The Board of Land and Natural Resources has for the second time this month denied a request by the owners of the Grand Naniloa Hotel, which sits on state land, to refinance their mortgage.
The BLNR on June 9 denied a request by Ed Bushor — president of Tower Development, the primary partner in WHR LLC, the corporate entity that owns the Naniloa — to refinance its current $50 million mortgage with a $62 million mortgage from another lender.
However, in order to give Bushor, who missed the June 9 meeting, a chance to address concerns about the Naniloa’s financial health, the board revisited the issue on Friday, only to deny the request a second time.
Although Bushor had furnished the board and the Department of Land and Natural Resources’ Land Division Administrator Russell Tsuji with more financial information regarding Tower, WHR and the proposed new loan, Tsuji said the new information only reinforced his previous assessment that the loan was too risky for the state to allow.
“It’s a junk loan from a borrower’s perspective,” Tsuji said, explaining that the proposed loan could have its interest rates fluctuate month-to-month — during a time of rising interest rates — with the accrued interest only coming due at the end of the two-year loan.
Tsuji estimated that the annual percentage rate on the loan would be around 13%, with potential to go higher as interest rates fluctuate.
In communications with Tsuji, WHR representatives claimed that interest rate fluctuations would be capped at 4.5%.
WHR estimated that, assuming rates remained at the cap for the full two years of the loan, the entire value of the loan would be more than $67.8 million.
“We’re being asked to approve another loan that will only get higher and higher,” Tsuji said.
Tsuji went on to suggest that if there was an available buyer, Bushor would be better off simply selling the Naniloa.
But Bushor passionately defended WHR’s management of the hotel, saying that he “cares too much” about the Hilo community to sell the hotel to another entity with fewer ties to the area.
Bushor also said the $62 million mortgage is necessary to pay off Wilmington Trust, the lender for WHR’s current $50 million mortgage, which Bushor said has been unfair to WHR over the past year.
Bushor claimed that even though WHR has been current on its payments to Wilmington — following a period during the COVID-19 pandemic when it fell behind — the lender declared WHR to be in default and took over financial management of the hotel in October 2021. Since then, Bushor said, WHR has been unable to pay vendors, utilities and other fees because Wilmington remains in control of the hotel’s finances.
“We were current with (hotel franchise) Hilton before this, but now we can’t pay them,” Bushor said.
After a lengthy discussion during in executive session, the board first considered a motion by member Chris Yuen, an East Hawaii resident, to approve the request for refinancing. Yuen said that, if the request is not granted, the hotel could face imminent foreclosure and bankruptcy, but if the request is granted, WHR may default on the new loan in two years.
“If I choose between a problem right now or a problem two years from now, I choose the problem two years from now,” Yuen said.
His fellow members disagreed, however. Only Yuen and BLNR Chair Suzanne Case voted to grant the request.
After that motion failed, the board then debated whether to grant Bushor a contested case hearing on the matter, but eventually voted unanimously against that as well.
Yuen said the case does not meet the legal standards required to declare a contested case.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
