• The Hawaiʻi Board of Land and Natural Resources on Friday voted to amend a prior action issuing a Request for Qualifications / Request for Proposals for a lease of public lands in the Banyan Drive resort area occupied by the Country Club Condo Hotel, in order to clarify that there will be no sale of the improvements – i.e. the hotel building.
• The staff submittal stated that “after consulting with the Department of the Attorney General on the matter, staff decided to recommend that result of the RFQ/RFP process be a lease of land and improvements thereon.”

The submittal to the land board by the Department of Land and Natural Resources’ Land Division provides the background information:

Redevelopment of the subject property has proven to be a challenge. The land is improved with a 152-room hotel constructed in 1969. A remaining useful life study completed in April 2014 indicated that the improvements at that time had a remaining useful life of 5-8 years. An architectural study completed in June 2016 by Erskine Architects, Inc. (Erskine Report) determined that hotel should be demolished. (…)

However, the Department has no money to demolish the existing hotel. The Department procured R.M. Towill Corporation (RM Towill) as a consultant to estimate the cost of demolition. RM Towill’s report issued in February 2018 determined the demolition cost wuld be $6,244,717. Due to increased contracting costs and inflation, the estimated demolition cost at present is $10,200,000. Meanwhile, use of the subject property for apartment/hotel purposes continues in its aged condition.

The County of Hawaii established the Banyan Drive Hawaii Redevelopment Agency (BDHRA) in 2016 to master plan the Waiakea Peninsula, but it has no money to pay for an environmental assessment (EA) / environmental impact statement (EIS) to facilitate a master plan. To compound matters, under the EA/EIS laws the Board cannot authorize the issuance of a lease to a party for demolition of an obsolete building and construction of a new one without an EA/EIS first being conducted. That puts the Department in a “Catch-22” situation because a developer will typically not be interested in paying for the EA/EIS unless the developer has the certainty of a land lease for the site.

Accordingly, staff explored alternatives for the Country Club property that would not trigger an EA or EIS. The Erskine Report did contain an alternative recommendation for repair of the hotel:

ALTERNATIVE RECOMMENDATION: If the buildings are not demolished, the obvious alternative would be to REPAIR them. The way in which repairs are handled could be extremely challenging, the associated costs could be prohibitive, and the construction schedules could be time consuming. As such, the types of repairs and the order in which the repairs are phased should be highly scrutinized. Repairs should be done proportionately over several years so that the repair cost does not exceed 50% of the taxable value of the property. Prior to starting any repair or improvement project, the architect and/or engineers who will design the repairs should work closely with the [authorities having jurisdiction] to ensure that grandfathering in of non-conformities can remain in place. Repairs to address the health, safety and welfare of the public, as well as repair and maintenance projects to prolong the remaining useful life of the building should be performed first.

The Erskine Report goes on to list recommended repairs. See Exhibit E.

When the Erskine Report was finalized, the Department provided copies to the County Planning Department and alerted the County of possible fire safety violations at the property. The County Building Division and Fire Department both conducted inspections of the property and found a number of violations contained in reports issued in 2017. Oceanfront 121 and its predecessor-in-interest worked with the County to address the violations to an extent that would al low the property to remain habitable.

At its meeting of December 13, 2019, under agenda Item D-2, the Board previously approved an RFQ/RFP for the renovation of this property under a new lease for continued hotel and/or apartment use. Four parties expressed interest in response to the RFQ/RFP published in 2020, with three of those four submitting statements of qualification and proposals for renovation. The evaluation/selection committee appointed by the Chairperson made a preliminary selection of a proposal submitted by Tower Development, Inc. (Tower) subject to Board approval, but the recommendation to select Tower was withdrawn from the Board’s agenda of September 24, 2021 after one of the members of WHR LLC (WHR), the State’s lessee of the Grand Naniloa Hotel Hilo property, filed a lawsuit against Ed Bushor and Stuart Miller who are principals of both Tower and WHR. The lawsuit alleged that Tower’s submission of a proposal in response to the RFQ/RFP was a violation of WHR’s operating agreement, questioned WHR’s solvency and sought an audit of its financial books and records. Unable to verify Tower’s financial capacity, staff ultimately recommended the cancellation of the RFQ/RFP, which the Board approved at its meeting of June 9, 2022, under agenda Item D-8.

