A San Francisco construction company has decided to move ahead with developing a moderate-priced condominium high-rise on Kalakaua Avenue in Pawa'a near the Hawai'i Convention Center.

An affiliate of SPE Construction Inc. plans to build the 16-story building with 120 units at 1723 Kalakaua Ave. later this year if it can obtain enough interest from buyers.

Prices are expected to initially range from $292,500 to the low $500,000s for studios to two-bedroom units with 407 square feet to 703 square feet of living space.

The developer expects to release an initial phase of 30 units for sale at an on-site sales office on March 23. Subsequent sale phases would follow. The developer needs purchase commitments for 90 units to obtain financing that would allow construction to begin in late summer.

If construction proceeds smoothly, the condo is projected to be completed in early 2010.

Kai McDurmin, project director with sales broker Coldwell Banker Pacific Properties, said the developer is trying to fill a wide-open niche of delivering new moderate-priced condos in Honolulu.

"We're really trying to target the buyer who wants (a new condo) ... in town but at a little bit lower price range," she said. "I think it really does meet a niche in the marketplace that's not being met right now."

In recent years, residential developers have concentrated on building luxury towers in Hono-lulu partly because of high demand and profit. But as land and construction costs surged, developers found it extremely difficult to build residential high-rises at lower prices.

Construction materials and labor costs have risen 38.5 percent from 2002 to 2007, including a 10 percent jump in 2006 and another 8 percent last year, according to the University of Hawai'i Economic Research Organization.

Paul Brewbaker, chief economist at Bank of Hawaii, said such construction cost increases have made it near impossible for developers to build housing in urban Honolulu at prices within reach of most residents.

Median sale prices for previously owned homes on O'ahu last year were a record $325,000 for condos and $643,500 for single-family homes.

"This is the sweet zone," Brewbaker said. "It's really important that builders be able to deliver housing in this price range."

For 1723 Kalakaua, SPE Construction wrestled with construction costs since acquiring the land in mid-2005, and ended up making units small, with about 10 units per floor above five levels of parking. The building as designed also would include a pool, gym and restaurant.

By comparison, units in the 492-unit Moana Vista condo tower under construction in Kaka'ako at 1009 Kapi'olani Blvd. range from 733 square feet to 1,030 square feet and were initially priced from $425,000 to $850,000 in 2006.

Closer to the SPE Construction project, a long-planned 120-unit condo at 1700 Kalakaua Ave. was called off after the developer sold the land recently.

The 1700 Kalakaua Ave. project was announced in December 2005 with prices projected to start at about $300,000 for a roughly 425-square-foot studio and $450,000 for a one-bedroom unit with 690 square feet, excluding lanai.

Construction was anticipated to start in 2006, but the developer, an affiliate of Osaka-based Tatsumi Group, didn't proceed as planned and instead sold the land last month for $6.5 million, — about $2 million more than Tatsumi paid.

Another vacant parcel in the neighborhood, adjacent to Century Center at 1830 Kapi'olani Blvd., has been envisioned for a residential tower, though no construction plans are pending.

The site was bought by San Francisco real estate agent James Nunemacher, who has been trying to sell the lot with schematic designs for a 62-unit high-rise for $7.9 million, or about $4 million more than property records show Nunemacher paid in December 2006.

SPE Construction is developing 1723 Kalakaua as Island Paradise Investments LP. SPE Construction is a general contracting firm, formed in 1988 and headed by Paul Yu, that primarily builds custom single-family homes in California. Also among the company's projects are a 12-unit apartment building and restaurants. 1723 Kalakaua is the firm's first project in Hawai'i.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.