Rail May Not Make It To Ala Moana, But Developers Have Already Cashed In

After a decade of cost overruns and mismanagement, the prospect that Honolulu’s future rail transit line might reach Ala Moana as planned is now seriously in doubt.

But whether rail ever gets there, area developers and landowners are sure to reap the benefits. Several already have.

Map showing the planned city center section of the rail
Map showing the planned city center section of the rail 

Since 2016, city leaders have granted special fast-track permits to a handful of major developers to help build denser, more walkable communities, assuming that Ala Moana Center would soon host a busy rail station with some 17,300 passenger boardings a day. Those Interim Planned Development-Transit permits, or “IPD-T,” allowed developers to build higher and denser.

Map of the planned city center section of the rail
Map of the planned city center section of the rail 

Did the notion of a rail line that now may never materialize change the way a city developed one of its core neighborhoods? The developers who got those lucrative permits did provide some community benefits in return, mostly in the form of affordable housing. But critics say the city should have gotten more for the zoning perks handed out in relative haste. The developers, meanwhile, say their fast-tracking merely sped up the desired “smart growth” that Honolulu planners are now actively pursuing.

“We just gave away value to developers and got even less in return than what the regulations on the books would have given us without the IPD-T process,” said Deja Ostrowski, a Honolulu attorney and longtime housing advocate who scrutinized the unique permit program while working at the Office of Hawaiian Affairs.

“The permit became a give-away to developers where the community was short-changed,” Ostrowski said.

The Azure, a new luxury condo tower with some affordable housing, climbs above Keeaumoku Street behind the former Walgreens store. Cory Lum/Civil Beat/2022

So far, the IPD-T permits have resulted in hundreds of new luxury condominiums and hotel rooms along Ala Moana’s bustling main corridors of Kapiolani Boulevard and Keeaumoku Street. Their towers can climb as much as 150 feet taller than what’s allowed under current Ala Moana zoning, and they can hold up to four times the density in some places. Some offer about half the parking spaces normally required.

Banking On Rail TOD Project BadgeAll that extra height and space equals more market-rate units for developers to sell.

To get those coveted zoning changes, they’re supposed to provide “exceptional community benefits,” and help make the neighborhood more welcoming to everyone.

Most of the approved projects do include some affordable housing as a trade-off to the city or set aside some space for that housing. Generally, affordable units make up 10% to 20% of the total residences.

But local housing and community advocates and even the city’s own Department of Planning and Permitting say the island should have gotten more in return for the height and density bonuses the city leaders handed out.

Editor's Note

Specifically, some advocates say, the IPD-T developers should have been required to offer at least 30% of their units for sale or rent at affordable rates – and those developers might have been held to that stricter standard if they had been governed by normal zoning rules, absent the prospect of a rail line.

Those added units could have put a bigger dent in the state’s overwhelming affordable housing crisis.

‘Harvesting’ Valuable Properties

Some of the developers in question push back strongly against the notion that Honolulu’s fledgling transient-oriented development effort – the push to build more walkable and rail-friendly neighborhoods – has so far amounted to a developer give-away.

The city, they said, will benefit tremendously from their expedited luxury projects in the form of added jobs and millions of more dollars in property tax revenues each year, plus greater urban density.

Map of the Ala Moana TOD zone and the areas designated as opportunities for redevelopment.
Map of the Ala Moana TOD zone and the areas designated as opportunities for redevelopment. 

“The one thing that rail has done, it has created a smart-growth initiative” in Ala Moana, said James Ratkovich, a co-managing partner with Mana`olana Partners LLC, which is developing two luxury projects approved under IPD-T permits.

One of those projects – a Mandarin Oriental-branded luxury hotel – will not provide any new affordable housing, however. Instead, Mana`olana Partners was allowed to pay a $2.4 million fee for the city to use to build affordable housing elsewhere.

So far, the Honolulu City Council has approved eight projects via the IPD-T permit – all in Ala Moana, all luxury towers and all in anticipation of a rail line that may never arrive.

