MEDIA RELEASE

Mayor Billy Kenoi testified Friday before the state Board of Land and Natural Resources in Honolulu, urging the board to firmly enforce the lease terms and give no special consideration to the Naniloa Volcanoes Resort.

Below is Kenoi’s complete testimony:

Sept. 13, 2013

Honorable William J. Aila Jr., Chair
And Members of the Board of Land and Natural Resources

Re: Agenda Item D-10, Chapter 11 Bankruptcy Case No. 12-02279 and General Lease Nos. S-5844 and S-5372 to Hawaii Outdoor Tours Inc.

Aloha Chair Aila and Board Members:

Thank you for this opportunity to express our deep concern with the deteriorating situation at the Naniloa Volcanoes Resort.

Banyan Drive has traditionally been the hub of East Hawaii’s resort activity, which makes it critically important to the economy of the Island of Hawaii. The Banyan Drive properties should be an economic engine and a job creator that provides benefits to our working families.

The Naniloa property is a crucial component of this area, and the state Department of Land and Natural Resources has failed to ensure this property is properly managed for the benefit of our state and our community.

Hawaii Outdoor Tours Inc. has now held the lease for the Naniloa Volcanoes Resort and the Banyan Drive golf course for more than seven years, and the result has been a disaster for East Hawaii.

The Kilauea Tower of the resort has been gutted and empty for years, and the property is in a shambles. Valuable retail space on the grounds of the resort that could be contributing to the local economy and generating jobs is vacant and closed.

Despite the lessee’s well-publicized promises to restore the area as a top-quality destination, a lounge adjoining the hotel is usually closed, and the pool on the Banyan Drive side of the property has been drained.

Only a fraction of the rooms in the Naniloa have actually been renovated. Since much of the hotel is empty, the facility operates with minimal staff.

Many of our East Hawaii residents are traveling 100 miles to work at jobs in Kona and the Kohala Coast resort areas, while the once-beautiful 391-room Naniloa property is deteriorating in Hilo.

Hawaii Outdoor Tours has been given ample opportunity over the last seven years to restore the property, and we cannot continue to stand by while a single hotel operator holds an entire community economic hostage.

The Board of Land and Natural Resources has failed to enforce the terms of its lease with Hawaii Outdoor Tours. To give a few examples, this lessee failed to maintain the $1 million performance bond required by the lease.

This lessee previously failed to stay current on the lease rent, and was issued notices of default. This lessee filed for bankruptcy protection a year ago, yet the lease specifically allows for termination “if the Lessee shall become bankrupt.”

Our greatest concern is the manner in which this lessee allowed the historic Naniloa property to dramatically deteriorate despite clear language in the lease that requires the lessee to “keep, repair, and maintain all buildings and improvements…on the premises in good order, condition and repair….”

On Aug. 1, this lessee failed to make the required semi-annual rent payment, and was granted an extension. Now this board is being asked for another extension to delay this required payment to the end of the year.

For the good of our working families and the business climate in all of East Hawaii, we respectfully urge the Board of Land and Natural Resources to firmly enforce the terms of lease S-5844. No special consideration should be given to lessee Hawaii Outdoor Tours or to First Citizens Bank, which is the lien holder in this case.

If the current lessee or the lien holder cannot meet such basic requirements as paying the required ground lease rent or maintaining construction or performance bonds to protect state interests, then the board should declare the lessee in default and move to terminate the lease.

This department has collected millions of dollars in ground lease rents from the Banyan Drive tenants over the years. At a minimum, DLNR has an obligation to actively manage the Banyan Drive leases to assure those properties are properly maintained and operated by tenants who comply with the terms of their leases.

This will create jobs, boost the Hawaii Island economy, increase state transient accommodation and excise tax collections, and eventually result in increased lease rent collections for the DLNR.

The land board must address these problems head-on, and clear the way for prompt restoration of the Naniloa Volcanoes Resort. We need action now.

Thank you for your consideration.

Aloha,
William P. Kenoi
Mayor, Hawaii County