A lender with mortgages on parts of the Ilikai hotel owned by local developer Brian Anderson will soon assume ownership and operation of the property, after no one outbid it for the assets at a court hearing yesterday.

At a preliminary foreclosure auction last month, lender iStar Financial bid $35 million for 203 condominium units in the iconic Waikiki hotel, and $15 million for 16 commercial units that include the front desk, restaurant space, retail space, office space, parking and some small meeting rooms.

Local businessman and real estate investor Franklin Tokioka of Hawaiian Properties Ltd. and the holding company for Island Insurance made one bid on the commercial space for $15.75 million, but iStar responded with a bid of $16 million to hold on to the asset. The bidding ended there.

No one outbid iStar for the residential units, which weren't being sold individually and were retained by iStar with its preliminary bid, equivalent to $172,414 per unit.

According to iStar's foreclosure lawsuit, the lender was owed about $72.7 million at the end of October on loans that Anderson defaulted on. Under bidding rules, iStar could have bid up to that amount in credit against its claim.

Circuit Judge Karen Blondin confirmed the lender as the high bidder.

The purchase by iStar is scheduled to close within 35 days of a sale order entered by the judge, which is expected shortly.

'THERE'S JUST NO BUYERS'

Ron Watanabe, a local hospitality industry consultant, said he's not surprised that no investors scooped up the distressed asset, given the tourism industry downturn, poor credit markets and the economic recession.

"There's just no buyers," he said.

Watanabe also said the Ilikai needs fixing up, and has to recover from the trauma of a foreclosure battle that included an initial independent receiver warning that the hotel might have to close because of operating losses.

"It's lost a lot of its glitter," Watanabe said.

The Ilikai — built in 1964 by local businessman Chinn Ho as part residential condominium, part hotel overlooking the Ala Wai Boat Harbor — has been a popular property for decades. It has pop-culture icon status from being featured in the opening scenes of the long-running television series "Hawaii Five-0."

But the roughly 1,000-unit tower, dominated by a mix of individual condo owners and timeshare owners, presents a challenge for any owner of the iStar pieces, given that common-area changes must be approved by an association of owners.

PLANS UNCLEAR

New York-based iStar said it cannot discuss any specific plans for the hotel, presently managed by an affiliate of Anderson's Anekona Development Group.

"We are considering all options with respect to the future operation of the collateral and the eventual disposition," said iStar spokesman Andrew Backman.

Generally, mortgage lenders hold such assets for future sale. Last year, iStar repossessed property valued at $419 million, and sold $170 million in repossessed assets, according to the company's annual report.

Some observers expect iStar to install a new management firm to take over the front desk, manage the commercial space and rent out hotel units — ending nearly three years of Anderson's involvement in the property.

Anderson bought 343 hotel units in the main Y-shaped tower, commercial space and 360 hotel rooms in the connected Yacht Harbor Tower building in July 2006 for $218 million.

The developer simultaneously sold the Yacht Harbor Tower to an affiliate of San Diego-based eRealty Cos. for about $80 million. That property was shuttered and remains closed.

Anderson's plan was to renovate and sell his 343 rooms in the main tower as condotel units, and upgrade the Ilikai to an upscale hotel commanding higher room rates.

However, that plan was upset by several moves, including Anderson forcing out longtime businesses, cutting off access to the main pool and restricting parking and storage.

Those changes angered many longtime Ilikai condo owners, and the ill will and lack of trust toward Anderson led to the owners' association rejecting a $60 million renovation plan.

A crash in Hawai'i's condotel market, a mortgage industry meltdown, the downturn in tourism and a lawsuit filed by some investors in the project also contributed to the demise of Anderson's plan after 140 unit sales, and the developer defaulted on mortgage payments in April 2008.