REPORT TITLE:
Public lands; Banyan Drive


DESCRIPTION:
Authorizes the department of land and natural resources to issue
new resort leases or one master lease to the existing Banyan
Drive resort lessees, subject to certain conditions.  (HB827 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        827
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC LANDS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature recognizes the unique and
 
 2 critical situation facing resort lessees on Banyan Drive in Hilo,
 
 3 Hawaii.  With the majority of the resort leases expiring in 2015,
 
 4 these lessees are faced with the uncertainty of continued
 
 5 tenancy.  Under the current laws, as the end of the lease term
 
 6 nears, the lessees will have less and less incentive to make
 
 7 major investments in improvements to their resort infrastructure
 
 8 and ensure the long-term maintenance of their resorts.  As a
 
 9 result, deterioration of the resorts' infrastructure is likely to
 
10 occur.
 
11      Under this Act, one group of lessees would be exempted from
 
12 the overall public policy of making public lands available to the
 
13 highest qualified bidder at auctions.  The legislature finds that
 
14 except under rare circumstances, state leases have a maximum term
 
15 of sixty-five years.  Upon the expiration of leases, the property
 
16 is made available to bidders via public auction.  This method
 
17 ensures maximum revenue generation for the beneficiaries of the
 
18 public land trust.  The legislature believes, however, that in
 
19 this specific and unique case, an exception to this public policy
 
20 is justified for the resort lessee.
 

 
Page 2                                                     827
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      This exception is based on the fact that the State owns
 
 2 virtually the entire Banyan Drive resort area, which represents
 
 3 approximately eighty per cent of total overnight accommodations
 
 4 in east Hawaii.  Because the State controls so much of the hotel
 
 5 space in east Hawaii, the State has a responsibility to ensure
 
 6 that its actions will not have a harmful impact on the larger
 
 7 community as a whole.  Should the State allow the Banyan Drive
 
 8 resorts to deteriorate, if and when the tourism market rebounds,
 
 9 east Hawaii will not be in a position to promptly respond with
 
10 adequate hotel space.  The negative impact would magnify as
 
11 ancillary industries, dependent on the tourist market, would also
 
12 suffer.  Furthermore, approximately five hundred direct resort
 
13 jobs would be affected, as well as many other indirect jobs.
 
14      The legislature finds that while an exception is justified
 
15 regarding the public policy of making public lands available to
 
16 the highest bidder, the legislature strongly feels that the
 
17 resorts should not be subsidized.  It is the intention of the
 
18 legislature to support the efforts of the State and the county of
 
19 Hawaii and provide an opportunity for the tourism market to
 
20 rebound in east Hawaii by ensuring that hotel rooms will still be
 
21 available.  If the current downturn reflects a more long-term
 
22 structural shift in the east Hawaii tourism market, then the
 

 
 
 
Page 3                                                     827
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 State should see the resort market adjust, including the
 
 2 possibility that the Banyan Drive properties be put to other
 
 3 uses.
 
 4      The legislature further finds that prudent land management
 
 5 dictate that an exception be made in this specific case.  As the
 
 6 landowner of virtually the entire Banyan Drive resort area, the
 
 7 State has an interest in preserving the significant value of
 
 8 these assets as the resort facilities represent millions of
 
 9 dollars worth of improvements on state land.  Should the State
 
10 allow the resorts' assets to deteriorate, the land value will
 
11 decrease, thus lowering the value of all state land in the area.  
 
12      The legislature believes that resort use is the highest and
 
13 best use of these properties at this time.  Due to the downturn
 
14 in the tourism market, demand is very weak for these resort
 
15 leases as evidenced by the lack of interest shown in the one
 
16 vacant lot where the former Orchid Isle hotel once stood.  As
 
17 such, it would be unwise to force these leases into auction and
 
18 risk deterioration of the improvements and loss of income should
 
19 the existing lessees decide not to continue.
 
20      Lastly, the legislature finds that the state and county
 
21 governments are actively attempting to develop east Hawaii as a
 
22 visitor destination resort marketed, among other things, around
 

 
 
 
Page 4                                                     827
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1 the University of Hawaii, astronomy, geology/volcanos,
 
 2 ecotourism, and culture and the arts.
 
 3      The purpose of this Act is to stimulate tourism in east
 
 4 Hawaii by creating incentives for reinvestment in the resort
 
 5 infrastructure of the Banyan Drive resort area in Hilo, Hawaii.
 
 6 This Act authorizes the board of land and natural resources to
 
 7 issue new resort leases to eligible existing lessees of the
 
 8 Banyan Drive resort area as an integral part of preserving and
 
 9 enhancing the tourism base of east Hawaii.
 
10      This bill affects fifteen total leases in the Banyan Drive
 
11 resort area.  Of these fifteen leases, there are ten leases
 
12 covering three resort facilities (Naniloa, Hilo Bay, and Hilo
 
13 Hawaiian), three leases for each of three apartment/condominium
 
14 facilities (Country Club, Bayview Banyan, and Reed's Bay), one
 
15 golf course lease, and one restaurant lease.
 
16      SECTION 2.  Notwithstanding any law to the contrary, the
 
17 department of land and natural resources is authorized to issue
 
18 new resort leases or one master lease to the existing Banyan
 
19 Drive resort lessees, subject to the following:
 
20      (1)  New leases shall contain current standard terms and
 
21           conditions and other conditions as deemed appropriate
 
22           by the department;
 

 
 
 
Page 5                                                     827
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1      (2)  The department shall develop a process to ensure the
 
 2           assumption of no market demand for the resort leases;
 
 3           provided that the department may issue a request for
 
 4           proposal or other means to ensure that a fair, open,
 
 5           and competitive process is used to determine
 
 6           competition.  This process shall take into account any
 
 7           residual value on tenant improvements for the duration
 
 8           of the lease term, to determine whether there are other
 
 9           entities interested in obtaining the resort lease.  The
 
10           department shall go out for auction should there be a
 
11           willing and able bidder.  If there are no qualified
 
12           entities, then a new lease may be issued to the
 
13           existing lessee;
 
14      (3)  If a new individual or master lease is issued to the
 
15           existing lessee, then the following may be contained in
 
16           the lease, at a minimum:
 
17           (A)  Fair market rent, excluding tenant improvements,
 
18                at resort use;
 
19           (B)  Percentage rent where gross receipts exceed a
 
20                certain level;
 
21           (C)  Assignment premium; and
 

 
 
 
 
 
Page 6                                                     827
                                     H.B. NO.           H.D. 1
                                                        
                                                        

 
 1           (D)  Requirement to improve the property with the term
 
 2                of the new lease to be co-terminus with a mortgage
 
 3                loan.
 
 4      SECTION 3.  It is the expressed intent of this Act that the
 
 5 legislature not interfere with market forces by subsidizing these
 
 6 resort uses to ensure that the State is receiving a fair return
 
 7 from public lands and that investment is made into the assets.
 
 8      SECTION 4.  The lands eligible for lease under section 2 of
 
 9 this Act shall be limited to those existing thirteen state leases
 
10 with infrastructure located along Banyan Drive that are used for
 
11 resort purposes.
 
12      SECTION 5.  All costs for the issuance of a new lease or
 
13 master lease, including the request for proposal, shall be paid
 
14 for by lessees interested in acquiring new leases.
 
15      SECTION 6.  This Act shall take effect on July 1, 1999, and
 
16 shall be repealed on July 1, 2004.