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Legal challenge could cast shadow over land board meeting

A lawsuit demanding that two proposed redevelopment projects on Banyan Drive be halted could disrupt a Friday meeting of the Board of Land and Natural Resources.

The state Department of Land and Natural Resources announced on Sept. 8 that it had received four redevelopment proposals for two sites on Banyan Drive: one for the former Uncle Billy’s Hilo Bay Hotel and three for the former Country Club Condominium Hotel.

At the same time, a DLNR committee announced that it would recommend the approval of two proposals submitted by Tower Development Inc., a managing partner of the corporate entity that owns the Grand Naniloa Hotel, another Banyan Drive property.

The BLNR will discuss that recommendation at a meeting Friday.

Both of Tower Development’s proposals for the two sites would convert the properties into Hilton franchises. Uncle Billy’s would be partially demolished and become a Hampton Inn & Suites, while the Country Club would be renovated to become a Home2 Suites location.

However, a lawsuit filed Tuesday by Olson/Naniloa LLC, another partner of the Grand Naniloa entity, accused Tower executives of breaching a contract that forbade it from acquiring or developing any nearby hotel property that could compete with the Grand Naniloa. That lawsuit calls for the court to halt Tower’s development projects indefinitely.

With the two DLNR-recommended proposals now caught up in a legal dispute, the other two proposals for the County Club site might have caught an unexpected boon.

Those proposals were from Washington-based developer MacDonald Ladd Development LLC, which proposed to convert the building into apartments for low-income seniors, and from current Country Club manager Pagoda Hilo LLC, which would redevelop all units of the building, with 60% to be used for transient accommodations and the remaining 40% for long-term rentals.

According to a DLNR assessment, Tower’s proposal best fulfilled a range of criteria set by the department. For one thing, Tower has a history of working with the DLNR, had more concrete plans for financing its proposal and working within local land use requirements, and was more thorough than the other two.

The Tower proposal also takes advantage of its other Banyan Drive leases. By subleasing its nearby golf course property, Tower could add more than 200 additional parking spaces, while the other two proposals did not address the need for additional parking.

Tower also proposed more reasonable rent terms. Under its proposal, Tower would pay $75,000 in annual rent to the state for the first 10 years, whereupon it would increase by 1.5% each subsequent year.

MacDonald Ladd, meanwhile, proposed to buy the building for $650,000 and pay no rent for 17 years — the DLNR assessment suggested this is not legally possible — while Pagoda Hilo LLC proposed a rent structure wherein it would pay $54,000 for two years, then $24,000 the next year, then $96,000 a year for the next six, with subsequent years varying even more.

The total estimated cost of Tower’s project is about $20 million, while MacDonald Ladd’s costs about $28 million. Pagoda’s project is estimated to only cost about $9 million.

Between design, permitting and construction, both Tower and MacDonald Ladd estimated their projects would be completed in about four years, but Pagoda estimated completion within a year. But Tower’s plan only extends 30 years, while both of the other proposals requested 65-year leases of the land.

But with Tower’s proposal locked in a legal dispute, the BLNR could reassess the MacDonald Ladd or Pagoda proposals.

However, Tower was the only developer to submit a complete proposal for Uncle Billy’s. Should that proposal be frozen by the lawsuit, there will be no active redevelopment proposal for the property.

The estimated cost for Tower’s Uncle Billy’s project ranges up to $38 million, including the cost of demolishing the site, which Tower estimates would cost $5.5 million alone. Between demolition and construction, the full project is proposed to be completed in a little over four years.

Tower proposed an annual rent of $10,000 for the first decade, $20,000 for the second and $30,000 for the third.

Written testimony submitted for Friday’s BLNR meeting has not been positive.

Most testifiers on the issue lamented the further development of Hilo Bay and the leasing of public lands for such long periods of time. Others noted with dismay that the development of the former County Club property will necessitate the eviction of all current tenants.

Pagoda representatives did not respond to requests for comment.

The BLNR meeting will take place at 9 a.m. Friday and will be viewable at www.youtube.com/c/boardoflandandnaturalresourcesdlnr

Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.
Source: Hawaii Tribune Herald

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