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State, county taking action against Naniloa hotel

<p>HOLLYN JOHNSON/Tribune-Herald</p><p>One of the pool areas at Naniloa Volcanoes Resort is not open to guests.</p><p>HOLLYN JOHNSON/Tribune-Herald</p><p>One of the pool areas at Naniloa Volcanoes Resort is seen here Tuesday afternoon.</p>

By TOM CALLIS

Tribune-Herald staff writer

Hawaii County and the state are quickly running out of patience with the operators of the Naniloa Volcanoes Resort.

Both the county and state Attorney General’s Office submitted filings in federal bankruptcy court late Monday requesting that the hotel’s bankruptcy trustee be unable to assume its lease on Oct. 21, a step needed to proceed with a sale, citing more than $1.6 million in unpaid bills and other problems with the beleaguered operation on Hilo’s Banyan Drive.

The county went a step further by saying the lease with the state Department of Land and Natural Resources should be terminated, and Mayor Billy Kenoi said Tuesday he is still considering shutting the hotel over numerous building violations.

“We don’t feel that’s the best path forward,” he said, referring to the bankruptcy process. “The lease should be terminated. The property should go back out to auction.”

If the trustee can’t assume the lease, the bankruptcy process would likely be brought to an end, officials involved in the process have said.

That would restart foreclosure and allow the Board of Land and Natural Resources to move ahead with terminating the lease if it chooses, said Russell Tsuji, DLNR land administrator.

Tsuji said he would expect a notice of default to be issued under that scenario.

If the lease is terminated, it could be re-auctioned, possibly at a lower rate.

The current lease of $500,000 a year, won by Hawaii Outdoor Tours at an auction in 2006, is largely seen as too high for the 383-room hotel and nine-hole golf course that comes with it. The lease has 58 years remaining and any company that acquires it through bankruptcy would be stuck paying that rate.

Kenoi said the county would shut down the hotel if the violations aren’t addressed.

“If they close down, (the state) terminates the lease, it goes out to auction and they get a qualified bidder — that’s the best way to go,” he said.

But Kenoi denied that the county would use a forced closure to get the lease terminated, a claim asserted by David Farmer, the bankruptcy trustee.

“Any shutdown would be based purely on health, safety issues,” he said. “Just because a property is in bankruptcy does not allow them to threaten public health and safety.”

Inspections of the property in April, done, Kenoi said, on behalf of BLNR, found dozens of violations.

Among them were electrical hazards, unpermitted work and other safety issues, including a faulty sprinkler system and missing exit signs. As of Sept. 5, numerous violations were still pending, according to the county.

The hotel has also closed one of its three towers and has been cooking meals outdoors after its kitchen was closed after failing an inspection.

The state and county argue that the violations need to be addressed, as well as completion of renovations and payment of unpaid bills, before the lease can be assumed by the trustee.

Farmer said he the violations, which he believes have been mostly resolved, are being overblown. Ken Fujiyama, owner of the hotel, has also made similar claims.

“The agenda is to kill any sale and that’s a problem,” Farmer said.

“And shame on them. Shame on them.”

In response, Kenoi said the violations are “extreme and significant.”

“Mr. Fujiyama and the bankruptcy trustee can say what they want but the property speaks for itself.”

Prospective buyers of the hotel have until Oct. 18 to submit sealed bids.

Farmer has said that he hopes to have a buyer ready for the Oct. 21 hearing. If the lease can be assumed, it would then be transferred to the buyer.

A buyer would be required to cover Naniloa’s debts, Farmer said, arguing it would be in the state’s and county’s interests to see a sale proceed.

Kenoi said the bankruptcy process has proved fruitless and is not in the interest of the county.

“The bankruptcy trustee has had a year to move forward on this and hasn’t,” he said.

Kenoi also called the hotel an “eyesore” and “embarrassment” for East Hawaii.

“It’s holding East Hawaii economic hostage,” he said. “I’m tired of it. The community is tired of it.”

Farmer said he has until Monday to file a response with the court.

Email Tom Callis at tcallis@hawaiitribune-herald.com.

 

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