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The Honolulu Advertiser
Posted on: Friday, December 21, 2007

Hawaii resort owner defaults on $283M loan

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By Jim Dooley
Advertiser Staff Writer

Financial difficulties deepened yesterday for the owner of the Turtle Bay Resort, which is planning to build five new hotels on O'ahu's North Shore.

A $283 million mortgage foreclosure lawsuit was filed against Kuilima Resort Co. in state court by international lender Credit Suisse. The suit seeks to foreclose on the resort property because of delinquent principal and interest payments.

Officials of Kuilima Resort and its parent company, Oaktree Capital Management LLC, were unavailable for comment last night. Nathan Hokama, spokesman for Kuilima Resort, said he was unfamiliar with the lawsuit and could not comment on it. Nicola Jones, Kuilima's chief executive, was traveling to the East Coast and could not be reached, Hokama said.

Kuilima Resort has been looking for a buyer or a development partner since June 2006 to help finance the expansion of the 880-acre Turtle Bay Resort that would add up to five new hotels with 3,500 rooms and condominium units, as well as four public parks.

The plan has stirred both opposition and support among North Shore residents. Proponents see it as a boon to the area's economy while opponents object to building hotels on undeveloped ocean-front property and further stressing an already strained infrastructure.

The suit alleged that Credit Suisse made a $275 million mortgage loan to Kuilima Resort in September 2005. The resort allegedly failed to make a $685,500 principal and interest payment on June 29, according to the suit.

The company then failed to pay a $1 million "amendment fee" that was due at the end of July, Credit Suisse alleged. The amendment fees were imposed as a result of earlier missed payments, according to the lawsuit.

Credit Suisse claimed the principal balance owed is nearly $271 million, and another $10.4 million in interest and $2.3 million in amendment fees are outstanding.

The attorneys who filed the suit, Dennis Lee and Kyle Sakumoto, were unavailable for comment last night.

Donald Gelber, a Hawai'i lawyer specializing in real estate and bankruptcy law, said mortgage foreclosure proceedings can take anywhere from six months to several years to be resolved, depending on the complexity of the case and whether it is contested.

Gelber said the foreclosure suit should not affect the day-to-day operations of the hotel and the resort, unless a state judge appoints a receiver. A receiver is given authority to operate an ongoing business and is in charge of everyday expenses such as payroll. The appointment of a receiver usually requires a court hearing, in which the debtor and lender would present arguments.

Gelber said he's unfamiliar with the Kuilima lawsuit but said some debtors, faced with foreclosure proceedings, can opt to file for Chapter 11 bankruptcy protection. A bankruptcy would allow the debtor to continue operating the hotel under the restrictions and oversight of the U.S. Bankruptcy Court.

The Turtle Bay expansion plan is based on an agreement reached in 1986 by developers, the city and the state. In October, the city granted Kuilima six more months to meet conditions necessary for the expansion plans to proceed.

Final city approval of the plans would allow for subdivision of property at Turtle Bay Resort, and that "would allow Kuilima Resort Co. to sell the individual parcels or sell the property as a whole," Hokama said in October.

The current city deadline for meeting its expansion plan conditions is March 29, but officials said another six-month extension could be granted after that.

In July, Kuilima's talks with Starwood Hotels & Resorts as a possible purchaser or development partner were broken off, but the resort owner expressed optimism about prospects for a sale or for a new infusion of development cash.

Staff writer Rick Daysog contributed to this report.

Reach Jim Dooley at jdooley@honoluluadvertiser.com.

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