Six years ago Hawaii island entrepreneur Ken Fujiyama successfully bid for the lease on state land under the Naniloa Volcanoes Resort, with plans to renovate the structure and restore it to its former status as a landmark Hilo property.
Today, local business leaders complain the hotel has become an eyesore on public property in the middle of Hilo’s Banyan Drive tourist district, and looks worse than when Fujiyama acquired it.
While most of the hotel is open for business, old bathroom sinks and counters were stacked in the hotel parking lot along Banyan Drive this week. Rooms in the hotel’s closed Kilauea Tower overlooking the Naniloa lobby are windowless and empty.
NANILOA VOLCANOES RESORT
93 Banyan Drive, Hilo, a resort on 70 acres of state land
» Lessee: Hawaii Outdoor Tours Inc., Kenneth Fujiyama, CEO
» Annual lease rent to state: $500,000
» Lease awarded: 2005
» Lease term: 65 years
» Latest notice of default issued: March 2 |
The hotel’s Kilohana Room, once a local gathering place for Rotary clubs and other groups, is closed. One of the two swimming pools is green with algae and is locked to keep trespassers out.
The hotel no longer has a functioning restaurant, and the hotel’s former spa area stands empty, stripped down to bare concrete.
Mary Begier, a Hilo Realtor and former president of the Hawaii Island Chamber of Commerce, describes the situation at the Naniloa as “embarrassing,” and all the more frustrating because the hotel sits on land owned and managed by the state.
Begier said the East Hawaii business community wants to expand tourism in the Hilo area and is puzzled by the events of the last six years. “We just can’t figure out how he can get away with this,” she said of Fujiyama.
Fujiyama knows some in the Hilo business community are upset at the condition of the hotel, but said he is a victim of a depressed East Hawaii economy and tight credit markets.
The Naniloa is one of the most prominent hotels in Hilo, and has been the subject of much debate in the local business community.
Fujiyama signed a 65-year lease with the state that requires that he pay a minimum of $500,000 a year in rent, which makes the lease one of the most lucrative in the state inventory.
State officials last year relaxed the performance bond requirements on the Naniloa property to help Fujiyama after he told them he could not pay his rent, according to state records. The state then applied $500,000 that Fujiyama had set aside for that performance bond to pay last year’s lease rent on the hotel.
Last month Fujiyama failed to make his latest semiannual $250,000 rent payment to the state by the Feb. 1 deadline, and earlier this month the Department of Land and Natural Resources issued him a notice of default.
That was the fifth notice of default the state issued to Fujiyama since he acquired the Naniloa lease in 2005, although he resolved the problems cited in each of the four previous notices, according to state records.
The state lease required Fujiyama’s company, Hawaii Outdoor Tours Inc., to invest a minimum of $5 million into improving the aging Naniloa hotel, and state officials say Fujiyama has met that requirement. But Fujiyama said that last year he halted major renovations, and the hotel is still unfinished.
Fujiyama said he has completely renovated 166 of the Naniloa’s 385 rooms and made more modest improvements to another 80 rooms.
The fully renovated rooms sparkle with new tile, furniture and fixtures, and no one doubts that Fujiyama has made a significant investment. That includes $6.1 million Fujiyama paid to the previous lessee to acquire the hotel building and for other improvements.
But six years after Fujiyama acquired the lease, the entire 60-room Kilauea Tower is still closed, and four floors of the hotel’s Mauna Loa Tower remain closed.
Perhaps even more bothersome to the Hilo business community is the exterior of the Naniloa, which appears poorly maintained. Fujiyama said that in hindsight it might have been smarter to fix up the exterior first, and said “it won’t take that long” to fix up the grounds.
Asked when the project will finally be complete, Fujiyama replied, “To me our remodeling is going to be forever and ever, because we’re not going to come in … with $25 million or $30 million of investment.”
The state lease for the Naniloa land does set some requirements for renovations, however.
The “special conditions” portion of the lease includes this language: “The Lessee shall, at its own cost and expense, within three (3) years after the commencement date of the lease, complete the renovation of the existing hotel, at a cost of not less than five million and no/dollars in accordance with plans and specifications submitted by the Lessee.”
It has now been six years since the start of the lease, and the renovations remain unfinished.
Board of Land and Natural resources Chairman William Aila said Fujiyama is in compliance with the lease and that his staff does not interpret the lease language to mean that renovations had to be completed in three years.
That language only requires that Fujiyama invest a minimum of $5 million within five years, Aila said.
In any event, Aila said the phrase “complete renovations” is “open for interpretation.” Aila said Fujiyama can continue to renovate the hotel for the entire 65-year lease if he chooses to do so.
“I understand that a lot of people are unhappy, but we have a legally authorized document with this individual. Our job is to comply with the law,” Aila said.
Fujiyama estimates he has invested $16 million in improvements in the hotel, which does not include another $4 million he says he invested in hotel operations.
“I know I can make it work, but it’s not going to happen overnight,” Fujiyama said.
He said he is in discussions with major chains that he might hire to manage or market the hotel for him, and that he is also trying to create a subdivision project elsewhere in Hilo to help generate more money to invest in the Naniloa.
To critics who say that the Hilo visitor industry would be in better shape if the Naniloa were in better shape, Fujiyama replied, “Show me the market.”
“It’s not we who created a bad market. The hotel has always been in bad condition. The whole Banyan Drive is in pretty bad condition,” he said.
“If you were a top marketing person, you should be able to market what you have and not what you’re dreaming of,” Fujiyama said. “To wait for something that you’re dreaming of is totally wrong.”
Begier said the local business community had hoped the hotel would be acquired by a major chain such as Starwood Hotels & Resorts, and were worried when Fujiyama turned out to be the high bidder.
When the lease was awarded in 2006, Begier said the chamber officially questioned the state about how Fujiyama could financially qualify when many millions of dollars in renovations were required.
The state insisted Fujiyama was qualified, she said.
“God bless Ken for having a vision,” Begier said. “I would never want to take that away from anybody, but it’s not helping Hawaii island and particularly East Hawaii.”
