The Dallas developer working with the state to redevelop Piers 5 and 6 at Honolulu Harbor has proposed selling planned waterfront residential condominiums through a state land auction as a way to propel his ambitious plan around setbacks encountered earlier this year.

Ken Hughes of UC Urban is seeking state approval for the Board of Land and Natural Resources to use its land auction powers to sell his planned loft-style condos on state land just diamondhead of Aloha Tower Marketplace.

The idea, presented yesterday to board members of the state Aloha Tower Development Corp., was an effort to overcome a limitation that allows the agency to lease, but not sell, state land.

Under the plan, the Board of Land and Natural Resources would establish an upset price for each of about 375 fee-simple condos and units would go to high bidders. The state would receive 8 percent of sale proceeds, or an estimated $20 million to $24 million as estimated by Hughes.

Agency board directors took the creative idea under advisement. Agency chairwoman Melissa Pavlicek said the board has sought an opinion on the idea from the attorney general, but has not received a response.

Hughes said that if the agency and the Board of Land and Natural Resources give him the go-ahead by the end of October, he could conceivably start construction in July.

"We are very excited about this deal," Hughes said.

Hughes has been working on redeveloping Piers 5 and 6 as well as adjacent areas of state land for nearly three years, since responding to a state request for proposals in late 2002.

Hughes wants to create a residential loft community integrated with parks, retail space, a downtown streetcar system, ferry terminal, more parking for Aloha Tower Marketplace and a downtown bypass tunnel under Nimitz Highway.

Last October, the developer and the state agency signed a general agreement that provides for negotiating much of the development details.

To date, Hughes and the agency have spent about $1 million pursuing the plan.

The roughly $300 million master plan targeted state and federal financing for about half the cost to pay for public improvements like the streetcar system and relocating Hawaiian Electric Co.'s downtown power plant to make way for a park.

But state public funding requests were rejected by the Legislature early this year, and lawmakers did not amend rules that bar Aloha Tower Development Corp. from selling state land.

Hughes said he still intends to develop the other elements of his plan, but is focusing on the initial phase of about 375 condos at Piers 5 and 6.

"We still feel — as we say in Texas — that we have a dog in the hunt," he said, referring to realizing his broader plan.

Ted Liu, agency board member and director of the state Department of Business, Economic Development and Tourism, said that the willingness of Hughes to move forward with a piece of the project was positive.

"The fact that you are prepared to proceed now, in my mind, is an exciting development," Liu said.

Hughes previously said that he considered a lack of approval to move the power plant and start a streetcar system would amount to "fatal flaws" for his project.

The low-rise lofts would be built atop two levels of retail space and with parking for the Pier 5 and 6 site at an estimated cost of $160 million financed by Hughes. Roughly 200 additional condos are proposed for later phases on property toward Pier 2.

The development and sale of fee-simple condos was a change to the developer's initial plan to build rental apartments on land leased from the state. Hughes said feasibility studies showed that rentals would not work economically.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.