Of those moving forward, The Azure, developed by ProsPac Holdings Group, is the only one that’s been completed. It climbs 400 feet and 41 stories above the corner of Keeaumoku and Makaloa streets on a 49,000 square-foot parcel.

Another project, Sky Ala Moana, developed by Avalon and JL Capital, is currently going up across from the mall on Kapiolani. Eventually, its two glass towers will reach roughly the same height as The Azure.

Combined, Sky and The Azure contain more than 1,000 market-rate condos and condo-hotel units. The condos alone swiftly sold out, even though it remains doubtful whether the nearby Ala Moana rail station that enabled their construction will ever appear.

Those Ala Moana developers have already “harvested” the properties, according to local real estate consultant Ricky Cassiday.

Whatever happens with rail, “their profits are banked,” he said.

In fact, the TOD developers in Ala Moana never really worried whether rail would materialize, according to Cassiday. “The main revenue source is the units and the density, from the developers point of view,” he said.

A sizable majority of those Ala Moana condos that benefited from TOD variances are selling at prices starting near $1 million. Most sales prices are listed at more than $1,000 per square feet, and developers say that they hope to sell some of the exclusive penthouses for tens of millions of dollars.

‘Air Rights’ For Affordable Housing

One future IPD-T project, 1500 Kapiolani, has irked advocates and city planners alike because the developers won’t actually build the nearly 80 affordable housing units planned for that site, next to Honolulu’s former Walgreens flagship store.

Instead, the developers will give the “air rights” — the empty space above an adjacent parking structure — to a partner who would then build the units for them, and who would likely use public dollars to do it.

The Department of Planning and Permitting called this approach “unacceptable” in 2017. “Only the production of the affordable housing units” – not the air rights – “will be considered a community benefit,” the department told City Council members.

The City Council approved the IPD-T permit anyway.

Ratkovich, whose Mana`olana Partners is developing 1500 Kapiolani, said his company remains “engaged” with EAH Housing to make the local nonprofit its affordable housing partner. Mana`olana Partners aims to “give them the platform,” he said, to build the units.

Once on board, EAH would likely use funding from the Hawaii Housing and Finance Development Corporation to build them. Karen Seddon, EAH’s regional vice president, said EAH might also seek funding from other public and private sources since HHFDC’s financial resources are already in heavy demand.

That scheme troubled the labor union Unite Local 5, which represents thousands of local hospitality and health care workers who largely depend on affordable housing.

The developer wouldn’t even have that air space to provide in the first place without the relaxed zoning bonuses from the city, its leaders stated in their 2017 testimony opposing 1500 Kapiolani.

“To the extent anyone is giving anything away of value, it is the city. The developer, meanwhile, could take credit for the city’s giveaway while EAH Housing constructs the units,” they wrote.

The two 1500 Kapiolani condo-hotel towers will reach nearly 400 feet tall, with four times the density allowed under normal zoning. It’s about a quarter-mile east of Ala Moana’s proposed rail station.

Mana`olana Partners “should be providing something much more significant to offset the impacts of the development,” Unite Local 5 added.

In an email, Ratkovich said that technically the project was not required to provide affordable housing to fulfill its community benefit because it predominantly consists of condo-hotels.

“However, we decided to build affordable housing because we believe in delivering projects that enhance the community and encourage continued economic growth,” he wrote.

It remains to be seen what will ultimately get built there. Progress on 1500 Kapiolani stalled amid the Covid-19 pandemic and the developer still does not have an affordable housing agreement for the site finalized with the city.

Meanwhile, local construction workers and trade groups have vocally supported 1500 Kapiolani and other luxury IPD-T developments, urging the City Council to quickly approve the projects.

“My family and I depend on you to make sure smart projects like the Sky Ala Moana project is approved as quickly as possible,” Charles Uehara, a construction worker, wrote to the council in 2018. “We ask for a fast-track approval.”

