Part of the historic Dillingham Ranch on O'ahu's North Shore would become a subdivision of homes under a plan by a Mainland real-estate investment firm that bought the Mokule'ia property two years ago.

Dillingham Ranch 'Aina LLC, an affiliate of Beverly Hills, Calif.-based Kennedy Wilson Inc., is proposing to develop 77 home lots on the roughly 2,700-acre ranch.

The 5-acre lots would cover about 400 acres.

The plan is the latest in a long history of Hawai'i landowners developing "agricultural subdivisions" where lot buyers often build estate-type homes but conduct little or no commercial agricultural activity.

The controversial subdivisions, sometimes ridiculed as gentleman's farms, have been legally developed almost exclusively on the Neighbor Islands for decades under a lax section of state land use law. But in recent years, they have sprouted on O'ahu's North Shore, with at least three such plans totaling more than 100 lots.

However, the Dillingham Ranch plan has received some community support because developers promise to improve and continue ranching and equestrian activity that has withered under previous owners of the historic property, which includes the former home of local business tycoon Walter F. Dillingham.

"This is going to stay a ranch, basically," said Clifford Smith, a Kennedy Wilson senior vice president. "That's the agricultural feature that's been a part of this property for the last 100 years. We're not going to change that."

Under the plan, Kennedy Wilson would upgrade the cattle stock to provide range-fed beef for natural food retailers and increase the size of the herd from around 140 head producing 70 to 80 calves annually, to about 230 head producing more calves. The cattle would graze on pasture land covering about 1,900 acres, including portions of each 5-acre house lot.

Another ranch operation, an equestrian center, would be enhanced with improved and expanded horse stables and pastures, as well as upgraded training facilities and construction of a feed barn and facilities for veterinarian work.

Kennedy Wilson also plans to expand a 75-acre palm tree farm by 15 to 20 acres, and restore the historic Dillingham house to improve it as a rental venue for special-occasion events.

Under existing permits, the ranch house can host no more than two events a month for up to 300 people per event.

Kennedy Wilson estimates it will spend more than $6 million on all the improvements, including $2 million for the equestrian center and $3 million for the house restoration.

PLAN TENTATIVELY OK'D

The company said the investment will reverse years of neglect by previous owners, but needs to be funded by the sale of "ranching-oriented" house lots because ranch improvement costs can't be covered by revenue from ranch operations.

"This is the reason the subdivision and sale of 5-acre agricultural lots within an agricultural community on the ranch is an integral component of the agriculture plan," the company said in a draft environmental assessment filed with the state this week.

Homeowners would belong to a community association that would maintain ranch operations, which presently employ 10 people, and ensure long-term viability of the working ranch.

The state Department of Agriculture in a January report said the agriculture plan supports substantial and meaningful agricultural use.

In April, the city Department of Planning and Permitting gave tentative approval for the subdivision. Final approval is subject to receipt of approved construction plans for infrastructure improvements and completion or bonding of the infrastructure work.

'AFFLUENT COMMUNITY'

Though the developer hasn't presented its plan to the North Shore Neighborhood Board, Smith has met repeatedly with the Mokule'ia Community Association. A spokesman for the association said the group supports the subdivision and ranch operating plan.

But Michael Lyons, chairman of the North Shore Neighborhood Board, said a 77-home subdivision in the foothills alongside the former Dillingham home will negatively alter the character of the community.

"Nobody's going to put a shack on (a 5-acre lot)," he said. "It's going to be a very affluent community."

Smith said it's premature to estimate how much the lots may cost because it could be two years or more before lot sales begin.

"You don't price these things until you're ready to go to market, and that could be two or three years out," he said. "The market will pretty much determine how much the lots go for."

Agricultural subdivisions, primarily on the Neighbor Islands and often on land with poor soil for crops, grew out of the state's 1961 Land Use Act that sought to preserve open space and generally permit one or two "farm dwellings" on lots as small as 2 acres if they are accessories to a primary agricultural operation.

County rules that further permit farm dwellings vary, but loopholes allow for residential use without farming because of poorly defined and enforced regulations, which led many agricultural subdivisions to be accepted as de facto rural neighborhoods with little or no farming.

But some projects have drawn fire, such as the luxury golf community Hokuli'a on the Big Island that was held up for a few years recently by legal challenges, and Lihi Lani on O'ahu's North Shore, which was stopped by opponents in the 1990s after initial approvals.

Last year, the city Department of Planning and Permitting rejected a plan to develop 16 single-family farm homes on 85 acres in Waialua because the plan, dubbed Kaala View Farm Lots, appeared more like a housing project than an agriculture endeavor.

More recently, there have been a few projects, which while still somewhat controversial, have incorporated unique farm plans with proposed house lot developments on agricultural land as a model for making post-plantation agriculture more economically viable.

One such project is Pe'ahi Farms on Maui, which proposes to develop former pineapple fields with 16 mostly 2-acre home lots priced from about $1 million to $3 million, plus a 170-acre farm leased to a farm operator. About $2 million from lot sales would help capitalize farm operations for a nursery covering 15 to 30 acres, a 10-acre organic farm, high-protein grass for cattle grazing and fruit trees.

Another planned agricultural subdivision is Ka'anapali Coffee Farms, a plan on Maui by Amfac successor Ka'anapali Development Corp. to sell 108 house lots starting at $1.2 million amid 500 acres of existing coffee trees above Ka'anapali Resort.

LITTLE FARMING ON SITE

At Dillingham Ranch, the developer will convey deed covenants that require the subdivided lots be used for agricultural activities.

Historically, there has been little farming of the Dillingham Ranch property because of poor soil conditions. Instead, ranching activity on the property dates back to the 1840s, according to the Kennedy Wilson environmental assessment.

Benjamin Franklin Dillingham, founder of Oahu Railway & Land Co., acquired the property in 1897 when he bought what was known as Kawailoa Ranch, which had 2,000 head of cattle and more than 100 horses and mules on 10,000 acres.

Dillingham's son, Walter, who formed Hawaiian Dredging Construction Co. in 1902 to dredge Honolulu Harbor, later established Dillingham Ranch with the family home, horse ranch, polo field and pastures.

In the past 30 years, the property has traded hands several times and seen a couple development plans fizzle.

In 1979, a Milwaukee insurance firm bought the ranch. In 1987, Japan-based Sankyo Tsusho Co. bought the ranch for $15 million and pursued resort and golf-course development plans staunchly opposed by the community in the early 1990s.

Washington-based Metropolitan Mortgage & Securities Co., which developed Lawai Beach Resort on Kaua'i, acquired most of the ranch property in 2002 with plans to rezone the land around a common theme such as a "private club or an equestrian based community." But Metropolitan Mortgage filed for bankruptcy in 2004 and put the ranch up for sale.

Separate investors bought 10 oceanfront lots that were previously part of the ranch property, and Kennedy Wilson bought the mauka ranch lands in May 2006 for $26 million. The company also bought the ranch's makai polo field in a separate transaction. The polo field is not part of the subdivision plan, though Kennedy Wilson may build a second polo field to expand polo activities.

A Kennedy Wilson affiliate also owns the water utility that supplies the ranch and some neighboring property owners. Smith said the company is about to apply to the state Public Utilities Commission to have the utility regulated by the agency, though it would still be privately owned.

According to the environmental assessment, there is sufficient water from wells on the property to develop the subdivision. The developer also would establish government-approved individual wastewater systems for the lots. To mitigate potential rockfalls, the developer plans to install impact barrier fences above the subdivision lots. Archeological sites will be preserved.

"We're attempting to keep the North Shore rural," Smith said.