The Nested Condo: Infusing Residential Use Into Commercial-Zoned Projects
Among the myriad bills passed this year by the Hawaii State Legislature is House Bill (HB) 2090. This preemptive measure seeks to increase Hawaii's housing stock by permitting residential use on lands throughout the State that are zoned for commercial use.
Mixed use projects are not uncommon in Hawaii. There are a plethora of such projects, mostly in urban Honolulu. These projects will usually have commercial use on the ground floor and residential use up above. What is stunningly important with this particular measure is that if an existing commercial building is converted to that exact model, that is, commercial use on the ground floor and residential above, meeting any additional parking (provided 50% of required parking is provided), and park dedication requirements, will not be required.
When contemplating the possible legal structure for such a project, developers should consider whether the nested condo concept should be utilized. This legal concept might facilitate ease of administration and financing for the separate component parts of the project. As an example, there would be separate governance for most of functions of each of the residential component and commercial component. Separate boards, separate assessments, separate rules, for the most part.
And re financing, if the project's commercial area comprises a large part of the overall project, if the commercial component and residential component are each isolated as its own "project," this frees up the residential component to seek FNMA/FHLMC approvals, thus making end-loan financing more available to potential buyers of the residential units of the project.
If this measure is signed into law by the Governor, the various county councils have until January 1, 2025 to adopt ordinances that further flesh out the concept and its implementation.