On June 30, 2022, Oceanfront 121 notified Land Division that it is unable to continue managing the Country Club property under a month-to-month revocable permit because the short-term nature of the disposition does not allow it to make necessary investments in the property. Ocean Front 121 advised that it intends to surrender RP7914 at the end of December 2022. To avoid the situation where Land Division is managing the day-to-day operations of a multi-tenanted residential building or is alternatively expending substantial resources of the Department to vacate and police the building, staff is proposing that the property be put out once again for lease under and RFQ/RFP for renovation and continued hotel and/or apartment use. Staff believes the proposed RFQ/RFP process is in accordance with the requirements of HRS § l7l-59(a) and is preferable to the public auction process for selecting a lessee for the subject property. A lease for hotel/apartment purposes is the highest and best use under County zoning.

Request for Qualifications/Request for Proposals (RFO/RFP):

HRS § l7l-59(a) provides that a lease of public land may be disposed of through negotiation (rather than by public auction) upon a finding by the Board that the public interest demands it. HRS §l7l-59(a) also provides a process under which the Board may select the lessee, which entails the public solicitation of applications/proposals from prospective lessees and allows the Board to select the lessee based on its evaluation of the applications/proposals.

Renovation of the existing hotel improvements originally constructed in 1969 will entail significant effort (e.g., obtaining Special Management Area approval or at least review, building permit approval, etc.) and a substantial investment. The improvements contain hazardous materials that will require remediation as outlined in the Erskine Report and RM Towill report. The hotel is occupied by both short-term apartment renters and hotel room renters. Careful planning will be required to protect the health and safety of current residents and occupants. Additionally, the property currently has 65 parking spaces on site. County of Hawaii Zoning Code requires a total of 286 spaces for this property. The properly currently has two parking stalls accessible to persons with disabilities when the law requires seven, and it has no loading zones when the law requires three, including one loading zone accessible to persons with disabilities. Further, the property is located on the shoreline and a long-term lessee of the prope1ty will need to develop plans and contingencies for sea level rise. There are also unpaid real property taxes on some of the former CPR units that previously existed there (…). Staff believes the renovation efforts, safeguarding of residents and occupants, resolution of the parking stall and loading zone shortage, sea level rise planning, and resolution of unpaid real property taxes are best undertaken by a private lessee with the necessary expertise and financial capacity.

Due to the expertise and substantial investment required to renovate the hotel, safeguard residents and occupants, and address the parking and loading zone situation to the County’s satisfaction, staff believes a lease for the property should be issued by direct negotiation with a lessee selected via a public RFQ/RFP rather than via the public auction process. The RFQ/RFP process will allow the Board to evaluate prospective lessees based on a variety of factors, such as the applicant’s qualifications (e.g., experience, expertise, and financial capacity), and proposed renovation plans for the property (e.g., the feasibility of the renovation plans and the proposed benefits to the State), whereas the public auction process would award the lease based solely on the highest lease rent bid at the auction.

The proposed RFQ/RFP process is in accordance with HRS §171-59. The RFQ phase of the RFQ/RFP process provides for the Chairperson to establish criteria for selection of the lessee and determine which applicants meet the criteria as required under HRS §171-59. If there is more than one applicant that meets the RFQ criteria, the RFP phase provides for the qualified applicants to submit proposals, and the Board will select the highest offer (i.e., the best proposal).

Staff is requesting that the Board authorize the Chairperson to issue the RFQ/RFP, establish the evaluation criteria, evaluate the qualifications of the applicants, solicit proposals from the qualified applicants (if there is more than one qualified applicant), evaluate the proposals, select the best proposal, and present the proposal to the Board for approval at a meeting open to the public. Upon the Board’s approval of the selected applicant, the DLNR will enter negotiations with the selected applicant of a development agreement and proposed lease. The development agreement and lease will be submitted to the Board for approval at a meeting open to the public.