By TOM CALLIS
Tribune-Herald staff writer
The Naniloa Volcanoes Resort may have just bought itself some time.
David Farmer, the bankruptcy trustee for the hotel on Hilo’s Banyan Drive, said Monday he was filing a motion in federal bankruptcy court seeking an extension for meeting that day’s crucial deadline for accepting the existing lease with the state Department of Land and Natural Resources.
Filing the motion itself gives the bankruptcy estate at least another 21 days, he said.
Failure to have done so would have eliminated the lease as an asset for the estate. That would have ended the bankruptcy process and sent the matter back to foreclosure, Farmer said.
“If the lease is no longer an asset, there’s nothing left,” he said.
“There’s nothing for a trustee to administer,” he added. “It would probably be shut down.”
Accepting the lease by the deadline would have required someone to promptly cover the $250,000 semi-annual lease payment that was due Aug. 1, as well as other financial obligations, Farmer said.
He said the hotel doesn’t have the money and the mortgage-holder, First Citizens Bank & Trust Co., hasn’t been interested in contributing anymore cash to the failing operation.
“They’ve already gave in twice on the tune of almost $1 million,” he said of the bank.
A call to the bank’s attorney wasn’t returned Monday afternoon.
On Friday, the state’s Board of Land and Natural Resources declined to provide an extension for the missed payment, causing some to speculate that the hotel was shutting down this week.
Farmer said that’s not the case. At least not yet.
“The next couple months are going to be key,” he said. “Cash flow is going to make us either survive or not.”
Farmer said keeping the lights on is important for finding a buyer.
The hotel has received two letters of interest from prospective buyers.
One of them, identified by Farmer as a Florida group, “Inner Circle,” has proposed $12 million.
Another potential buyer was willing to offer $14 million. No agreements have been made.
For information on the second group, Farmer referred questions to Ken Fujiyama, the owner of Hawaii Outdoor Tours, Naniloa’s parent company.
Fujiyama declined to identify those investors. He said they first approached him but later made their own offer to the bankruptcy estate.
Fujiyama that group had submitted a proposed contract last month but canceled when it was told it would have to accept the hotel without a due diligence period.
“In my opinion, I think they killed the deal,” he said.
Farmer said those investors had requested a due diligence period, referring to a time for investigating the property, built into the deal. He said potential buyers have had since November to do their homework on the property and wasn’t interested in a deal that would have required more time.
“Do your due diligence and come back to us with a deal,” he said he told them.
Fujiyama said he is still trying to put together his own investment group to keep the hotel under his ownership.
Without lease payments being made, DLNR does have the option of terminating the lease.
Farmer said that would require approval of the court.
Fujiyama acquired the hotel and 65-year lease in 2006 through an auction with the help of a $10 million loan that he has defaulted on.
The bank began the foreclosure process in August 2012. That was stalled with the filing of bankruptcy last November.
Fujiyama said he has invested over $20 million in the 383-room hotel.
He has been criticized by some for not doing enough to repair the hotel.
Fujiyama said he has fully remodeled 175 rooms but acknowledged he has done little with the outside of the building.
Currently, there are roughly 275 rooms that are rentable.
Slightly more than 100 rooms are closed because renovations weren’t completed, Fujiyama said.
The hotel’s kitchen is also partially closed after the Hawaii County Fire Department became concerned over creosote buildup in the vents.
Fujiyama said the hotel has been able to do much of its cooking outside with the kitchen being used for preparation.
Unless the lease is terminated, a buyer would be stuck with the current $500,000 annual lease, which some see as high for the property, for the rest of its duration.
Farmer said he doesn’t consider it high if a buyer recognizes Banyan Drive’s potential.
The lease also includes the nearby golf course.
The hotel employs 56 people. At its peak, it employed between 70 and 80, Fujiyama said.
Farmer said employees would be given a 45-day notice if a shutdown occurs.
Email Tom Callis at firstname.lastname@example.org.