New Life in Kakaako a science-based community

[urbanguy]

Kamehameha Schools is planning to kick-start a science-based development of its Kakaako land that could provide a shot in the arm to the urban district.

The plans represent a new Kakaako strategy for the state's largest private landowner, which owns some of the most strategic parcels in the area but has been criticized for failing to provide leadership on revitalizing the gritty neighborhood of bars, warehouses and car dealerships.

Officials with the charitable trust say it is their "fiduciary responsibility" to respond to the presence of the University of Hawaii's nearly completed John A. Burns Medical School and associated facilities, which were built in the district partly to serve as a nucleus around which Hawaii's young biosciences sector could coalesce.

"We thought it was an opportune time to look at our holdings in the area and we're committed now to being a major player in life sciences there," said Bob Oda, project manager with the estate's commercial real estate division.

No firm development deals are in the pipeline yet, but the $6 billion estate is applying for a special federal designation that would allow it to offer tax breaks to developers and other investors.

It also has brought together a steering committee of key financial, scientific and development players in the state and plans soon to announce a pair of "catalyst" development projects to kick things off.

It's about time, said Bev Harbin, a member of the Kakaako Improvement Association and frequent critic of the area's landowners.

"I used to have to hit them over the head and say 'do something!'" Harbin said. "But for the first time, I'm rather impressed with what the estate is doing. They're starting to walk the walk."

The estate of Bernice Pauahi Bishop, whose lands provide the income that funds the education of Hawaiian children, owns 52 acres in the heart of the 700-acre district, leased to a range of owners. Its holdings are less extensive than those of the state government and General Growth Properties, which owns Ala Moana and the various Victoria Ward retail properties. But Kamehameha Schools' lands are in the heart of Kakaako, spanning the mauka and makai sides of Ala Moana Boulevard.

These include parcels directly adjacent to the medical school. Now home to car dealerships and aging commercial low-rises, the trust hopes to lease these lands to developers and other investors that will build life-science research facilities and supporting commercial and residential developments.

The trust is putting together an application to have its area holdings designated a Community Development Entity under urban renewal legislation passed by Congress in 2000. This would allow investors to purchase equity in the entity and claim tax breaks of up to 39 percent on their investments.

The estate hopes the incentives, called the New Market Tax Credits, could reach $100 million and help to defray the high cost of building research-oriented space.

Ordinary office space generally costs around $300 a square foot to build. But Dr. Ed Cadman, the dean of the medical school an advocate of a life-sciences community centered around the school, says research facilities can run to $500 a square foot to build due to their special energy and ventilation needs.

That's a potential deterrent to developers, and the resulting local shortage is cited as a major impediment to growing Hawaii's life-sciences community.

"Think of Kakaako as a mall with the medical school as the anchor store. A lot of smaller stores are needed in that mall, too, but you need leasable research space or it won't happen," Cadman said.

The tax credits could provide a solution. State Act 221 technology tax credits are geared for investors with an existing Hawaii tax liability, limiting their usefulness for deep-pocketed mainland investors. But the estate hopes Act 221 and the federal tax credits together will bring in a healthy mix of both local and offshore investment.

"We want to provide the dirt and we let others come in with the capital," said Kirk Belsby, the estate's vice president for endowment.

Joining Belsby and Cadman on the group submitting the community development application is Dr. Leroy Hood, one of the world's leading scientists in molecular biotechnology. Now based at Seattle's Institute for Systems Biology, which he co-founded, Hood's work in the 1960s and 70s set the stage for the eventual mapping of the human genome. He also helped start a number of successful biomedical companies such as Amgen, Applied Biosystems and MacroGenics.

Belsby says the estate remains committed to life-sciences development even if it fails to secure the tax breaks. It has commissioned a $500,000 study from Washington, D.C.-based New Economy Strategies, expected to be completed next month, that will identify the most suitable life sciences disciplines to target. Options could include plant sciences, marine biology and biopharmaceuticals. The findings will serve as the trust's "road map" for Kakaako.

"Even if we don't get the tax credits, we'll have a base of knowledge we can proceed on," said Belsby.

Various visions for Kakaako have come and gone ever since the state set up the Hawaii Community Development Authority in 1976 to oversee redevelopment in the area.

But hopes are rising now that a key private landowner is stepping up.

"I'm very optimistic. I really think something is going to happen now," said Sanford Murata, former director of the estate's commercial real estate division.

Hawaii's improving economy is a key factor in the trust's timing, Belsby said.

"The difference today is that the market has improved. The economy has strengthened to the point where it now supports this kind of thing. And we also now have an anchor project in the medical school," he said.

Kamehameha Schools hopes to get the ball rolling later this year, when it will seek proposals for a pair of development projects viewed as catalysts. No specifics are available yet but the estate wants a research-use facility developed on the makai side of Ala Moana Boulevard next to the medical center, and a mixed-use commercial and residential development on the mauka side.

Cadman said any new research space is likely to be 100 percent leased up within six months, so great is the demand. He says a number of smaller California biotech firms already are waiting for space here and expects others to be lured by the cachet of a Hawaii headquarters.

But Pat Sullivan, president and chief executive of medical device-maker Hoana Medical, said it will take more than just new space. A concerted effort to improve Hawaii firms' access to funding also will be crucial. The company has offices nearby in Kakaako.

"There's a misconception that we need to attract companies to be transplanted here. What we really need is to build great companies of our own. That will provide the evidence that this is a good place to grow and do business," he said.

Timing also will be a key issue. Cadman said the earliest new leasable research space wouldn't be completed for about two years.

That may be too long, Sullivan said.

"Timing is the critical issue. Anything longer than that can have a profound impact on these companies," he said. "The technology business is so time-sensitive. It's critical that things get done quickly."