The Board of Land and Natural Resources denied a proposed extension for the Naniloa Volcanoes Resort’s most recent lease payment Friday, leaving the immediate fate of the hotel in question.
The bankrupt hotel had sought an extension after defaulting on the $250,000 payment to the state Aug. 1 and threatened that a denial could result in its closure and complicate efforts to sell the troubled operation.
David Farmer, the court-appointed bankruptcy trustee, said after the decision that a shutdown is still possible but it may be avoided.
Monday is the deadline for the bankruptcy estate to decide either to assume or reject the lease, he said.
If no one puts up the money by then, a shutdown could occur, Farmer said, even though the lease would still technically be in effect.
“I need to be able to be assured that I have enough in the kitty to make payroll,” he said.
Still, a motion could be filed to extend the deadline with the court, Farmer said, adding, “That’s what’s under consideration now.”
Any closure would require advanced notice to employees of about 45 days, he said.
A decision to reject the lease with the state Department of Land and Natural Resources would also remove it from the bankruptcy process, allowing the foreclosure process to resume, said Russell Tsuji, DLNR land division administrator.
The lease, though rejected by the estate, would still be in effect until terminated by DLNR.
If no one makes good on the payments, the board will have to consider that option, Tsuji said, allowing it to either put the lease up for auction or proceed with a request for proposals.
“The land board will do what it’s got to do,” Tsuji said.
“One option is to terminate the lease. They will not hesitate to do if the situation arises.”
How soon that could happen is unclear.
Tsuji said he is doubtful a closure will occur, noting it would make it harder for the hotel to sell.
“We don’t think that will be in the best interest of the bank,” he said.
A representative of the mortgage-holder, First Citizens & Trust Co., said at the meeting it was not willing to cover anymore payments for the hotel.
, Tsuji said. He thinks that position may change.
The board received pressure at the meeting from testifiers from Hilo, including Mayor Billy Kenoi, to strike a harder position with the hotel, Tsuji and Farmer said.
In his testimony, Kenoi criticized management for the hotel’s condition, calling it a “disaster for East Hawaii.”
“Hawaii Outdoor Tours (the hotel’s parent company) has been given ample opportunity over the last seven years to restore the property, and we cannot continue to stand by while a single hotel operator holds an entire community economic hostage,” he said.
The board also voted to deny an extension for restoring $500,000 to the hotel’s performance bond and a request to release what’s left in its construction bond.
Email Tom Callis at tcallis@hawaiitribune-herald.com.