New Makena manager gets initial OK

WAILUKU - After a foreclosure court hearing Tuesday that could have decided their jobs, the Maui Prince Hotel's 380 employees could finally breathe a collective sigh of relief after a new management company received preliminary court approval.

However, the embattled 1,800-acre Makena Resort property's long-term outlook remained uncertain after Maui developer Everett Dowling and Morgan Stanley Real Estate defaulted on their loan last month to purchase the resort two years ago.

In a hearing that took about 30 minutes, 2nd Circuit Judge Shackley Raffetto gave preliminary approval Tuesday to a plan by the mortgage lenders' attorneys to name Benchmark Hospitality International as the new Maui Prince Hotel and golf course manager - starting Sept. 17. The hotel and golf course will be renamed as well, according to a news release by attorney Barry Sullivan, who represents the mortgage lenders' trustee, Wells Fargo Bank.

That means Benchmark will take over operations the day after Prince Resorts Hawaii walks away from the hotel it has managed since 1986 through three ownership changes. At Raffetto's direction, the lenders must also continue to pay hotel employees and vendors.

Both the lenders and the owners now in default have acknowledged that closing the hotel and golf course, even temporarily, would damage Makena's image and the property's resale value.

Raffetto also agreed with Sullivan to name another Honolulu attorney, Miles Furutani, as the receiver of Makena Resort, which includes the hotel and golf course. Furutani, who has experience as a receiver in foreclosure cases, will be an agent of the court, reporting to Raffetto.

The receiver and his team of three other lawyers are responsible for watching over the property managers, advising on labor and ownership transition issues, and finally conducting the auction - along with a foreclosure commissioner. The judge will name the commissioner later.

After the hearing, plaintiff attorneys said a fourth ownership change for the resort is likely on the horizon. Makena Resort is highly valued for its vast untouched lands, secluded beaches and county zoning entitlements.

But it could be up to five months before the court-controlled auction process is complete and a new owner emerges to purchase Makena Resort, Sullivan said after the hearing. Or, perhaps, the trust itself might make a bid for the property if there's no buyer, Sullivan said.

In the meantime, most staff members will get keep their jobs, said Stephen West, International Longshore & Warehouse Union Local 142 representative.

As soon as the ink dries on the judge's ruling, the ILWU will initiate negotiations for a new collective bargaining agreement with Benchmark Hospitality, he said. Prince Resorts Hawaii voided its pact with employees more than a week ago under the foreclosure proceedings.

Maui Prince employees were set to lose their jobs Sept. 16. On Friday, employees met with Maui nonprofits and state agencies to prepare for unemployment, West said. And either way, work hours have been reduced with low hotel occupancy, he said.

In a motion filed Tuesday, Maui Prince Resorts accused the lenders of conducting an "about face" and forcing the company into terminating its management of the hotel by refusing to assure it that the lenders would provide the funds necessary to stay open and honor existing labor agreements.

Maui Prince attorney Lex Smith of Honolulu said he didn't think a new labor agreement would benefit the workers.

"Our goal has been to facilitate this transition, keep the resort operating and save as many jobs as possible," Sullivan said. "We now look forward to the next steps to return the hotel and resort to profitability."

Sullivan asked the judge for a restraining order against Prince Resorts, saying it was no longer taking reservations past Sept. 16.

Smith said Prince Resorts "vehemently" denied Sullivan's assertions, including implying that the company does not perform at industry standards.

Sullivan said that under Prince Resorts' management, occupancy rates had fallen below market levels, and the 310-room hotel was losing about $1 million a month, not including debt service and property taxes. He said Maui Prince Hotel doesn't take in enough monthly revenue to pay its workers.

Maui's overall visitor industry is in precipitous decline this year, Sullivan said, but the Maui Prince Hotel is performing very poorly in relation to its competitors.

"I don't know why, I'm just a lawyer," he said.

However, he said Benchmark Hospitality has been able to maintain an occupancy rate of 84 percent at Turtle Bay Resort on Oahu's North Shore this year despite the recession. Raffeto said he will further review the facts before issuing a final decision.

"Our goal is to retain as many of the employees of the (Maui Prince) resort as possible," said Bob Boyle, Benchmark vice president and regional director of operations. He will oversee the Maui Prince in addition to the Turtle Bay Resort.

West said the employees' union just wants to make sure that the transition in management goes as smoothly as possible.

"I'm confident we can come to some sort of agreement," he said, adding that he expects a small reduction in the work force. "Obviously, it's not something we're happy with."

The foreclosure and change in resort management arose after the borrowers, Morgan Stanley and Dowling's company, Makena Land and Makena Hotel LLCs, abandoned their investment last month on the Makena Resort redevelopment project.

Dowling said a lack of buyers and skittish banks forced the investors to default on their $192.5 million loan to the Wells Fargo trust to buy the resort in 2007 from the Seibu Group of Japan for $575 million.

However, Dowling has said he intends to get back in the mix to buy back the property.

The Makena Resort purchase price was the largest amount ever paid for a Maui hotel and housing development. The company had plans approved by the Maui County Council to build up to 1,100 luxury homes, condominiums and apartments. The 15-year project was expected to cost $800 million and included replacing the aging Maui Prince Hotel.

Sullivan said Dowling and Morgan Stanley invested an additional $200 million in planning, design and site preparation for redevelopment of the Makena Resort.

The partnership's total debt for buying the property from Seibu amounted to $411 million, Dowling said earlier. He said that none of the other money will be repaid to the assortment of other "mezzanine" lenders. Those are subordinate investors to the primary lender in real estate transactions.

However, in exchange for taking the greater risk, mezzanine lenders typically receive higher interest rates and other financial rewards. Since the Wells Fargo trust is the largest creditor, it retained the right to foreclose and control much of the process.

The Wells Fargo trust is made up of investors who own commercial mortgage securities sold by the original lender, Swiss banking giant USB. Considering the state of the current market and lack of credit available to potential buyers, the trust may invoke its right to purchase Makena Resort for a percentage of the loan debt, Sullivan said.

"But everyone hopes someone steps forward," he said.

* Chris Hamilton can be reached at chamilton@mauinews.com.