Getting Ahead Of The Plan

The accelerated IPD-T process, which was meant to stay ahead of rail, also enabled some developers to build projects in ways that would clash with the city’s long-term vision around the rail station.

Specifically, hundreds of hotel units at Sky and 1500 Kapiolani were fast-tracked even as city and community leaders aimed to prohibit hotel units in that part of Ala Moana. They were grandfathered in because the developers got their applications in ahead of time.

Ratkovich acknowledged last month that Mana`olana Partners was able to develop the 444 condo-hotel units at 1500 Kapiolani because it got the go-ahead before the final Ala Moana Neighborhood TOD plan was approved. The plan states that hotel development should be limited to an area around the Hawaii Convention Center.

Check out the proposed height and density increases in the TOD plan by moving the slider left or right.

Neither of Sky’s main developers, Avalon or JL Capital, responded to requests from Civil Beat to discuss that project.

In his 2017 testimony on IPD-T, former OHA Executive Officer Kamana`opono Crabbe urged the Honolulu City Council to treat the applicants as though they were seeking a major zoning change for their projects.

Under city rules, that would have triggered a 30% set-aside for affordable units, Crabbe said — a more “appropriate requirement” given the overwhelming demand for affordable housing among local residents.

‘Fluid’ Rules That Changed Over Time

City Councilman Brandon Elefante described the city’s IPD-T program as “unusual” in that it preempted the more carefully considered zoning recommendations that were in the works for the Ala Moana TOD plan.

“It was kind of fluid, too,” Elefante said.

Initially, the program lacked any specific affordable housing requirements. That helped the 400-foot tall Mandarin Oriental hotel get City Council approval without any affordable housing, irking housing and community advocates.

Subsequent projects did include at least some affordable housing, but the amount varied because there were still no fixed guidelines from the city.

Finally, in 2018, the City Council passed an affordable housing plan with guidelines, but they gave developers a lot of options to satisfy them in exchange for their zoning benefits.

For instance, an IPD-T project can provide as few as 10% of its units as affordable as long as they’re kept at that rate for 30 years. That’s far short of what Crabbe and others wanted.

Elefante called it a “legitimate concern” that the IPD-T projects were approved with hundreds of fewer parking spaces than normal on the assumption there’d be a working rail line. “It would be concerning if rail doesn’t come to Ala Moana. It needs to get there,” he said.

But some Ala Moana developers say the zoning allowances offered under IPD-T were necessary if they were to build anything at all.

“If that 400 feet (height limit) wasn’t allowed nobody would’ve touched those old buildings,” said Nan Shin, head of Keeaumoku Development, LLC, which is building an IPD-T project on Keeaumoku at the old site of the Sorabol Korean restaurant.

Sorabol and other structures are going to be razed for a rail related TOD project called The Park on Keaaumoku.
The former Sorabol restaurant site and other fixtures are being razed for a TOD-approved project called The Park on Keaaumoku. Cory Lum/Civil Beat/2022

Critics of developers in places like Ala Moana often focus on the profits to be made but not the considerable financial risks involved, he said.

“High rises themselves have a lot of risk – you can’t stop once you start building. You’re locked in,” said Shin, who also heads the local construction firm Nan Inc., a company that’s done extensive rail work. “If something goes wrong with this, it could wipe you out financially.”

Shin’s “The Park at Keeaumoku” tower will add some 972 condominiums to the area, with 15% set as affordable housing. The company has already sold 50% of the units, 80% of them to local residents, Shin said.

Buying Up More Land

Meanwhile, JL Capital, co-developer of Sky, has spent more than $70 million in recent years purchasing even more parcels next to where IPD-T projects have already been approved, city property records show.

JL Capital already co-developed Sky and sold the residences there. But its affiliated companies have also purchased more than 100,000 square feet in other key parts of Ala Moana, including at least eight parcels assembled across from the future Mandarin Oriental Hotel site.

