Uncle Billy’s Hilo Bay Hotel will cease operating Feb. 1 after more than a half-century on Banyan Drive.

Hotel operations will continue fully staffed through Jan. 31. The adjacent Uncle Billy’s General Store will operate into February. The closures will result in the layoffs of 27 hotel employees and 10 store workers. The land under the hotel will revert back to the state Department of Land and Natural Resources when all four parcel leases expire March 14.

The abrupt hotel closure marks the end of an era in which mom-and-pop hotels dominated Hilo’s tourism scene. But Hawaii island leaders say it’s also the best chance to usher in a new future that returns historic Banyan Drive to its former glory. During the steamship days of the 1940s and 1950s, tourism officials say, Hilo’s close proximity to the volcanoes attracted more tourists than Waikiki. A previous state requirement for carriers outside Hawaii to fly to both Hilo and Honolulu further opened up the market. But the opening of the Mauna Kea Beach Hotel in 1965 and the opening of the lower Queen Kaahumanu Highway began shifting the tourism traffic to the western side of Hawaii island.

“Uncle Billy’s came at the tail end of Hilo’s tourism boom and was able to maintain for a period of time,” said Ross Birch, executive director of the Big Island Visitors Bureau. “Now it’s the first domino to fall among the Banyan Drive hotels on state DLNR land. It could accelerate redevelopment of the entire tourism area.”

The state DLNR , which became aware of the pending closure of Uncle Billy’s on Thursday, said the agency is creating a redevelopment plan for Uncle Billy’s as well as the nearby Country Club Condo/Hotel and Reeds Bay Resort Hotel, which also sit on state land. According to the state DLNR, the Country Club is on a month-to-month revocable permit. Reeds Bay Resort Hotel has a one-year holdover that will expire March 14.

“We are working in collaboration with the County of Hawaii and Hilo business and community leaders to plan the best future for the Banyan Drive area,” said Suzanne Case, DLNR director.

The agency already has begun looking at the feasibility of placing management of Reeds, Country Club and Uncle Billy’s under a single master lease.

Birch said the future of Banyan Drive is dependent on the vision adopted by the state DLNR, which leases land at Banyan Drive and in the Kanoelehua Industrial Area. There will be two public presentations in Hilo at the Aupuni Center, 101 Pauahi St., Suite 1, on Jan 15. DLNR will discuss plans for the Kanoelehua Industrial Area at 9 a.m., and Banyan Drive will be addressed at 1 p.m.

“These meetings are going to be very well attended. They represents the height of importance to Hawaii island,” Birch said. “Other than the revitalization of the Hilo Hawaiian Hotel and the coming expansion of the Grand Naniloa Resort, we haven’t seen any real investment in Banyan Drive for decades. There’s probably also some room for hotel development in the industrial area.”

The family of William J. Kimi Jr., otherwise known as Uncle Billy, who opened the hotel in the mid-1960s, hopes changes will return Hilo to its glory days while preserving the legacy of its past.

“It’s our hope to see greater reinvestment in Hilo,” said Aaron Whiting, hotel manager and Kimi’s grandson.

Kimi’s own lease agreement with the state DLNR allowed him to transform four parcels on Banyan Drive, which had been devastated by the 1960 tsunami, into a family-owned-and-operated hotel. He performed about 70 percent of the construction necessary to create the 150-room hotel with his own hands.

“This is where it all started for my family. I just wanted to have a business where my kids could work and build their families without having to leave home,” Kimi said.

Whiting said his grandfather achieved his aim, which put six children and many grandchildren to work in the family business. While the business remained profitable, Whiting said lease issues with the state were a contributing factor to the closure. The property was originally slated to revert to the state in March 2015, but the family was given a one-year extension, with an annual payment of $35,800 to the state. This time the family was only offered a month-to-month lease, which would have allowed the state to order the hotel to vacate the property with only a 30-day notice.

“It seemed unimaginable that our little iconic Hawaiian hotel that so reflects the heart and soul of the Hilo community would one day not exist. More than likely they would have put it out to an RFP (request for proposal). But the uncertainty was too much for us,” said Whiting, who has worked at the property for 35 years.

Whiting said the family made the decision to close after exhausting its financial and emotional reserves fighting to keep an aging property in service beyond its functional capacity. Birch said that over the years Banyan Drive’s tourism stock has deteriorated because it’s difficult for small owner-operators on leased land to borrow capital.

State Sen. Gilbert Kahele (D-Hilo) called the hotel closure a sad day for the Hilo community.

“Uncle Billy’s Hilo Bay Hotel has been more than an icon in this community,” said Kahele, who supported legislation in previous years to allow the hotel to remain operable. “The hotel and the Kimi family have been a strong advocate for the Hilo economy and tourism for more than five decades. The loss of this hotel is truly an historic loss for the island. My immediate concern is focused on the future for the hotel workers and ensuring they will be able to find adequate employment. I will be working with state and county agencies to minimize the impact the closure will have on business in the Hilo area.”

Birch said the repositioning of the Naniloa Hilo Hotel into the Grand Naniloa Hotel — a DoubleTree by Hilton, which is increasing in size from about 150 rooms to 388 — will help soften the blow to former Uncle Billy’s employees and Hilo’s economy.

“The hotel has been open through the renovations and expansion, which we are shooting to complete by April 1, in time for the Merrie Monarch,” said Theresa Lozier, director of public relations and promotions for Aqua-Aston Hospitality, which operates the Naniloa.

Birch expects that many former Uncle Billy’s employees will be able to flow into that property or others that might follow.

“With its expansion, Hilo is getting back up to a room count that we haven’t seen in years,” he said. “We expect more good things to come with the revitalization of Banyan Drive. We’ll see more demand and more activity when the destination moves from 1.5- and two-star properties into the more midrange categories.”