He couldn't foresee it housing apartments, but could envisage an older people's facility.
The first eight lots are expected to attract top-end market interest.
The development was welcomed by Mayor Barbara Arnott, a hospital near-neighbour, and Ahuriri Ward councillor Mark Herbert, both of whom could barely imagine any more desirable sites on the market in New Zealand.
TPG said eventually the site would comprise a mix of stand-alone houses, terrace units and apartments.
Joining Mr Eru yesterday in representing historic Maori interest in the site were Mana Ahuriri claims negotiator Ranui Toa Toa, Whanganui a Orotu claim leader Heitia Hiha and Tom Hemopo, who headed a successful claim to the Waitangi Tribunal over health service provision in Napier after the hospital closure.
Mr Eru's karakia acknowledged those who had passed through the hospital facilities.
Mr Hiha drew attention to the pre-European naming of the hospital hill as Mataruahou, a traditional place of healing.
TPG managing director Evan Davies said it was important to recognise the past before work began.
"The outcome will bring a new vitality to Napier Hill, and be a place the community can be proud of," Mr Davies said.
Also present were two of the hospital's long-time former staff, retired clinician Dr Peter Jennings and ophthalmic pioneer Dr David Sabiston.
The demolition will be undertaken by Auckland company Demolition 1, which has had ongoing work in Napier's CBD in the past two years, including pulling down the Odeon Theatre.
The company's managing director, Ivan Vucich, said most of the Stage 1 demolition would involve "manual" work, with a lot of rimu timber to be salvaged for sale.