Whether the firm’s new projects profit from the same zoning benefits as the previous projects remains to be seen. Harrison Rue, the city’s TOD administrator, said he’s aware of two or three other potential IPD-T projects but didn’t specify who was behind them. The applications haven’t been filed yet.

Last month, state officials lodged a complaint against JL Capital’s CEO, Timothy Lee, for falsifying campaign donations to candidates in the most recent Honolulu mayoral election.

Documents from the state’s campaign spending commission outlined a scheme in which JL Capital employees were compelled to donate to the campaigns of mayoral hopefuls Kymberly Pine, then a City Council member, and Keith Amemiya. Lee then reimbursed his employees in cash and checks, according to the commission.

The former JL Capital employee who alerted the commission of those donations, Ka Wai Norman Chan, said “checks were gathered from the entire staff,” according to the complaint. Other JL Capital employees told Chan, who was new to the company, that “this bundling of employee checks happened previously.”

They didn’t say for which candidate, however.

Lee denies that he acted improperly.

There’s no evidence of any quid-pro-quo in which Lee’s company received IPD-T benefits for those donations. Pine, while on City Council, consistently voted to approve IPD-T permits except for the most recent one, for which she was absent.

In a message via social media, Pine noted that she voted for the Sky project two years prior to the mayoral election. She added that she never directly discussed the project with JL Capital when it was being considered by the Council.

‘What Did We Get For That Value?’

City Council President Tommy Waters did not respond to a request to discuss the city’s TOD plans for Ala Moana.

Studies have shown that there’s a built-in premium on real estate near transit stations. That’s especially true for fixed rail stations, as compared to a bus station, said Paul Angelone, who leads the Curtis Infrastructure Initiative for the nonprofit Urban Land Institute.

It’s important for city policies to protect existing residents from getting displaced as TOD increases land values, Angelone said. However, Ala Moana is already one of the hottest real estate markets on Oahu, and the approved IPD-T projects are among the most valuable properties on the island.

In fact, the assessed value of the land under IPD-T projects around the mall has increased by around 150% since 2007. That’s when the city began collecting a tax surcharge to fund the full 20-mile rail line, according to a Civil Beat analysis using data from the local real estate firm Hawaii Information Service.

“I didn’t go into it trying to bash the developer – or bash the government. Just objectively, what did we get for that value?” –Logan Araki, law student

The Park at Keeaumoku is several blocks mauka of the mall, the beach and the proposed rail station site. The land below it has not seen as sharp of a spike in assessed value as those other projects, either.

Mayor Rick Blangiardi says that getting rail to Ala Moana remains the goal, even if it’s now more of an aspiration than a fixed plan.

In the meantime, his lieutenants in the city’s transportation and planning divisions have started touting TheBus as a way to connect Ala Moana to what looks to be rail’s new endpoint in Kakaako.

“We don’t see it as a huge impact” if rail doesn’t reach Ala Moana, said Ratkovich, of Mana`olana Partners. The firm’s Mandarin Oriental hotel and condo complex is slated to break ground later this year, he said.

It will include a 20,000 square-foot spa and condos whose sales prices Mana`olana Partners expects will start at around $3 million, plus three exclusive penthouse units that the developer hopes will sell for around $20 million each. Previously, there was speculation one of the penthouses in that future tower, to be built on the corner of Kapiolani and Atkinson Drive, might sell for a record $35 million.

Logan Araki, a second-year student at the William S. Richardson School of Law, analyzed the 1500 Kapiolani project, its special variances under IPD-T and whether the community got “commensurate benefit” in return.

His conclusion: The developers’ estimated $18.5 million in community contributions were “not in proportion” to the permits that allowed them to build more condo-hotels and fewer parking spaces. Those perks were worth many more millions of dollars.

“I didn’t go into it trying to bash the developer – or bash the government. Just objectively, what did we get for that value?” he said. “That’s what I feel people should be looking at with these big projects.”

This story was supported by the Fund for Investigative Journalism.

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