Lenders of the Sheraton Keauhou Bay Resort & Spa are considering foreclosing on the 521-room luxury property on the Big Island's Kona Coast.

Troubled Lehman Brothers Holdings Inc., which filed for bankruptcy last year, is the main lender on the property, owned by New York private-equity firm Brickman, whose local entity is Koa Hotel LLC.

The 22-acre resort south of Kailua-Kona has seen occupancy plummet along with the rest of the island's hotel industry. The Big Island's occupancy rate has hovered around 50 percent since September, according to Hospitality Advisors LLC.

“;It's all about occupancy at the hotel; it's dramatically off from where it was last year ... and Lehman going out hasn't helped,”; said Roderick O'Connor, a principal of Brickman. “;Obviously Hawaii has been going through some terrible economic times. The downturn in tourism is pretty remarkable and obviously our asset is caught in between.”;

The real estate firm has been in conversations with lenders and is “;trying to work things out between us as best as we can under the circumstances,”; he said.

The resort has between 250 and 300 employees, O'Connor said.

“;It concerns me a great deal; we worked hard to get those jobs back in the Keauhou area,”; he said. “;It's very painful for us as well.”;

Lehman Brothers vice president Kimberly Macleod declined comment.

Brickman acquired in June 2001 the property, which includes 65,000 square feet of meeting space, a 14,000-square-foot pool, 12,800 square feet of retail, a wedding chapel, fitness center and spa.

Despite being a leasehold property with an 18-year term from Kamehameha Schools at the time, the hotel was in “;an irreplaceable location and Brickman believed that Hawaii was poised for an upswing in tourism,”; according to its Web site.

The hotel was closed and in “;severe disrepair”; when Brickman scooped up the asset by acquiring the debt of a financial institution that was unwinding its equity real estate business. After negotiating a consensual foreclosure with the resort's Japanese owner, the firm worked out a ground-lease extension as well as 10 years of free rent, Brickman's Web site said.

Starwood Hotels & Resorts Worldwide Inc. opened the Big Island resort in 2005 following an extensive two-year renovation totaling $70 million.

The total value of the resort is $43.8 million, according to county tax records.

Keith Vieira, Starwood's senior vice president and director of operations for Hawaii and French Polynesia, said the lenders were still discussing a potential foreclosure and didn't know when it would be filed.