Nearly four years later, an attempt to revitalize the heart of Hilo has almost completely halted after sinking into a governmental morass.
In 2018, Gov. David Ige traveled to Hilo to sign a bill that would allow property lessees in the Kanoelehua Industrial Area to extend their leases with the state by up to 40 years.
Through a pilot program established by that law, Act 149, lessees in the KIA — many of whose leases are approaching the limits of their terms — would be able to apply to the state Department of Land and Natural Resources to extend their leases of state land, so long as they made improvements to their properties.
“This bill really talks about the future of Hawaii Island, how we can create an economic driver for East Hawaii and Hawaii Island in general, how we can have businesses that thrive and last 100 years or longer, that allows our people to be employed, to have good careers and jobs,” Ige said at the time.
Since then, 12 applications for such extensions have been submitted, but as of last August, only one such extension has been finalized, while others have been stalled for months or even years.
Jason Fujimoto, president and CEO of HPM, said he submitted three applications for lease extensions for three parcels containing HPM buildings in 2019. After a protracted process, those applications had finally reached a development agreement, only for the DLNR to present modified terms to the lease in October 2021.
“They didn’t tell us it would be a totally new lease,” Fujimoto said, adding that the 46 new provisions added to the lease would significantly hinder HPM’s ability to operate.
Among the new conditions, Fujimoto said, was a condition that HPM would be unable to conduct any maintenance on the properties or make repairs without approval from the Board of Land and Natural Resources.
“So, we would need approval for things as small as repainting, or new air-conditioning units,” Fujimoto said. “It takes so long to go through BLNR for anything, and we’d need to do it for everything.”
The new terms also would allow the DLNR to adjust the rent for the properties at any time, could limit the presence of hazardous materials onsite — as a hardware store, HPM carries substances like paint thinner — and could require HPM to remove all improvements to the lot at the end of the lease, which Fujimoto said would cost millions of dollars.
“The whole point of this was for us to get extensions if we made these improvements, but now they’re saying to get rid of these improvements that they made us make,” Fujimoto said.
Initially, Fujimoto said he unilaterally rejected the updated terms, but since then, he has negotiated with the DLNR and decided to accept “95% of the conditions.” After the negotiations, the condition requiring BLNR approval for maintenance work now only requires such approval if the work meets a certain cost threshold.
“I’m just tired of waiting for this,” Fujimoto said.
Other lessees have had their applications stalled entirely.
“We’re in a quandary,” said James McCully, a warehouse operator who applied with the DLNR in June 2019 for the lease extension of a 4.5-acre parcel on Railroad Avenue.
After submitting his application, McCully said he determined what improvements to make to his properties, and received bids from contractors. But the DLNR did not act on the application until 2020 — when the effects of the COVID-19 pandemic forced all but one of his contractors to pull out from their contracts.
“Except for one contractor who would install a new photovoltaic system,” McCully said. “Since we wouldn’t go back on a contract made in good faith, we were obligated to pay them.”
So, McCully said, he is nearly a quarter of a million dollars out of pocket on improvements to a property whose lease is no closer to being extended, on top of about $35,000 in legal fees. In 2021, the BLNR indicated that it would put his application on an October meeting agenda, but October came and went without any discussion.
“The state entered mediation with us on our future rent in August 2020,” McCully said in an email Friday. “We paid our share for that as well. Our actual first personal contact from (DLNR’s) Land Division wasn’t until Aug of 2021 and in…October, our Board submittal was finally drafted and sent to (BLNR Chair Suzanne) Case for including in the October agenda. The Chair declined to include it, and that’s when we were told that they had changed their position on extensions and would no longer process them.”
McCully’s attorney, Ron Kim, said a DLNR staffer told him and McCully that the department would suspend the discussion of requests for certain Kanoelehua lease extensions until further evaluation.
According to an email sent to Kim, “under (Act 149), there is no means for (DLNR) to update auction leases in the extension period using the most current lease form and leasing practices and policies of the board … (which) creates disparate results among lessees … because leases issued by direct negotiation can be so updated.”
The crux of the issue, said Ninole resident and BLNR member Chris Yuen on Friday, is that there are different categories of leases within the KIA. Some leases were awarded to businesses displaced during the 1960 tsunami, while others were awarded through public auctions — HPM’s is the former, McCully’s the latter.
The question of whether auction leases can be extended was brought up during a BLNR meeting Jan. 14, although no action was taken at that time.
During that meeting, Deputy Attorney General Julie China said that the more than half-a-century old leases awarded to lessees need to be updated to more modern forms, but it is ambiguous whether Act 149 allows such updates to be made to leases awarded in public auctions.
“We’re relying on these really, really old leases that all we have permission to do from the Legislature is extend, and we have to extend them on their prior terms,” China said during the meeting.
Kim disagreed with China’s assessment, pointing out that the BLNR already has authorized negotiations for other public auction lessees’ lease extension applications, saying that the apparent “disparate treatment” concerns themselves seem to be applied unequally.
But notwithstanding the concerns about disparate treatment, Kim said Act 149 is the law currently on the books, and the BLNR has a duty to enact it. Should the BLNR refuse to allow McCully’s application to move forward, Kim said McCully’s only other option may be to seek a writ of mandamus from the state Supreme Court, a time-consuming and costly process.
“We’re weighing our options,” Kim said.
But McCully was cynical about his chances, saying he believes that BLNR members, including DLNR Land Division Administrator Russell Tsuji, are unwilling to extend the KIA leases and would prefer that the properties revert back to state control contrary to Act 149.
The Tribune-Herald tried unsuccessfully to reach Tsuji for comment.
Hilo Rep. Chris Todd, who was a strong supporter of Act 149 in 2018, said it is “beyond doubt that the BLNR is acting outside the scope of legislative intent” and is “trying to extract everything possible from the properties.”
“Beyond everything, it’s all symptomatic of a lot of issues,” Todd said. “There’s not enough oversight (of the BLNR). This was a bill that had broad community and legislative support, it was well-vetted, and it’s frustrating to see it stalled by something like this.”
Email Michael Brestovansky at mbrestovansky at mbrestovansky@hawaiitribune-herald.com.