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The Honolulu Advertiser
Posted on: Saturday, June 19, 2004

Aloha Tower proposal reshaped

By Andrew Gomes
Advertiser Staff Writer

A Dallas developer planning a roughly $300 million remake of state property around Aloha Tower wants to sell condominiums above what may be ceded lands and build a downtown bypass tunnel under Nimitz Highway to make the project more feasible.

Developer UC Urban wants to create a traffic tunnel under Nimitz Highway as part of the Aloha Tower redevelopment. The company also now wants to sell condos on what is suspected to be ceded lands.

Rebecca Breyer • The Honolulu Advertiser

Ken Hughes of UC Urban also proposed sharing costs and profits with the state, and rebuilding the Pier 10 cruise ship terminal as part of project revisions presented yesterday to the state Aloha Tower Development Corp. board.

The changes create new hurdles for the ambitious plan, which the state agency has pursued with Hughes since requesting proposals in late 2002 and choosing to work with the experienced developer in February 2003.

Hughes' core concept is a residential loft community at Honolulu Harbor connected with a downtown streetcar system and ferry terminal.

The project, called Pacific Quay, has evolved over the last year with the addition of the 2-mile streetcar system, elimination of hotel and office high-rises, and an increase in the number of residential lofts to 550 from 250.

Other elements in the plan include 1,400 parking spaces, removing the parking lot from Irwin Park and constructing a larger park on the site of Hawaiian Electric Co.'s power plant, which would have to be relocated and is viewed as the project's biggest potential "fatal flaw."

Despite the obstacles, Hughes and agency board members have been optimistic. And though yesterday's meeting raised more questions and challenges, there still was optimism that Hughes can succeed where others have failed in redeveloping the area.

"Everything that Ken has presented is accomplishable," said agency acting executive director Dan Orodenker.

Said Hughes: "I'm very comfortable. We're ready to push this thing to completion."

Among the several new twists Hughes shared, the most critical related to the project's residential component.

Previously, Hughes planned to lease the land at Piers 5 and 6, and build the rental loft apartments. Yesterday he said a more detailed financial analysis showed rentals could not work economically, and that he needs to sell the lofts as fee-simple condos.

For that to happen, the state agency would need legislative approval to sell land. There is also a question whether the Pier 5 and 6 area is ceded land, which would complicate the sale proposal.

Ceded lands are former Hawaiian Kingdom lands ceded to the United States on annexation and back to Hawai'i upon statehood. Native Hawaiians are supposed to receive benefits from use of such property.

Hughes' Honolulu attorney Jim Stubenberg said title records showed Piers 5 and 6 are not on ceded land, though some agency board members questioned the conclusion.

Office of Hawaiian Affairs information officer Manu Boyd said he needed to do more research to find whether OHA considers Piers 5 and 6 ceded land, but said in general that state harbors, ports and submerged lands are ceded.

Orodenker said the agency has asked the Department of Land & Natural Resources for a determination but has not received a response.

Stubenberg floated a possible option he described as a "lollipop condo" where four floors of parking and maybe some retail on Piers 5 and 6 would be owned by the state. Condos on higher floors would be sold fee simple and include common elements excluding the ground except for area taken up by an elevator shaft, which represents the lollipop stick.

Another plan change would add four new highway lanes under Nimitz Highway between Fort Street and the federal court building to reduce 80 percent of 'ewa-diamondhead traffic on the surface lanes that would remain.

Hughes said the underpass construction would create little disruption to traffic and would result in a more pedestrian-friendly waterfront.

"I really don't see a problem with that," said agency board member and Transportation Department director Rod Haraga, who added that federal money might be available for the work.

The last major project change would make the state a joint-venture partner. Under Hughes' proposal, the state would own and operate the public parking and streetcar system, generating what Hughes said was a conservatively projected $2.7 million annual profit.

The state also would earn 8 percent of condo sale proceeds that Hughes conservatively estimated would be $14 million, or 50 percent more than the property is worth today.

Hughes proposed he and the agency form a limited liability company, which the agency would need legislative approval to join because limited liability companies are fairly new corporate structures not addressed in agency rules that allow partnering with private companies.

To finance the project, Hughes is asking the state to issue $146 million in general obligation bonds as an investment in public benefits of the project. The balance would be financed through private debt and other sources.

Hughes estimates that the project would create about 3,000 jobs and would generate $600 million in economic benefits for the state over a 10-year period.

The state has already spent $210,000 and expects to spend another $83,000 as its share of less than half of project study costs under an agreement with Hughes that expires at the end of next month.

The next goal for Hughes is to sign a memorandum of understanding with the state and Hawaiian Electric agreeing to cooperate. "It's just a cooperative effort to see what's possible, recognizing that the state has a need to redevelop the waterfront area and Hawaiian Electric has a need to keep the lights on," he said.

Assuming the power plant agreement is reached, Hughes said he will negotiate a formal development partnership with the state, start lobbying the legislature in mid-August and with hope be able to sell bonds by March 2004.

If all goes well, construction could begin in about two years at the earliest and take two years to complete, though the park could take up to six years because of the need to relocate the power plant.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.