Court hears arguments in Ward Village rail dispute

Jun. 30—The Hawaii State Supreme Court heard 90 minutes of oral arguments Thursday over an eminent domain dispute involving the construction of a planned rail station within real estate developer Howard Hughes Corp.'s 60-acre master-planned property in Kakaako.

The Hawaii State Supreme Court heard 90 minutes of oral arguments Thursday over an eminent domain dispute involving the construction of a planned rail station within real estate developer Howard Hughes Corp.'s 60-acre master-planned property in Kakaako.

The years-long case, previously heard in Circuit Court, concerns the Texas ­-based developer, doing business here as Victoria Ward Ltd., and the Honolulu Authority for Rapid Transportation's 2018 condemnation of about 2 acres containing roughly 25 parcels owned by the developer—from Cooke to Kamakee streets. The property was originally slated for a master-planned, permitted, mixed-use development within Ward Village Projected cost to taxpayers to acquire the property for the rail line's Kakaako station near Ward Avenue has been reported to be as much as $200 million, with HART by 2021 having spent nearly $23.3 million in legal fees.

The state Supreme Court's expected ruling in HART v. Victoria Ward—which could take months to decide—has more to do with determining unsettled points of law over just compensation related to eminent domain rather than the actual rail project itself. A number of appeals at issue concerned Victoria Ward's claims for just compensation and severance damages—typically, the amount determined as the loss of value to remaining property over the value of land and structures taken by the government.

Among the issues at hand was HART's contention that Victoria Ward's project would receive "special benefits " for being so closely located to the pending rail project and station, and therefore, the developer should receive much less by way of just compensation in this case that seeks damages.

Once a ruling is rendered, the matter is expected to return to Circuit Court for a future jury trial.

On Thursday, lawyers for Victoria Ward and HART were each allotted about 45 minutes to present their case.

Among the many arguments, Victoria Ward lawyer David Battaglia said the Circuit Court erred in its prior rulings on "highest and best uses " for the property, as well as for the damages his client sought due to the incursion of rail onto the property.

"The owners should be put in as good a position pecuniarily as if his property had not been taken, " Battaglia said, citing prior case law.

Battaglia also noted the so-called "Lost Tower " portion of the case, in which Victoria Ward wished to build six condominium luxury towers but due to the rail line and the presence of a station was now relegated to five towers, with units of the planned sixth tower to be relegated into lower-­level, less luxurious podium-style condos on the same property.

"In the highest and best use of 'Land Block One' at Ward Village without rail, everyone agrees that there could be six luxury condo towers 40 stories high on the property, " said Battaglia. "HART concedes this in its answering brief ... and in its complaint where it states that Victoria Ward's master plan showed a condo tower right where HART chose to put its rail station on Ward Village property."

He added that "the opportunity for a sixth tower was lost " and that the project is "worth less due to the rail."

In addition, Battaglia said that "all of the experts on both sides say there could be six towers " but disagreed on the value of the remaining portions.

"HART's appraiser concluded the remainder lost development functionality in the amount of $3.5 million, " Battaglia said. "The experts disagree on the amount of lost value, how much less the remainder is worth ; that's a question for the jury in an eminent domain case in the U.S. and Hawaii Supreme Court authority, it's a battle of the experts."

Battaglia would also argue that a master plan permit gained by Victoria Ward in the late 2000s did not then show where the route for the city's rail line would go, particularly as it pertained to the Ward Village property.

But HART's legal team disputed the developer's assertions regarding the Ward Village project and plans for the sixth tower, which they argued was vaguely planned and likely "imaginary."

"This claim is an outrageous claim seeking windfall, an enormous windfall—$100-plus million at public expense, " HART's lawyer Terence O'Toole said. "Why ? Because Howard Hughes is seeking these damages to do exactly what it promised to do in the master plan permit."

O'Toole added that the plan to build rail along the route occupied by Ward Village was well known to everyone in the public, including Ward Village's developer.

"As volunteered in the master plan application permit ... the landowner agreed that they would address and incorporate what was a known rail station location and rail line, because this was no mystery, " he said. "The rail line was defined."

Moreover, O'Toole noted Ward Village was, in fact, a transit-oriented development along a known rail line. "They knew the train was coming, they also knew it was coming to a station, " he said. "This was part of a transit-oriented community."

And the Kakaako station, he added, was going to be a "centerpiece " for the Ward Village project. "They wanted rail, " said O'Toole. "Except for today, except for today."

According to the state court's briefing of this case, the matter between HART and Victoria Ward began well over a decade ago.

In 2009 the Hawaii Community Development Authority issued a master plan permit for the Ward Village development, which covers an area of approximately 60 acres in the Kaka ­ako Mauka area owned by Victoria Ward and proposes a pedestrian-friendly, smart-growth community.

Eventually, the parties would disagree over language in the master plan permit—which states, in part, that "a more detailed transit route and station location shall be addressed and incorporated "—and whether it precluded Victoria Ward from recovering severance damages for impacts to property not taken, the court states.

The Circuit Court eventually issued a number of summary judgment orders preventing Victoria Ward from seeking severance damages.

Moreover, the Circuit Court also ruled Victoria Ward could not recover the loss of a planned luxury tower "that allegedly could have been built on the site of the Kakaako Station, for relocation of units from that tower to less valuable locations, for severance damages to property stipulated to be distinct from those where condemnations took place, or for replacing lost parking if replacement costs exceed loss in value."

HART appeals from other Circuit Court rulings include those specifying some of Victoria Ward's damages may not be offset by certain alleged "special benefits " flowing from the rail project, the court states. And according to a 2021 HART report related to this case, Victoria Ward was expected to seek $200 million in severance damages.

Still, as time has passed, the developer-owned properties in question lie outside the rail's current truncated scope of work, which ends at the planned Civic Center Station at Halekauwila and South streets.

Under Mayor Rick Blan ­giardi's administration, the city in 2022 postponed the last 1.25 miles of guideway and the final two stations at Kakaako and Ala Moana to reduce the project's expenses from over $12.45 billion for a 20-mile route and 21 stations, down to a nearly $10 billion, 18.9-mile rail line project and 19 stations.