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The state wants to block the sale of the Naniloa Volcanoes Hotel to a new operator as part of a bankruptcy reorganization involving the hotel on state land in Hilo.
A U.S. Bankruptcy Court judge approved the sale of the 333-room hotel on Nov. 26 to developer Ed Bushor and marine artist Wyland for $5.2 million.
But the state Department of Land and Natural Resources objected to the sale and said it intends to appeal to U.S. District Court, claiming that assigning the land lease to the new buyer requires state consent under state law.
David Farmer, the trustee in the bankruptcy case, said he doesn’t expect an appeal will stop the sale because U.S. bankruptcy law trumps state law in lease assignments in Bankruptcy Court. He added that if the sale closes before an appeal is decided, then the sale can’t be undone.
However, there is a question as to whether the sale will be completed. Farmer said the buyers failed to fund the purchase in time to meet a Monday deadline to close. He said the buyers have indicated that the purchase money has now been sent and have asked for an additional week to complete the sale.
If the sale is completed, Bushor intends to renovate and re-brand the hotel, which has many rooms out of service after financial struggles by the previous investor.
Hawaii Outdoor Tours Inc., led by Ken Fujiyama, bought the Naniloa in 2006 at a state auction for the land lease, which also includes a nine-hole golf course. The company, however, defaulted on a $10 million loan after a renovation and revitalization plan fell apart amid the economic downturn.
The Naniloa went into foreclosure last year, which led Hawaii Outdoor Tours to file Chapter 11 bankruptcy in November 2012 with hopes to reorganize its debts and keep ownership of the hotel. An effort to sell the hotel in bankruptcy began after Hawaii Outdoor Tours failed to keep up with land lease payments to the state.
The state receives $500,000 a year under the lease, which has 58 years remaining on a 65-year term.
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