State moves to let
Hilton keep pier lease

The hotel subleases the Waikiki
pier at a substantial profit

By Ian Lin
Star-Bulletin

Officials of the Department of Land and Natural Resources have taken behind-the-scenes steps to allow the Hilton Hawaiian Village to retain control of the pier fronting the hotel at modest cost and without competitive bidding.

Hilton leases the pier from the state, but subleases it at a substantial profit to Atlantis Submarines as the base of its undersea tours. Hilton reported a profit of nearly $825,000 in 1996 from the arrangement, records show.

The state currently receives just $42,000 in annual lease rent from the Hilton-Atlantis operations. The hotel's arrangement with Atlantis has been allowed to continue despite legal opinions in 1994 and again this year that it violates state law.

Among the department's actions:

Land officials have ignored repeated inquiries dating back three years from a competitor willing to pay substantially more for the lease, land records show.

Earlier this year, land management staff failed to inform the Board of Land and Natural Resources about an attorney general's opinion, which concluded that the existing arrangement with Hilton is illegal and should not have been approved without competitive bidding.

In the face of continued legal questions, land staff has quietly worked with Hilton officials to find another legal loophole that could give the hotel continued control of the pier without bidding.

Oahu land agent Cecil Santos said this week that a staff recommendation favoring a new nonbid agreement with Hilton could be presented to the land board as early as May 9. If the board disagrees, it could require the lease to be auctioned.

Voyager Submarines Hawaii, a locally owned competitor of Atlantis, said earlier this year it would pay at least 12 times more than the current lease rent if given an opportunity to lease the pier or bid at auction.

In a March 7 letter to state land Administrator Dean Uchida, Voyager said it was willing to pay between $500,000 and $1 million annually, or 4 percent-5 percent of total gross revenues, whichever is greater.

Voyager said the pier is worth the premium because of its central, highly visible location on Waikiki Beach that is unlikely to ever be duplicated.

Operating from the pier also sidesteps a state fee of 2 percent of total revenues that Voyager and other companies carrying passengers from Kewalo Basin or Honolulu Harbor must pay.

Voyager's letter was signed by Robert N. Iwamoto Jr., head of the Robert's family of tour-related companies and president of the Submarines Hawaii Limited Partnership, which operates Voyager.

Iwamoto complained the company had not received any response to two earlier letters expressing interest in the lease, one in January 1994 and a second in February 1996.

"Each month that goes by with no action, the state is losing substantial revenues that it could, and should be realizing," Iwamoto wrote.

Iwamoto said yesterday that his March 7 letter has also gone unanswered.

"I've also heard that no matter what kind of efforts we put in to get that pier, we will be blocked out," Iwamoto said.

Hilton general manager Peter Schall said he was not aware of Voyager's offer but declined further comment until the hotel's new proposal is presented to the Land Board.

Santos took responsibility for the failure to respond.

Santos said he would notify Voyager "that we are working on a disposition to Hilton. We won't be working on any other disposition to any other party."

The state has insisted on dealing exclusively with Hilton despite a series of legal problems.

In early 1994, land officials determined that Hilton's sublease agreement with Atlantis violated its lease. Hilton was fined $2,000 for "unjust enrichment" and ordered to repay the state more than $11,000 in improper profits.

Instead of canceling Hilton's agreement, the state agreed to issue a new "easement" allowing the Atlantis sublease. That move drew questions from competitors, including Voyager, and a request from Sen. Les Ihara, whose district includes Waikiki, for a review of its legality.

The attorney general concluded in January that the easement should not have been issued without a public auction, but land board members were not informed when they discussed the pier a month later, records show.

Santos says the opinion just wasn't relevant to the "housekeeping" item on the board's Feb. 28 meeting agenda, but materials given to the board said the opinion had not yet been received.

Santos said land management staff continued looking for a way to deal directly and exclusively with Hilton after getting the adverse legal opinion.

In a letter dated March 4, 1997, Santos advised Hilton of plans to utilize a law allowing for direct award of leases without bids for maritime operations if that would encourage competition.