Mainland investment group
agrees to acquire Hilo’s
Naniloa Resort

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By Tim Ruel
truel@starbulletin.com

A mainland investment group has agreed to acquire a majority interest in Hilo's Hawaii Naniloa Resort with plans to convert the 391-room leasehold property to a Sheraton hotel and spend at least $5 million on renovations.

The Japanese-owned resort, built in the late 1960s, is one of 15 properties under lease from the state Department of Land and Natural Resources in the Banyan Drive area.

The Naniloa has problems. One 66-room wing, built in 1966, has never been renovated and has no air conditioning. The owner, Japan-based Nakano Co., is in financial trouble and has defaulted on the lease several times in the past two years, according to a state filing. Nakano owes more than $1 million in county taxes and sewer charges, and one of its tenants, the Waters of Life Public Charter School, faces being shut down by the state. The school's sublease expired today.

Investors have been hesitant to breathe life into the Naniloa because there's only 14 years left on the lease, said Newton Chu, a Hilo attorney who represents Nakano. Under the old law, Banyan Drive leases could only be renewed when they were less than two years from expiring. Last year, the Naniloa lobbied successfully to change the law to allow for immediate renewal of the Banyan Drive leases, with the requirement that properties receive improvements.

Nakano bought the hotel and the nearby semi-private Naniloa Country Club in 1987 for $11 million. Under the proposed deal, Los Angeles-based Middlewood Capital Inc. would form a joint venture with Nakano, taking a majority ownership of the hotel and the 9-hole golf course, Chu said. The state Board of Land and Natural Resources approved the proposal yesterday.

The Naniloa is seeking a new lease of 55 years, the maximum allowed by the new law. If the hotel gets the lease, real estate consultants would take over and convert the property into a full-service Sheraton-branded hotel. Starwood Hotels & Resorts Worldwide Inc. has agreed to manage the property, Chu said.

First, the state may have to schedule a public auction of the hotel's new lease. Other bidders could participate, but Chu was not aware of other interest in the property. The value of the hotel and golf course has been set at $6.1 million.