Supreme Court rejects Kyo-ya’s bid to build new Waikiki hotel

By Will Caron
The Hawaii Independent
Hawaii’s highest court has overturned a city variance granted to Kyo-ya Hotels that would have allowed them to construct a new building along Waikiki Beach outside the developmental restrictions enacted for the Waikiki Special District.

The Hawaii Supreme Court has determined that a variance granted to Kyo-ya Hotels & Resorts LP for a proposed 26-story hotel and residential tower that permitted a 74 percent encroachment into the coastal height setback along the Waikiki shoreline was improperly issued by the Honolulu Department of Planning and Permitting (DPP). The court opinion, written by Associate Justice Richard W. Pollack, also strongly criticized the decision-making process made by DPP’s director at the time, David Tanoue.

KAHEA—The Hawaiian Environmental Alliance was one of the appellants in the Supreme Court case. Board member Bianca Isaki told The Independent that, “KAHEA works on oceans advocacy and public access across various issues. The Kyo-ya case was not something KAHEA would typically find squarely in its mission of Hawaiian and environmental protections, but the proposal was so outrageous that we felt allowing the city and county to get away with approving it would set a terrible precedent, especially if it could be permitted on the famous, scrutinized, Waikiki beaches.”

A Kyo-ya representative told The Independent over the phone that no one from the company was available to comment at this time.

In 2010, Kyo-ya, the owner of the Moana Surfrider hotel complex (the complex contains three buildings—the Surfrider Tower, the Banyan Wing, and the Diamond Head Tower (DHT)—on a combined zoning lot located on Kalakaua Avenue along the Waikiki shoreline), submitted a land use permit to redevelop the existing 8-story DHT with a 26-story, 282 foot hotel and residential tower. Due to its size, location and design, the project required several permits and approvals, including a variance to allow the project to encroach into the coastal height setback.

In its variance application to the DPP, Kyo-ya maintained that, although the project was “unable to comply with the strict requirements of [the coastal height setback],” the project satisfied the three requirements for issuance of a variance. Tanoue agreed, granting Kyo-ya its variance.

The Surfrider Foundation, Hawaii’s Thousand Friends, Ka Iwi Coalition, and KAHEA filed a petition to the Zoning Board of Appeals (ZBA) challenging the conclusion that Kyo-ya’s request met the requirements for issuance of a variance as set forth by the city charter.

The ZBA upheld Tanoue’s approval of the variance, which led to an appeal by Surfrider et al. that sent the case to the First Circuit Court where the ZBA decision was, again, upheld. The court’s decision was appealed and the case headed to the Hawaii Supreme Court. Citing precedent in a series of older cases, as well as the DPP’s own Zoning Variance Guidebook, the Supreme Court overturned the previous decisions and sided in favor of the appellants.

“[A]lthough the director found that the variance was necessary to ‘maintain economic viability,’” wrote Pollack in the Opinion of the Court, “there is no financial data in the record to support such a finding; rather, it appears [Director Tanoue] merely recited statements Kyo-ya made in its variance application.”

The opinion continues, “the mere fact that Kyo-ya cannot build the specific building design it desires is not sufficient to support a finding that Kyo-ya would be deprived of the reasonable use of its land or building.”

The Land Use Ordinance of the City and County of Honolulu (LUO) designates “certain areas in the community in need of restoration, preservation, redevelopment or rejuvenation” as special districts, according to the Revised Ordinances of the City and County of Honolulu (ROH) §21-9.20 (1990). For each special district, the LUO sets forth objectives, identifies prominent view corridors and historic properties, and outlines requirements and design controls to guide development to “protect [and] enhance the physical and visual aspects of [the district] for the benefit of the community as a whole” (ROH §21-9.20-1).

According to provisions of the LUO, the Honolulu City Council established the Waikiki Special Design District (later renamed the Waikiki Special District) in 1976 in response “to the rapid development of the 1960s and 1970s, and the changes produced by that development.” The council found that “[t]o the world, Waikiki is a recognized symbol of Hawaii, and the allure of Waikiki continues, serving as the anchor for the state’s tourist industry.” The council concluded that, while “Waikiki needs to maintain its place as one of the world’s premier resorts in an international market, the sense of place that makes Waikiki unique needs to be retained and enhanced.” Accordingly, the council developed specific requirements and design controls “to guide carefully Waikiki’s future and protect its unique Hawaiian identity.”

Among the provisions enacted to protect Waikiki’s identity is a limitation on development next to the shoreline. The council established a coastal height setback requirement because of the “need to step back tall buildings from the shoreline to maximize public safety and the sense of open space and public enjoyment associated with coastal resources.”

