reprinted courtesy Maui News 2/28/10
By HARRY EAGAR, Staff Writer
The Hotel Wailea, formerly known as the Diamond Resort at Wailea, continues
to operate its 72 suites and landscaped grounds Friday despite being embroiled
in a complex foreclosure proceeding in the state’s 1st and 2nd Circuit Courts.
WAILUKU - In 2008, a group of Honolulu businessmen decided to attempt to revive the Diamond Resort at Wailea, described as tired and dated since it had not been updated since its opening two decades earlier.
That required them to consolidate the ownership, which had been dispersed among 1,400 owners in Japan. And that generated lawsuits.
Most of those challenges were dismissed by 2nd Circuit Judge Joel August earlier this month, but both the challengers and the rehabilitators apparently are likely to be left with nothing, since a Mainland lender has foreclosed on the property.
The resort continues to operate, now as the Hotel Wailea. The lenders have asked the 1st Circuit Court for the right to bid their debt at the foreclosure auction (which is some time off), so they will most likely end up owning the hillside spa. But the lenders have not said what their long-range plans are.
In a hearing Tuesday, August expressed some puzzlement about exactly what the legal description of the property is.
But he said he was certain that, under Hawaii law, it was never a time-share property.
Junsuke Otsuka, representing three of perhaps 300 remaining minority owners, had tried to have the property treated as a time share for purposes of fixing responsibility among many different entities that have partial ownership, or were managers or who have potential liabilities under the complicated tenure.
August repeatedly told Otsuka that matters he was bringing up "belong in Osaka district court." In the end, he dismissed most of the defendants but gave Otsuka a few weeks to bring an amended complaint against a narrow category of parties: a category that defendants' lawyers said may not have any members.
In that case, Granite Fund IV, an investor group based in Virginia, may have practically gotten its hands on a unique Hawaii resort.
Diamond Resort began during the period when the yen was riding high and Japanese investors were transforming the bare blue rock of Wailea by building the Grand Wailea Resort Hotel & Spa (originally Grand Hyatt) and Four Seasons Resort on the beach.
Up above, a Japanese firm that managed hot springs spas in the mountains of Japan made its first venture abroad, building a Japanese-style mountain resort in South Maui - with artificial springs and no pine trees or cool streams, but with a fancy Japanese restaurant, furos in the suites and other Japanese touches.
It was marketed to Japanese members of Diamond's existing resorts as a tropical version of what they were familiar with, reportedly at prices of $80,000 to $100,000. There were 1,400 of them, more or less, and the subsequent history demonstrates the difficulties of managing a Hawaii resort with dispersed ownership.
Although it was not a condominium or time share under state law, it had some familiar features, including a yearly maintenance and common tenancy charge. This was low, only a few hundred dollars, and apparently it was never raised.
Not only was maintenance deferred, but the Diamond Resort Hawaii Owners Association is listed at the top of Maui County's list of real property tax delinquents of more than three years standing, owing $193,000.
Over the years, many of the 1,400 interests were bought up by the operator, and in 2008 Black Diamond Hospitality Investments bought up those interests. Since then, it has attempted to corral the rest. However, as of last week, it had reassembled only a little more than a thousand, leaving between 300 and 400 original members or their successors.
What these people owned was not real estate, August concluded after reading the documents several times. "It is unclear how they are to be described," he said.
He was initially concerned that all the parties in interest be informed, and when he was told they had not been, that slowed the plaintiff's lawsuit down dramatically. The complaint had already been in U.S. District Court in Honolulu, which eventually remanded it to state court.
After telling Otsuka that he would have to notify all the potential parties, August turned to the question of whether Otsuka wanted a receiver appointed for the property. Otsuka somewhat reluctantly said he wasn't asking for one immediately. August told him that if he said he wasn't, that would be final in his court. He would not be able to change his tactics later.
So Otsuka gave up on the question of a receiver. The four defendants' attorneys were smiling at that, and they were even happier when August dismissed a block of claims.
In the end, in the interest of simplifying the process, August dismissed all claims, with a provision that Otsuka could file an amended complaint later, but only if the entity was a Hawaii nonprofit corporation. But there may not be any target that fits that category.
Meanwhile, Granite Fund IV filed a foreclosure action earlier this month against Black Diamond Hospitality Investments LLC, Diamond Resort Hawaii Owners Association, Diamond Resort Hawaii Corp., Diamond Resort Management Inc., Janic Corp. and Kiyoko Kimura, who had managed the resort for Diamond. All except the first were listed as junior claimants to the property, if they had any claim at all. And the first four were the targets of Otsuka's lawsuit.
What had happened was the Black Diamond, formed for the purpose of taking over the resort, had borrowed $16.5 million from Central Pacific Bank. CPB, under financial pressure from real estate loan losses in California, sold its loan to Granite in December.
This would leave Otsuka's clients, if they could eventually establish a claim, at the end of a long line of junior creditors, none of whom is likely to get anything. Meanwhile, Black Diamond had given a contract to Aqua Hotels & Resorts, which is managing the 72-suite resort as the Hotel Wailea.
* Harry Eagar can be reached at heagar@mauinews.com.
reprinted courtesy Maui News 2/28/10, original link www mauinews.com/page/content.detail/id/529072.html?nav=10
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