year, the agency approved two luxury towers: Waiea with 177 units and Anaha with 318 units.
Sales and construction proceeded fairly quickly with the two luxury towers, where units mainly sell for more than $1 million. But for 988 Halekauwila, Hughes Corp. said financing had been difficult to obtain while demand for affordable units had weakened in part because of competing projects such as 801 South Street.
The developer asked HCDA in February to amend its permit for 988 Halekauwila, suggesting that converting the tower to rentals for 15 years would be better for the community.
Public testimony largely supported the developer’s request during HCDA hearings in April and May.
Hughes Corp. said the housing cost for renters compared with condo buyers would be about $1,000 lower per month, and that income limits for occupants under HCDA rules are lower for rentals than condos. The developer also suggested that it would build a smaller number of affordable homes — 125 — in its first phase of development if it wasn’t permitted to switch the condo to rentals.
HCDA board members raised concerns that the developer’s proposed 15-year term for the rentals wasn’t long enough and that providing below-market home ownership is a better long-term public benefit. The possibility that Hughes Corp. would raise rents to market rates or sell the units at market prices after 15 years also didn’t sit well with some board members.
"I cannot accept a developer rental housing plan that will leave tenants in the lurch in 15 years, the public and nonprofit sectors scrambling to contain the damage, and the developer reaping the profits from value-appreciation induced by a taxpayer-financed public works project," HCDA Chairman John Whalen said during the May meeting at which the board made its unanimous vote to reject the rental plan.
The board also included in its proposed order a requirement that 375 affordable units be in 988 Halekauwila, and accelerated a deadline for Hughes Corp. to start building the tower.
Under HCDA rules governing Ward Village and the original 988 Halekauwila permit, Hughes Corp. had to begin construction on 988 Halekauwila with 375 moderately priced units within two years after finishing its first market-rate condo tower.
That first market-rate tower, Waiea, is expected to be finished by the end of next year, which would require construction to start on 988 Halekauwila by the end of 2018.
Then HCDA’s board voted in May to require construction on 988 Halekauwila to start before anyone moves into the first market-rate tower at Ward Village.
The May decision, however, wasn’t final. HCDA rules allow time for a developer to submit written objections to a decision before adopting a final order.
Hughes Corp. filed written objections June 10, and on June 18 submitted an alternate proposed binding order that it characterized as better than what the board put forth in May.
"We decided to strengthen our proposal in a way that we hope would be better suited to what (HCDA’s) intentions are," Doug Ing, a local attorney representing the developer, said at a June 24 meeting.
The developer’s new proposal committed to make "all commercially reasonable efforts" to start construction before anyone moves into the first market-rate Ward Village tower, and to offer moderately priced units at 988 Halekauwila for sale by April. Unit prices are expected to roughly range from the $300,000s to the $700,000s.
However, Hughes Corp. also wanted options to deliver fewer than 375 affordable units if sales weren’t sufficient to obtain construction financing. At the very least, 125 affordable units would be in the tower, the developer said.
Hughes Corp. also wanted an outlet to pay HCDA cash in lieu of delivering some or all of the affordable units — $100,000 per unit — if financing proved to be a longer-term problem.
HCDA’s board balked at the offer, and voted 8-0 at the June meeting to require that financing and construction be ready to go on 988 Halekauwila before the first residential tower at Ward Village is occupied.
Ing replied to the board that such a deadline would be difficult and that Hughes Corp. intended to file an objection to the board’s updated decision.
Then on July 2, Hughes Corp. waived its right to object and said it accepts the board’s proposed order.
