HCDA to schedule hearings to lower Central Kakaako maximum FAR after rule change affected tax exemptions

The Hawaiʻi Community Development Authority Kakaako board on Sept. 3 authorized the executive director to schedule public hearings under chapter 91 and chapter 201M, Hawaiʻi Revised Statutes, to amend the 2024 Kaka'ako Mauka area rules. The proposed amendment would change the maximum floor area ratio (FAR) for the Central Kakaako neighborhood zone from 3.5 to 1.5. The board voted 6-0 with three members excused; one member recorded reservations but voted yes.

Ryan Tan, HCDA director of planning and development, told the board the 2024 rules (effective January 2024) raised allowable density in Central Kakaako to FAR 3.5 but also changed the definition of floor area to include structured parking. Tan said that inclusion effectively increased counted floor area by about 2 FAR in many cases and led to an unintended consequence: some small industrial and commercial properties that previously qualified for a tax exemption under Honolulu City Council Ordinance 16-21 no longer met the exemption threshold.

Tan said the rules change has affected roughly 143 TMK parcels historically covered by the program, with about 50 to 78 recent applicants seeking certification. Staff estimated the change's impact on city tax assessments is "roughly about $60 million to $90 million" and that the fiscal impact to the city in lost tax revenue has been on the order of about $800,000 to $1,000,000 per year; Tan said an average parcel's tax reduction historically ranged around $12,000 up to $70,000. The exemption program is set to sunset June 30, 2027, he said.

Executive Director Jared Nakamoto described the proposal as a narrowly focused corrective measure "strictly limited to address this particular situation," and said staff intend to schedule hearings as soon as possible so property owners could have an avenue to appeal or seek certification in the event the Real Property Assessment Division (RPAD) declines appeals based on the current rules. Nakamoto noted that Honolulu City Council members Dos Santos Tam and Nishimoto had introduced a City Council bill (Bill 61) that attempts a parallel remedy, including a retroactive component; Nakamoto said HCDA would not rely solely on the council bill and preferred to proceed with its own rulemaking to avoid leaving property owners without recourse.

Board members debated whether to wait for the City Council action. Member Strikes said he preferred deferring to the council but ultimately recorded reservations and supported beginning the HCDA rulemaking process. Member Evans, who moved the motion, framed the change as a corrective step to help small businesses and landowners that had not anticipated the assessment consequences. Staff said a rule change would not automatically change tax assessments for 2026 unless the city accepted the change for that assessment year, but it could provide a basis for appeals.

Public testimony during the item covered related community concerns about HCDA projects and property transactions. Several speakers, including Brad Nikolai (JN Group), Eric Clark (AOAO board of Symphony and Vanguard), Sarah Freeman (Kakaako resident and small business owner), and Keith Winickott (owner, F45 Ala Moana), urged greater transparency on HCDA-managed redevelopment and asked for clarity on the short-term use of HCDA-owned parcels. Residents and business operators asked HCDA to allow the fitness operator F45 to remain at 956 Kauai/955 Waimanu until a firm redevelopment timetable is set. Nakamoto said the property purchase that had been scheduled to close Aug. 25 is expected to close Sept. 8 and that "until we have some firm development timetable and plans for that particular parcel, it is not in our interest to terminate early" an existing tenant; he added that the current F45 lease expires in October 2026.

The board's authorization directs staff to begin the chapter-91 hearing process on a narrowly tailored amendment to section 15-217-57(c) of the Kaka'ako Mauka rules, with public notice and a follow-up decision-making hearing before the board. Staff indicated they aim to begin hearings in October so a final decision could be made before property owners lose administrative remedies.

The item also prompted discussion of whether HCDA could craft a rule allowing certification at a lower FAR than the permitted maximum; staff and board members indicated concerns that RPAD interprets exemptions narrowly, which could limit the effectiveness of such an approach. HCDA emphasized the intent to limit the rule change to address infrastructure inadequacy in Central Kakaako and to restore alignment with Ordinance 16-21's tax-exemption framework.

The motion to authorize scheduling hearings was made by Member Evans and seconded by Member Secota. The roll-call vote recorded six yes votes, zero no votes, and three excused members; Member Strikes noted his reservations in the record but voted yes.