Can Naniloa be reborn?

By PETER SUR

Tribune-Herald staff writer

With a little imagination, the Naniloa Volcanoes Resort has the potential to be great.

It sits at the tip of Hilo’s most scenic point, the Waiakea Peninsula, with stunning views of Hilo Bay, Coconut Island, and on clear days, Mauna Kea.

Spacious manicured lawns and a small gazebo lend themselves to the ideal place for a wedding. With 385 rooms, expansive banquet halls, restaurant properties and a nine-hole golf course, the Naniloa should be a focus of East Hawaii’s economic rebirth.

“This property just has incredible potential,” said Judith Fox-Goldstein, the director of the University of Hawaii at Hilo Conference Center, who called it “a piece of heaven.”

Six years after Ken Fujiyama’s Hawaii Outdoor Tours company took over a long-term lease for the hotel and golf course, much has changed for the better. But much work remains.

Residents will remember the turmoil in late 2005, when Fujiyama outbid two other offers for the 65-year lease. Then, in February 2006, he rehired only 20 of the hotel’s former employees and, after assessing its poor condition, embarked on a five-year-long period of constant renovation for the guest rooms and public spaces.

But by focusing on those areas, Fujiyama had to defer maintenance on other areas. Some of those areas are getting a much-needed facelift. Others have not. The resort is still losing money, but with economic conditions improving Fujiyama says it’s close to breaking even.

“We stopped major renovations last year. And the reason for that was, we have enough rooms ready to market for the amount of tourists that come into Hilo. And part of that is the economy,” he said.

The Naniloa, built in the mid-1960s, has three towers, but only one of these is in full use. The Mauna Kea Tower, which sits on the harbor side of the hotel, is completely renovated with original oil paintings by Fujiyama’s daughter, Kristie Fujiyama Kosmides, in each of the 186 rooms. The Mauna Loa Tower, the tall, slightly curved building that overlooks the parking lot, is partially renovated with 80 available rooms and the Traditional Chinese Medical College of Hawaii on the fifth floor.

The Kilauea Tower, a low-rise building on the Coconut Island side of the property, remains gutted and shuttered. That makes 266 available rooms and 119 that are not open.

The Naniloa last underwent a major renovation in 1990. In 2005, with the Department of Land and Natural Resources set to award a 65-year lease on the property, Fujiyama faced bidders from two national brands. One was the Starwood Hotels and Resorts, which had said it would pump $30 million into renovations to make it a Four Points by Sheraton operation. The other, Outrigger Enterprises, had said it would convert the Naniloa into one of its Ohana brand hotels.

At a public auction in September 2005, Fujiyama’s Hawaii Outdoor Tours won by a squeaker.

As a condition of the lease, he paid $6.1 million for the hotel and agreed to pay the annual rent of $500,000 a year. He also agreed to make $5 million in improvements within the first three years of his assumption of the lease on Feb. 1, 2006.

The many critics of the way the state has managed its Banyan Drive properties argue that this figure is too low to give the Naniloa the investment it needs to be an updated hotel.

Fujiyama estimates his company HOT has invested $16 million in the hotel, including the purchase price, and spent an additional $4 million for overhead.

Last March, after being issued a notice of default for not paying the annual rent, Fujiyama wrote a letter to the DLNR asking that its $1 million performance bond be reduced by half, and that the remaining $500,000 be used to pay rent.

He explained that the action would prevent a default while giving HOT more time to rollover its construction loan and to close a land sale with the National Park Service — HOT wanted to sell 1,951 acres on the south boundary of Hawaii Volcanoes National Park and 31 acres of pasture land in Hilo, although a court dispute has tied up the latter parcel.

The Board of Land and Natural Resources approved the request, and the company remains current on its rent payments.

According to the DLNR, HOT has met the $5 million improvement requirement before the deadline. “Renovation outside of that required by the lease continues,” department spokeswoman Deborah Ward said in an email.

Another condition of the lease requires HOT to “keep, repair, and maintain all buildings and improvements … in good order, condition and repair, reasonable wear and tear excepted.”

Asked about this requirement, Ward said, “We believe the lessee has been in compliance with the maintenance obligation under the lease in light of the ongoing renovation work at the hotel.”

The new guest rooms are getting good reviews, with Fodor’s travel guide calling them “a vast improvement over the old ones” with “new beds, a tile bathroom with imported fixtures from Spain and Italy, flat-screen TVs, and original tropical oil paintings painted by the owner’s daughter.”

Those who use the online site TripAdvisor.com have posted their own reviews, and they don’t hold back.

“The price and value are good and as long as you are not expecting a glamorous resort, you may be happily surprised,” wrote a woman from Pahoa.

A man from Mississippi was less charitable.

“I felt like I was in one of those creepy video games that takes place in an old abandoned hotel,” he wrote, “and zombies were going to attack at any moment.”

The large, abandoned swimming pool generates a lot of complaints. Located adjacent to a shuttered restaurant and a parking lot that has been also used for storage, the pool is a haven for algae, waterfowl and mosquito larvae. Weeds sprout amid the concrete and the metal fence that surrounds it is broken in several places.

Surprisingly, this plot of land is private property that is leased by HOT and not subject to DLNR oversight. In March 2011, Land Agent Kevin Moore asked Fujiyama what his plans are for the parcel. The company responded in an email that the “short term plan is to turn the enclosed pool area into a flea market by Merrie Monarch. The pool will be cleaned by then. Until this point, the pool was kept in an unusable condition to discourage unauthorized use, which there was a lot of, for liability purposes. The two pool covered areas have been emptied and we expect to repair and repaint the structures.”

Add that to the long list of projects needing work. The golf course clubhouse is boarded up, the spa area remains vacant, and there are plans to take the roof off the Polynesian Room.

There’s another reason why Fujiyama is holding off on major renovations. He said two major nationally known brands, whose names are known in the local visitor industry, have expressed interest in bringing in a management company or operating under a franchise agreement. Fujiyama’s company would retain the lease, but the hotel chain’s frequent customers would be able to come to Hilo and use points, an arrangement that could boost occupancy rates.

Whichever brand becomes affiliated with the Naniloa would then make some changes to the look of the hotel, and until those changes are made Fujiyama is hesitant to act. Both brands have inspected the property and say the Mauna Kea Tower is enough to serve their needs.

The once-popular 10th-floor Kilohana Room is still shuttered, but Fujiyama wants to reopen it as a restaurant. The vacant space that held the gift shop could be reopened as a boutique clothing store. The Crown Room and the Polynesian Room have had some remodeling done and are available for banquets. There’s also a new 1,500-square-foot wellness center, Total Health of Hawaii, which features pilates, yoga and a chiropractor.

“This is a long-term project,” he said. “We make money, we reinvest it in the property.”

“We are very, very much in need of new hotel rooms, more conference space, improved technology and improved culinary options,” Judith Fox-Goldstein said. “We have to turn away conferences and educational conferences convened with the university because we do not have space, adequate space in East Hawaii.”

That was a concern echoed by state Rep. Jerry Chang, who’s sponsoring a bill in the Legislature to get the DLNR out of the hotel management business (See related story).

“There’s a lot of potential in the Banyan Drive properties,” Chang said. “It’s supposed to be the Waikiki of Hilo, but obviously it doesn’t have a lot of activity over there.”

Email Peter Sur at psur@hawaiitribune-herald.com.