The Board of Land and Natural Resources will consider giving the Naniloa Volcanoes Resort a lifeline today as a new owner is sought to take over the beleaguered operation on Hilo’s Banyan Drive.
The hotel, which is going through bankruptcy, had missed its most recent semi-annual lease payment of $250,000 on Aug. 1 to the state Department of Land and Natural Resources but was given an informal extension as it was assured by its bankruptcy trustee and bank that a sale could be imminent, said Russell Tsuji, DLNR land division administrator.
That extension will lapse Monday, and Tsuji said those parties have asked for an extension up to the end of the year.
The board will consider that request and other financial issues with the hotel, including a requirement that it increases its performance bond by $500,000 and a request that DLNR releases what’s left in the hotel’s construction bond.
Tsuji said he is concerned that a sale may not be made before another payment will be due, adding that the mortgage-holder, First Citizens Bank & Trust Co., could contribute funds.
“The promise was by September, by this month already, everything was supposed to be done,” he said.
David Farmer, the court-appointed trustee, said the hotel doesn’t have enough money to make the payments and argues that it could shutdown without a break on those obligations.
“We’re now in the dead zone,” he said, referring to the slow time of year for the business.
“We’re looking at some pretty skinny income.”
Farmer said letters of intent have been received from two potential buyers of the hotel. One is offering $12 million, the other is offering $14 million.
“Neither of them have gone hard, as far as putting money down,” he said.
The board does have the option of pulling the lease if payments can’t be made.
That would lead to another auction.
Ken Fujiyama, the hotel’s owner, had won the 65-year lease for the site through an auction in 2006.
He acquired the approximately 380-room hotel with the help of a $10 million loan, which he later defaulted on.
The bank began to issue foreclosure in August 2012 but that was halted when Fujiyama declared bankruptcy last November.
Fujiyama said he helps manage the hotel but is no longer in control of its finances.
He said he is also trying to put together his own offer to maintain ownership.
The hotel pays an annual lease of $500,000 to DLNR, due in two semi-annual payments.
The price, set by the auction, has been considered high for the hotel and the golf course that came with it.
Tsuji said an appraisal before the auction had determined the value of the lease to be $150,000 a year.
Since the lease was won at an auction, the price cannot be adjusted even if it is sold, he said.
Farmer said the price is “definitely way over market” but believes it can be sold.
Email Tom Callis at firstname.lastname@example.org.