The timing perhaps could not be worse, but a state agency is trying to find private developers willing to revitalize two badly deteriorated oceanfront hotels in Hilo.

Hawaii’s Department of Land and Natural Resources recently published requests for proposals to redevelop or rehabilitate the shuttered Uncle Billy’s Hilo Bay Hotel and the former County Club Condominium Hotel now operating as Oceanfront 121.

Notwithstanding the coronavirus pandemic that has debilitated Hawaii tourism, breathing new life into these two Big Island hotel sites owned by the state represents a difficult task because major issues exist with replacement or renovation.

DLNR, which has struggled to find renewed use of the properties for almost six years, is offering 65-year land leases for the hotel sites that front Hilo Bay along Banyan Drive on opposing sides of the Grand Naniloa Resort hotel.

“The department is hoping to receive proposals that will promote the continued revitalization of Banyan Drive and help re-establish East Hawaii as a travel destination,” DLNR announced.

The offering is unusual because the agency traditionally has made such property available through public lease auctions awarded to a high bidder.

The requests for proposals, which allow negotiating detailed terms with a developer judged to have the best plan, was pursued because of the troubled history with the hotels.

“Redevelopment of the subject property has proven to be a challenge,” DLNR said in separate staff reports for the roughly 50-year-old properties.

Uncle Billy’s, which was developed in phases from 1966 to 1970 on 1.8 acres, was forced to close over safety concerns in 2017 after local developer Peter Savio averted an earlier shutdown by taking over the 146-room property in 2016 and renaming it the Pagoda Hilo Bay Hotel.

The 152-room Country Club hotel was built as the TraveLodge Hotel on 1.2 acres in 1969 and its land lease expired in 2015. Since then, a company formed by principals of a condominium owner’s association dissolved upon lease expiration has operated the property as short-term apartment and hotel room rentals under a DLNR revocable permit.

Both properties, which DLNR describe as iconic, have been difficult for the agency to lease to a new owner because of their condition.

Assessments in 2016 by Erskine Architects Inc. for DLNR concluded that both hotels should be demolished.

At Oceanfront 121, Erskine found generally poor conditions with health and safety issues in the 6-story building, including a shuttered restaurant, noncompliance with some building codes and accessibility standards, materials containing asbestos, dramatically undersized parking and unpleasant odors.

“Although not in a state of complete disrepair yet, it appears that Country Club is headed in that direction,” the 2016 report said.

The Uncle Billy’s assessment was worse.

At this property, Erskine found some structures “in extremely poor condition and bordering on a state of dilapidation.”

Erskine’s report noted termite damage throughout the 4-story hotel primarily made of wood, roof leaks, presence of lead paint and materials containing asbestos, dramatically undersized parking, structural damage from tree roots, an unsafe stair tower and noncompliance with some building codes and accessibility standards.

“The cost to retrofit and repair Uncle Billy’s is excessively cost prohibitive,” the report said.

The reports also noted that repair costs for both properties would have to be limited to 50% of the taxable real estate value, and that renovation work should be spread out over several years to achieve this.

Both Erskine reports, however, did include repair as an “alternative recommendation” in part because demolition would be expensive and possibly draw public opposition.

“Uncle Billy’s is considered an iconic hotel and held in high regard by many in the public,” the report said. “Strong public opposition can be anticipated to any announcement of demolition of this nostalgic piece of Banyan Drive.”

R.M. Towill Corp. in 2018 estimated demolition costs would be $8.3 million for Uncle Billy’s and $6.2 million for Oceanfront 121.

Other problems also exist with razing the old hotels.

For one, DLNR said it has no money for demolition. At the same time, developers aren’t likely to shoulder the expense because of DLNR land lease regulations.

Under state law, the agency can’t provide credits against lease rent beyond one year to help offset substantial commercial property improvements.

DLNR sought an amendment to this law, via a bill at the state Legislature last year, for cases requiring substantial demolition or infrastructure improvements. But the bill, approved by the Senate last year, got no hearing in the House last year or this year.

The agency also sought money from the Legislature last year to demolish Uncle Billy’s, but was unsuccessful.

Another obstacle is that a costly environmental study would need to be produced for a demolition and redevelopment plan before a lease could be awarded.

DLNR is now soliciting proposals that can include demolition, partial demolition and/or repair and renovation.

The agency appears most hopeful that rehabilitation will be the way forward to break what it called a “stalemate” for renewing the two Hilo properties.

An agency staff report from December said the owner of the Naniloa, Tower Development Inc., believes the rehabilitation of both properties is feasible and that the lessee of Oceanfront 121 has the same view of its property.

Deadlines for participating include declaring such intent by Sept. 11 and submitting proposals by Nov. 30. DLNR anticipates making a tentative selection in December followed by a definitive board decision in January.