California Company Bids $3.5 Million for Naniloa
by Nate Gaddis
Despite a mountain of bad press, a tangled heap of creditors and a political firestorm over the management of its lease, the troubled Naniloa Volcanoes Resort may soon have a buyer.
According to court documents filed Monday, America Asia Travel Center Inc., a California-based corporation, has submitted a bid of $3.5 million to purchase the resort, including its lease with the state Department of Land and Natural Resources.
Ramesh Manchanda, and Nirmal Kumar are listed along with the corporation as purchasers.
As part of the bidding requirements, America Asia Travel Center has also agreed to “cure all defaults under the DLNR lease … not to exceed $1,500,000,” and to replenish a $1 million performance bond with the state.
Curing “defaults” under the lease includes honoring debts with both the state and Hawai`i County over delinquent general excise, property and hotel room taxes.
This is the second time America Asia Travel Center has appeared in Naniloa documents filed with the bankruptcy court.
A bankruptcy reorganization plan filed in March by Naniloa owner Ken Fujiyama indicated that America Asia Travel Center’s owner, Helen Severson, proposed to provide $1.5 million to pay off the overdue taxes and other Naniloa debts.
In return, according to a letter accompanying the reorganization plan, Severson would be given a 10% ownership stake in Hawaii Outdoor Tours, Fujiyama’s company which currently owns the Naniloa.
Severson, who is also known as Yee Shum Severson, also owns the company that last year purchased Hilo’s Nani Mau Gardens from Fujiyama for $2.2 million.
After Severson’s company, Glory Nani Mau, purchased the gardens it also paid more than $45,000 to settle Nani Mau’s delinquent property taxes, interest and penalties.
According to David Farmer, the trustee in charge of selling the Naniloa during the bankruptcy process, America Asia Travel Center’s bid was the highest of three offers received.
Farmer indicated that First Citizens Bank, which is owed approximately $11 million by Hawaii Outdoor Tours, has not yet submitted a bid of its own. Under bankruptcy law, First Citizens has the right to submit a “credit” bid of up to $11 million to purchase the property, with no money down.
First Citizens purchased the debt under a share-loss agreement with the federal government after the original bank issuing the loan failed in 2008. Under the agreement, 80% of First Citizens’ investment is protected against losses. First Citizens likely purchased the original loan made to the Naniloa at a discount, although the exact figure has never been disclosed.
According to Farmer, when the bankruptcy court judge considers the $3.5 million bid at a hearing scheduled for Nov. 6, he will ask if anyone in attendance is interested in purchasing the Naniloa for a higher amount.
Farmer said it is quite possible multiple parties might express interest, whereupon the judge would allow Farmer to hold a quick auction “basically out in a hallway.”
Since the $3.5 million bid is well under the $11 million owed to the bank, it is considered a short sale, and the bank can exercise its right to a credit bid so long as no one tries to purchase the hotel for more than $11 million.
That means bidders could find themselves competing with the bank to purchase the Naniloa. According to Farmer, if the bidding exceeds $11 million, First Citizens Bank would no longer have a valid interest in attempting to purchase the resort itself.
Instead, any money offered in excess of $11 million would likely be used to pay off an estimated $3 million owed to a diverse set of unsecured creditors, including businesses that never received payment for services by Hawaii Outdoor Tours.
As for fines and demands issued by the county over a pile of building code violations racked up since the resort’s bankruptcy, Farmer said the judge in the case recently indicated that any buyer of the resort would have to deal with the county “on their own.”
That presumably would include tangling with Hawai`i County Mayor Billy Kenoi, who has hinted at the possibility of shuttering the hotel due to safety concerns.
Farmer expressed frustration with Kenoi’s handling of the issue, noting that while the mayor was arguing for the cancellation of the property’s lease, potential buyers were busy considering the value of purchasing the resort.
A large portion of the resort’s value rests in the 65-year lease acquired by Fujiyama’s company, HOT, at the original auction of the resort in 2005.
According to Farmer, the political firestorm surrounding the bankruptcy has only served to distract everyone involved from what he described as “the most desirable outcome for everyone, which is getting the property into the hands of a qualified operator.”
–Dave Smith contributed