But the council did provide for a variance process when compliance with the LUO would result in “unnecessary hardship.” In order to establish unnecessary hardship, an applicant must demonstrate that the following three requirements, as prescribed in the City Charter, have all been met:

1) the applicant would be deprived of the reasonable use of such land or building if the provisions of the zoning code were strictly applicable;
2) the request of the applicant is due to unique circumstances and not the general conditions in the neighborhood, so that the reasonableness of the neighborhood zoning is not drawn into question; and
3) the request, if approved, will not alter the essential character of the neighborhood nor be contrary to the intent and purpose of the zoning ordinance.

If the LUO “were strictly followed,” Kyo-ya contended that it “would not even be able to rebuild the existing [DHT].”

Kyo-ya also argued that the State of Hawaii had entered into an agreement in 1965 with the owners of beachfront parcels in the area, including Kyo-ya’s parent company, under which the state committed to expand the beach and “[p]rotect and preserve all existing beach” in a designated area. Although the contemplated beach expansion was never completed, Kyo-ya asserted that had “the beach been constructed by the state, it is likely that the beach fronting the [DHT] site would be approximately 180 feet wider than it is today.” If the beach had been extended, Kyo-ya argued, “almost no portion of the [project] would encroach into the coastal height setback.”

Kyo-ya further argued that the parcel’s “unique size and shape” caused the impact of the coastal height setback to be “greater than on any other parcel along Waikiki Beach.”

With respect to the third requirement, Kyo-ya submitted that the variance “will not alter the essential character of the locality nor be contrary to the intent and purpose of the zoning code.” Kyo-ya characterized Waikiki as “a densely developed, urbanized area, filled with large hotels, condominiums, and mixed-use projects which push (and in many cases exceed) the limits of permitted heights, densities, and other zoning and building regulations.” Kyo-ya argued that many of the “existing hotels along Waikiki Beach already encroach into the coastal height setback” and that allowing the project to similarly encroach would not alter the essential character of Waikiki. Kyo-ya contended the project’s “mauka-makai orientation, increased public open space, improved beach access,” and that the addition of surfboard racks should “go a long way toward restoring the character of Waikiki.”

Director Tanoue held a public hearing on Kyo-ya’s variance application and subsequently granted partial approval of Kyo-ya’s variance application, agreeing with nearly every argument the developer made.

Not only did the Supreme Court reject each of the reasons the director made to grant the variance, the court opinion points out that Tanoue appears to have sidestepped the City Council’s intent for an applicant to meet the distinct three-part hardship test by defining and evaluating the 
“reasonable use” of Kyo-ya’s property in terms of the more flexible Planned Development-Resort (PD-R) permit provisions.

“Specifically, the director used Kyo-ya’s inability to obtain the full benefit from the PD-R permit as a reason to find that Kyo-ya would be denied reasonable use of the site if the coastal height setback was applied,” wrote Pollack. “In other words, by obtaining the PD-R permit prior to seeking the variance, Kyo-ya was able to argue that it was deprived of the reasonable use of its land by pointing to the loss of the increased density and height that the PD-R permit allowed. Thus, the three requirements that must be satisfied to obtain a variance from the coastal height setback were subordinated to Kyo-ya achieving the benefits of the PD-R permit.”

As the Supreme Court opinion points out, the effect of coordinating the permits in this manner resulted in the ostensible inclusion of the coastal height setback as being among the provisions that can be modified under the PD-R permit.

“This is directly contrary to the intention of the City Council: the coastal height setback stands apart from the PD-R permit, and an applicant seeking a variance from the coastal height setback requirements must independently satisfy the unnecessary hardship test,” Pollack concluded. “Accordingly, the PD-R permit should not have been considered as a basis for determining reasonable use in order to satisfy the first requirement of the variance test, as it enables circumvention of the coastal height setback.”

The court also tossed out Kyo-ya’s argument that the variance should be granted on the basis of a hypothetically wider beach that could have been created if the state had followed through with its 1965 agreement with Kyo-ya’s parent company.

“The 1965 beach agreement was not incorporated into the LUO or referenced in the provisions of the subsequently enacted Waikiki Special District,” wrote Pollack. “While there have been beach replenishment projects in the years since the agreement, the beach width envisioned by the 1965 beach agreement was never realized. Therefore, the agreement had no effect on the certified shoreline by which the coastal height setback is measured.”

Kyo-ya’s and Tanoue’s conclusion that the project would not clash with the intent of the Waikiki Special District because the district is already comprised mainly of densely developed properties was struck down by the court as well, which simply referred to language in the district’s own Design Guidebook, in particular: “[d]esign in Waikiki should compose spaces and elements in a way that encourages experiencing the natural environment.”

“Appellate courts are generally reticent to reverse an agencyʻs decision except where they really screwed up,” said Isaki. “The Hawaii Supreme Courtʻs 76 page opinion was well considered in this regard.”

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