Hawaii Board OKs Mauna Lani’s $275M Mortgage Loan Request

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COURTESY PHOTO

Russell Tsuji

COURTESY PHOTO / SPECIAL TO WEST HAWAII TODAY / 2020

The Mauna Lani Resort in South Kohala has received approval to apply for a $275 million mortgage.

DHL Mahi Opco LLC — owner of the Mauna Lani Resort — intends to take out a mortgage from Goldman Sachs for about 750 acres of land that includes both the resort property and 230 acres of state-leased land that contains the Puako petroglyph fields and is largely used as an archaeological park.

Because state land is involved, the matter went before the Board
of Land and Natural Resources on Feb. 14.

According to a Department of Land and Natural Resources report, the bulk of the mortgage would be used to pay off creditors: About $161 million is dedicated to pay “preferred equity investors,” and
another $101 million would go to “common equity investors.”

As for the remainder of the loan, $5 million would go toward “resort enhancement projects” — listed as integrating solar systems for the
resort and golf course, and other
energy management systems to reduce energy use — and the rest would be spent on various fees and closing costs.

“Notwithstanding the payback to the investors, (DHL Mahi Opco) still will have about
$100 million invested in the property,” DLNR Land Division Administrator Russell Tsuji told the BLNR. “From a lender’s perspective, you like to see that.”

The mortgage has a two-year term with options for three one-year extensions, which would require increases of the interest rate. As of Jan. 17 the interest rate would be 7.16%, according to the DLNR report.

While some BLNR members drew comparisons to the situation of the Grand Naniloa Hotel — another resort lessee of state land that in 2022 and 2023 requested to take out loans to refinance its mortgage in the wake of pandemic-related financial losses — Tsuji said DHL Mahi Opco is in a more favorable financial position and is current with its DLNR lease rental payments.

DHL Mahi Opco representative Pat Fitzgerald said the loan is “very standard” for the hotel industry, and the owners intend to let the mortgage stand for five years.

“We bought Mauna Lani (for
$230 million) in 2017,” Fitzgerald said. “At that time we got a loan for $165 million. That loan required us to invest $120 million into the refurbishment of Mauna Lani. We ended up spending close to
$200 million. … That loan was expiring around last year, but the year before that, the financial markets were relatively tight to get a loan. So, we decided to put more equity in.”

Fitzgerald said DHL Mahi Opco was unlucky to put so much capital into the resort only to be forced to shut down in 2020 because of the COVID-19 pandemic. However, he said the resort had to pay for “employees and health care” during the shutdown, costing the resort another $30 million.

Fitzgerald assured the BLNR that DHL Mahi Opco still has plenty of “skin in the game” on the property and is not at risk of defaulting on the loan. He said the group is “bullish” on the Big Island as a popular resort destination and expects that repaying the loan shouldn’t be a problem.

Even it were to default, Fitzgerald said the bank would still be obliged to maintain the state land as it is.

The BLNR voted unanimously to approve the request for a mortgage, with member Vernon Char abstaining.

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