The beleaguered owners of the Grand Naniloa Hotel are once again requesting to refinance its mortgage to the tune of $54 million.
WHR LLC, the corporate entity which owns the Grand Naniloa, has been struggling financially for several years, having defaulted on a loan in 2021 and being mired in foreclosure proceedings and on the verge of bankruptcy ever since.
Ed Bushor — president of Tower Development, WHR’s primary partner — requested last June to refinance WHR’s $50 million mortgage with a $62 million secondary mortgage from another lender.
Because the hotel sits on land leased by the state, that request required approval by the Board of Land and Natural Resources, which denied the request on the grounds that the proposed terms for the secondary loan were too risky.
But in March, WHR tried again, once again submitting a request to refinance. This time, the new lender would be Swiss investment bank UBS Group AG, which would lend $54 million to WHR for a five-year term.
However, this new proposal does not seem likely to win over the Department of Land and Natural Resources, which has recommended that the BLNR deny WHR’s request.
According to documents submitted by Russel Tsuji, administrator for DLNR’s Land Division, WHR has failed to supply several key pieces of information regarding the loan, despite repeated requests by the division, and much of the information WHR has provided contradicts itself.
For example, WHR reportedly claims that the interest rate on the loan is fixed, but submitted term sheets indicate the interest rate is tied to a secured overnight financing rate, which Tsuji noted is “an index that fluctuates daily.”
But what is clear about the loan is that it will not be paid off by the end of the five-year term. Responding to questions by the Land Division, WHR wrote that the UBS loan will be refinanced with another loan at the end of the term.
“The short-term financing proposal seems intended to only ‘kick the can down the road’ without offering a long-term solution to the financial woes of the hotel,” Tsuji wrote.
The $54 million loan also is still short of the $65 million that WHR’s current lender, Wilmington Trust, claims it is owed. But WHR has reportedly told the Land Division that Wilmington Trust is incorrect or even lying.
“We have no obligation to pay any $65M that (Wilmington Trust) is claiming, and their attorneys are from East Coast and are claiming many ‘fake’ items that will be cleaned up prior to the closing in a full settlement agreement,” WHR wrote in a statement to the Land Division.
Despite that claim, Tsuji wrote that Wilmington Trust has provided extensive documentation for the $65 million it is owed.
According to state documents, WHR owes the state $580,270.44 in minimum base rent or 2% of its gross revenues — whichever is higher — semi-annually.
Although Tsuji wrote that WHR currently is up to date with what it owes the state, his report also began by listing a series of lease defaults between 2020 and 2023, adding that WHR is the only state lessee to claim that the impacts of COVID-19 caused it to default on a loan and then have a court rule in the lender’s favor.
Because of the red flags surrounding WHR’s financial situation, Tsuji raised concerns that the proposed loan could be an attempt to circumvent the BLNR. Should WHR fail to pay off the loan in five years, the mortgage will end up in foreclosure again, which Tsuji wrote “will likely result in ownership of the lease changing hands in a way that does not require board consent.”
Tsuji also speculated that the proposed loan could simply be WHR attempting to gain leverage against Wilmington Trust in their ongoing foreclosure dispute, which he added would not be wise to involve the state in.
Tsuji concluded that the loan is unsustainable and that WHR has not demonstrated the ability to pay it off. The BLNR will discuss whether to deny WHR’s request at its next meeting this Friday.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
