State moves forward with plans for renovations of distressed Big Island condo complex

A distressed condo building located on state-owned land along Hilo’s iconic Banyan Drive on the Big Island looks to get a much-needed face-lift.

The Hawai‘i Board of Land and Natural Resources on Friday authorized the state Land Division to negotiate a development agreement with Banyan Drive Management of Hilo to conduct a $20 million renovation of the former Country Club Condominiums complex.

The building is one of six located on state lands on the Waiākea Peninsula. Originally a 152-room hotel built in 1969, it sits between the Grand Naniloa Hotel and Bayview Banyan apartments.

The complex has languished in disrepair for sometime, suffering from problems such as squatters; vandalism; malfunctioning and broken equipment, including elevators and its water heater; and more. An architectural study in 2016 even recommended it be demolished.

Currently, the building has a few more than 70 units boarded up and about 70 non-paying tenants, many of whom are squatters, according to Banyan Drive Management principle and general manager Ryan Lee. Another 20 units are occupied by Section 8 tenants (using federal housing vouchers).

One board member who visited the property last week said half the building is full of illegal occupants, who were previously evicted and then returned.

Banyan Drive Management proposes a complete makeover of the property, including all of its residential units, the lobby, restaurant space, elevators and swimming pool. The firm also plans to repave all parking and driveway areas and install new landscaping.

Once renovations are complete, Banyan Drive Management proposes to operate the former hotel mostly as a long-term rental property, with 80 percent of the rooms being used for long-term tenants and 20 percent as extended-stay hotel rooms.

Lee said the renovations, which will be challenging and likely done floor-by-floor, would be financed partially by Banyan Drive Management’s own internal cashflow. Outside sources of capital also will be sought. He assured board members that he and his firm understand the responsibility and expectations it would take on with the makeover and is committed: “We’re all for it.”

Once a new development agreement is reached between the Land Division and Banyan Drive Management and a rent price is determined, it will be brought before the Land Board for its consideration. The agreement will be on a 65-year lease term based on fair market rents. The Hilo firm also received approval for a reduction to the current rent cost, from $4,635.74 to just $100 each month.

“This is a distressed property requiring a significant capital outlay just to maintain day-to-day operation,” the Land Division said in its request to the Land Board. “[Banyan Drive Management] has gone above and beyond the call of duty in managing the property under a month-to-month permit at a significant financial loss. The Land Division believes a reduction in rent is in the best interests of the state to facilitate continued operation of the property and avoid it becoming another Uncle Billy’s.”

The former Uncle Billy’s Resort and Hotel, just down the street from the former Country Club Condominiums, is condemned and has been the site of numerous arson fires and law enforcement sweeps, including one at the beginning of this month, to keep people out of the crumbling and unsafe structure. The Land Division wants to demolish the building at a cost of $12 million. No decisions have been made on the future of that parcel.

Hawai‘i County Councilwoman Sue Lee Loy, whose district includes both properties, told the Land Board on Friday that crime in the area has increased substantially. Banyan Drive has suffered for years and she doesn’t want to see the travesties at Uncle Billy’s be repeated.

Lee Loy asked the board to defer its decision for 30 days to allow additional time for the community and businesses in the area to weigh in on the proposed renovations. While her request was not granted, board members encouraged Lee and his firm to engage with the community while drafting the development agreement. One member said they don’t think Hilo could stomach seeing plans for the former hotel fall through again.

Banyan Drive Management has managed the property since last December and is one of two companies to submit bids for renovations. The winning bidder, Savio SB Growth Venture, withdrew its bid earlier this month, citing a recent and ongoing downturn in lending markets that precluded it from securing financing for the project.

In March, Banyan Drive Management notified the Hawai‘i Department of Land and Natural Resources that it no longer wanted to manage the Country Club property because of its poor conditions. However, when the firm learned that Savio withdrew its bid for the proposed renovations, it reiterated its interest in a long-term lease of the property and retracted its notice of termination for its permit to manage it.

Banyan Drive Management is also open to operating the complex as a 100 percent short-term transit hotel if that’s what the state desires.

While the state Land Department doesn’t expect the former Country Club Condominiums to be a revenue source for many years, two major hotels on the Waiākea Peninsula, the Hilo Hawaiian and Grand Naniloa, as well as Reed’s Bay Hotel and Bayview Banyan apartments produce about $800,000 a year in revenue for the state.