By HUNTER BISHOP
Tribune-Herald staff writer
Naniloa Volcanoes Resort owner Ken Fujiyama is in default of a $10 million loan he used to purchase the hotel in 2006.
North Carolina-based First Citizens Bank & Trust Co. filed to foreclose on the loan in Oahu’s First Circuit Court, but the case later was moved to Third Circuit Court in Hilo.
The Aug. 6 filing said that Fujiyama’s company, Hawaii Outdoor Tours, owed the bank $9.9 million in principal and interest as of June 12. The hotel is located on state land leased to Fujiyama. The bank is seeking to have the property sold.
In the meantime, the bank has asked the court to appoint a receiver to prevent continuing “mismanagement” of the hotel property, which includes a nine-hole golf course, on state land in the middle of Hilo’s primary tourist area.
The bank’s foreclosure motion accused the resort of “diversion and misappropriation of hotel and golf course revenue” and said the hotel property is losing value under Fujiyama’s “mismanagement.” Fujiyama acquired the hotel in 2006 in an auction for a 65-year lease of the state property with a bid of $500,000 a year. The lease also required Fujiyama to pay $6.1 million to the previous lessee, a Japanese firm.
Fujiyama, reached on Monday at the hotel, declined to comment on the foreclosure action. He did say that all of the hotel’s employees, about 50, have been notified.
Rey Galarse of Keaau, who has worked at the hotel since 1993, said he was “lucky to be rehired” six years ago when Fujiyama acquired the property. But since Fujiyama told employees of the foreclosure last week, Galarse said he’s worried about his job again.
“I’m one of the only two left from back then,” he said.
Galarse, who does “a little bit of everything” at the hotel, is proud of his work and said Fujiyama has a tough employment policy. “You make a mistake, and you’re done.”
Employees voted to end their union representation when Fujiyama took over the property in 2006.
According to the lawsuit, the resort also owes $760,000 in lease payments, about $100,000 in general excise taxes and $401,000 in transient accommodations tax payments, also known as the room tax, all to the state.
The state Department of Land and Natural Resources, whose Land Division oversees the lease agreement, was unable on Monday to confirm the numbers filed with the lawsuit. The resort also owes the Hawaii County about $392,000 in real property taxes, according to the filing.
Fujiyama had asked for a delay in assigning the hotel to receivership in August, saying that prospective partners would be investing $6 million into his company by mid-September. But the bank’s motion claims that never happened.
Under the lease signed in 2006, Fujiyama was required to make $5 million worth of improvements to the property in three years and to keep it in good repair. DLNR spokeswoman Deborah Ward said the department has “verified that the lessee expended in excess of $5 million on renovations to the hotel.”
However, only two of three buildings with rooms are open on the site. The hotel has a total of 385 rooms, but only 266 are open. Fujiyama has said that’s enough rooms for the tourist market in Hilo. He said the resort was losing money, and acknowledged that some repairs and maintenance on the property has been deferred.
Some deficiencies are apparent. Buildings are partially repainted, and a water fountain by the elevators on the main floor of the hotel was out of order with no sign. Inside the elevator was a paper notice requesting guests to send the elevator back to the ground floor each time it’s used in order for it to work properly. Handwritten messages scrawled on the sign implored hotel management to fix the elevators.
Fujiyama has already defaulted more than once on the $500,000 annual lease payments to the state for the Banyan peninsula property on which the hotel sits. In 2011, Fujiyama was given permission to cover the lease payments with half of a $1 million performance bond he’d put up for the hotel. Fujiyama missed another semi-annual lease payment earlier this year and the state took $259,000 from the performance bond to make the payment. The bank later restored the performance bond to its full $500,000, it said, to prevent the state from terminating the hotel’s lease.
Fujiyama has in the past blamed a faltering economy and tight credit for his failure to develop the property to specifications of the lease agreement.
Fujiyama’s financial woes with Naniloa Volcanoes Resort come on the heels of his sale of the Nani Mau Gardens in March. Foreclosure proceedings on the Nani Mau property — 53 acres including a botanical garden and restaurant — alleged Fujiyama was in default on loans to acquire the property in the amount of $3 million.
The DLNR’s Ward said Monday that the state Land Board would have to approve any new agreement that might result from a transfer of the hotel’s ownership.