Wednesday, November 28, 2001

Starwood picked
to run Kona resort

But development still hinges
on obtaining a lease extension

Star-Bulletin Staff

The prospective buyer of the shuttered Kona Surf Resort on the Big Island said it has picked Starwood Hotels & Resorts Worldwide Inc. to manage the property, but the deal still hinges on the extension of a ground lease with Hawaii's major landowner, Kamehameha Schools.

Koa Hotel LLC has signed a letter of intent with Starwood to manage the resort as a Sheraton Hotel, Koa Hotel said yesterday.

The company, which is headed by Arlen Capital LLC of San Diego and Brickman Associates of New York, is seeking to purchase the property out of foreclosure from Japan-based Otaka Inc.

Otaka acquired the 20-acre leasehold property for more than $20 million in 1986, but piled on $3 million in losses starting in 1991.

Otaka closed the 530-room hotel in June 2000, firing more than 200 workers. A noteholder then filed a $30 million lawsuit in late December 2000 to foreclose on mortgage liens against the property.

Koa Hotel agreed earlier this year to buy the property out of foreclosure and said it hopes to close the deal by the end of 2001.

The firm plans to spend an estimated $40 million to renovate the property up to Sheraton standards, but it first needs to negotiate with Kamehameha Schools to get a longer ground lease, which currently expires in 33 years.

If the deal moves forward, the hotel could reopen by 2003 and Starwood could hire up to 400 permanent jobs, said Keith Vieira, vice president and director of Hawaii operations for Starwood.

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