Honolulu Condo Boom Prices Out Hawaiians, Unearths Dead

Hinaleimoana Wong-Kalu crossed swords with developers on behalf of native Hawaiians for most of her life, and spent the past eight years protecting the souls of departed ancestors as a member of the Oahu Island Burial Council.

This year, she took a job as a consultant for Ward Village, a $10 billion, 4,000-residence waterfront development by Howard Hughes Corp., advising the Dallas-based company on proper treatment of unearthed human remains and sacred sites.

“I negotiated a modest contract so I can pay my bills,” said Wong-Kalu, 41, outgoing chairwoman of the council, a state board overseeing the protection of ancestral Hawaiian burial grounds. “One day I look forward to being able to afford one of the affordable rentals in the development.”

Developers, responding to population growth and demand from wealthy tourists, are refreshing Honolulu’s aging core with new condominium towers, and adding shopping malls and hotels in the city’s biggest building boom in at least a decade. Seeking to cater to affluent customers -- and offset the high construction costs associated with Hawaii’s isolation and unique cultural issues -- they’re adding thousands of luxury properties at a time when affordable housing is in short supply.

The median home value in Honolulu was $605,300 last year, behind only California’s San Jose and San Francisco among the 100 largest U.S. metro areas, according to Zillow Group Inc. With a population of almost 1 million, Honolulu has a deficit of 24,000 dwellings, including 18,000 units for families earning less than 80 percent of the metropolitan area’s median income, according to a September report for the city housing office.

‘Extremely Expensive’

To keep up with population growth, Honolulu needs about 4,000 more homes a year, the equivalent of all the residences planned for Ward Village, according to Nick Vanderboom, Howard Hughes’ senior vice president for development.

About 20 percent of the company’s planned homes will be reserved for residents who earn between 80 percent and 100 percent of the median household income for Honolulu. Last year, the median was $95,800 for a family of four, according to the U.S. Department of Housing and Urban Development

For the 482 condos in Ward Village’s first two towers, prices average $2.2 million.

“Housing prices are extremely expensive,” said Vanderboom, who compared his project’s impact to that of Hudson Yards in Manhattan and Battersea Power Station in London. “We’re trying to be part of the solution, but even if we build out our entire master plan, we’re one-year’s worth of the supply needed.”

Rising Construction

Permits for all types of new construction reached a record $2.07 billion last year in Honolulu County, which includes the entire island of Oahu, up 11 percent from 2013, according to the University of Hawaii Economic Research Organization.

As commercial high-rise construction increased, the value of new residential permits fell 41 percent to $376 million, led by a drop in new single-family permits, which were at their lowest since 1982, said Carl Bonham, the organization’s executive director.

Even as the number of new condo towers increased, residential permits fell because of the time lag associated with high-rise construction, according to a March 27 report by the organization.

Lawsuits and a lengthy entitlement approval process have delayed development of the two largest single-family home communities on Oahu, Bonham said: Hoopili, an 11,750-residence project by D.R. Horton Inc., and Koa Ridge, a 3,500-home development by Castle & Cooke Inc.

“We have a market with rising prices that’s vastly undersupplied,” Bonham said.

Costs Jump

Hawaii construction costs jumped 22 percent in the two years through December, the most since late 2005, according to property consulting firm Rider Levett Bucknall. That compares with an 8 percent increase across the U.S. mainland.

Costs are inflated by high prices for materials that must be imported, a scarcity of land, strict environmental regulations and local laws governing treatment of unmarked burial sites from the era before Captain James Cook set foot on the islands in 1778.

“Developing in Hawaii is not for the faint of heart,” said Jason Grosfeld, head of Irongate, developer of the two-tower Ritz-Carlton Residences in Waikiki. “There are some unique challenges.”

Demand is strong at high-end projects such as the Ritz-Carlton. More than 90 percent of the development’s 555 condos are sold, Grosfeld said. The remaining units range from studios starting at $949,800 to penthouses asking $25 million.

“In greater Honolulu, one of the reasons for all this activity is that it’s recovered very nicely from the recession,” said Grosfeld, whose company broke ground on the second Ritz-Carlton tower in March. “Plus, you have a broad buyer base from all over the world, east and west bound and even north bound from Australia.”

Luxury Retail

Retail developments are springing up to appeal to growing numbers of affluent residents and visitors. On Waikiki’s Kalakaua Avenue, Taubman Centers Inc. is building the $465 million International Market Place mall, anchored by a Saks Fifth Avenue store. The beachfront shopping street attracts an average of 50,000 people a day, according to William Taubman, chief operating officer of the Bloomfield Hills, Michigan-based real estate investment trust.

Honolulu’s boom is “driven by U.S. customers and Japanese customers, but increasingly so also by Chinese and other Asian customers,” Taubman said. “So much of what is under construction now is being built with the expectation of increased demand from that part of the world.”

In Honolulu’s Kaka’ako district west of Waikiki, interest is coming mostly from locals, according to Vanderboom of Howard Hughes, the Ward Village developer. Market-rate condos at the 60-acre (24-hectare) project were more than 80 percent presold as of March, Peter Martin, an analyst at JMP Securities LLC, said in a note to clients.

“Given the strength of the market, we anticipate the next set of market-rate condos will be put out for sale in late 2015 or early 2016,” Martin, who rates Howard Hughes the equivalent of a buy, said in the April 6 note.

Park Lane

Since coming to market in January, buyers put deposits on about 60 percent of the 215 residences at Park Lane Ala Moana, a joint venture of General Growth Properties Inc. and Honolulu-based MacNaughton Group, Kobayashi Group and BlackSand Capital. The units, with prices ranging from $1.2 million to $28 million, are connected by a bridge to the Neiman Marcus store at the Ala Moana Center mall west of Waikiki Beach.

Prices at the Collection, a 43-floor, 464-unit condo project that broke ground in October, start in the “high $300,000s” and rise to more than $1 million for a top-floor penthouse, according to Mark Berkowitz, the sales manager for the project developed by Honolulu-based Alexander & Baldwin Inc. More than 90 percent of the units already have sold, mostly to current full-time Honolulu residents, Berkowitz said.

To meet the city’s housing needs, Honolulu officials are weighing measures such as requiring builders to reserve as much as 30 percent of projects for affordable housing, encouraging denser high-rises along a new passenger rail that’s expected to start running in 2018, and allowing owners of single-family homes to add rental units to their properties.

Burial Grounds

As development escalates, so do the incidences of encountering human remains. Burial sites are scattered throughout the Waikiki and Kaka’ako districts, near ocean fishing grounds where native Hawaiians settled and interred their dead, according to Hinano Rodrigues, history and culture branch chief for Hawaii’s historic preservation division.

A state law that took effect in 1990, after developers of a Maui resort unearthed about 1,100 native skeletal remains, requires an archaeological inventory survey for large projects. Builders must halt work when they inadvertently uncover remains until the skeletons can be properly protected or relocated.

Ward Village is rising amid a warren of strip malls, auto repair shops and Quonset huts that often smells of leaking sewers, according to Wong-Kalu, the consultant. She agreed to work with Howard Hughes because of the developer’s “exemplary record” of cooperating with native descendants.

“If this were virgin land elsewhere on the island, untouched and pristine, I’d probably have a different attitude toward the development,” Wong-Kalu said. “However, this is in the urban core and a place that was in sore need of revitalization.”

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