Vacant state land next to Hilo International Airport could become a site for retail or industrial development under a plan by two state agencies.

The 25-acre site is slated to be leased for use possibly as a big-box retail store, an industrial subdivision or a mixed retail-industrial complex, according to a conceptual plan by the Department of Hawaiian Home Lands and the Department of Land and Natural Resources.

The two agencies anticipate issuing a joint request for private development proposals for the site in the first half of next year, according to Lloyd Yonenaka, spokesman for Hawaiian Home Lands, the project's lead agency.

DHHL is preparing an environmental assessment for the project, which involves 11.7 acres controlled by DHHL, 10.8 acres controlled by DLNR and about three acres controlled by the state Department of Business, Economic Development and Tourism.

The three parcels are regarded by the state as having excellent development potential because of their proximity to Hilo's major commercial and industrial districts, its airport, its deep-draft harbor and one of the area's major highways, Kanoelehua Avenue.

"DHHL and DLNR believe a joint project with a mix of commercial and/or industrial uses would be the most cost-effective approach, allowing the state to maximize the value of the currently underutilized, vacant properties," said a DLNR memo on the project.

TRADE-ZONE BENEFITS

The entire site is part of about 30 acres designated as a federal Foreign-Trade Zone in 1992. But trade zone operations never expanded beyond initial facilities built on roughly one acre about 10 years ago.

Gregory Barbour, administrator of the Hawai'i Foreign-Trade Zone owned and operated by DBEDT, said the trade zone status of the larger area slated for development could provide opportunities for import-export businesses to take advantage of the federal program.

The program allows companies to import foreign merchandise without paying duties if the merchandise is processed for export. Trade zone status also allows companies to delay paying duties until foreign merchandise is brought out of the zone for domestic use.

"That could potentially happen at this Hilo site," Barbour said. "There is a lot of benefit to doing that."

About 400 companies use the program in Hawai'i, mainly at DBEDT's main facility at Honolulu Harbor.

Other users include Pacific Allied Products Ltd., which manufactures food and beverage containers at Campbell Industrial Park on O'ahu.

MAXIMIZING RETURNS

Trade zone status, however, isn't applicable to retail businesses, only industrial operations such as manufacturing or processing.

According to Yonenaka of DHHL, the highest and best use for the Hilo site likely is retail because of relatively low infrastructure costs and high rent revenue associated with a large retailer like Wal-Mart or Home Depot, both of which opened Hilo stores on land leased from DHHL.

Yonenaka said the agency seeks to maximize its financial return to help pay for costly infrastructure necessary to build affordable housing for Native Hawaiians on other DHHL property.

"It's the key to keeping our homes affordable," he said. "Obviously (the Hilo trade zone site) is an important piece of land for us."

A retail big-box project is one of several possible scenarios for the site envisioned by a development consultant for DHHL and DLNR, though Yonenaka said there haven't been discussions with retailers to use the site. Two other conceptual ideas are an industrial subdivision and a mixed retail-industrial complex.

Though the two later visions would require more infrastructure development for multiple tenants, they would provide industrial space that's in high demand and short supply in Hilo, according to the DHHL-DLNR plan.

Barbour said his department in 2005 commissioned a study from local commercial real estate firm Colliers Monroe Friedlander that showed a shortage of warehouse space in the Hilo market.

"There's a huge demand for industrial space in Hilo," he said. "If they (build) industrial, it's going to take off."

WAIT AND SEE

The eventual use of the property will depend on what kinds of development proposals are made to DHHL and DLNR, and what is ultimately approved.

It's possible that developing the three acres of DBEDT land would compete with plans to expand the Hilo Foreign-Trade Zone, but Barbour said it's more likely that the two efforts would complement one another.

The existing Hilo trade zone operation comprises a 12,000-square-foot warehouse and some uncovered storage space on roughly one acre.

Nearly all of the warehouse and a portion of the uncovered property is used by one tenant, a multi-national consortium operating the Gemini Northern Telescope on Mauna Kea.

There are no other tenants, but Barbour said an effort will be forthcoming to expand the facilities and tenants.

He said giving up three acres to the DHHL-DLNR project would still leave DBEDT with two acres on which it could likely double the size of trade zone operations.

Last month, the board of Land and Natural Resources approved withdrawing the 3-acre DBEDT site from an executive order that gave control of the property to the trade zone operator.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.