From an environmental and cultural viewpoint, the Hawaiian Riviera Resort is a catastrophe waiting to happen. The many ways that this project would sin against nature were discussed in the June edition of Environment Hawai`i.
Financially, it would seem to be a disaster as well – one that is not simply waiting to happen, but may already be in progress.
In proceedings before the Land Use Commission, the agents of the developer, Charles Chidiac and the Palace Development Corporation, which he tightly controls, did not give that body a complete and honest representation of Palace’s financial straits or its corporate structure. Far from its assets exceeding liabilities, as shown in the original balance sheet presented to the Commission, by the time the proceedings ended, liabilities towered over its only asset, the Ka’u land on the Big Island proposed as the site for the Riviera Resort. While LUC approval surely increased the value of Palace’s property substantially, up to the point that approval was obtained, any claim that the property’s value exceeded actual costs of acquisition would have been speculative at best, deceitful at worst.
The Land Use Commission was told Palace had arranged a line of credit with a Scandinavian bank. It was not told that that credit line had been tapped to the tune of more than $40 million well in advance of the Commission’s decision on reclassification.
The Land Use Commission was told that Palace had purchased “the majority of,” its partner’s land in August 1990. It was not told that the mortgages it signed to effect this transfer increased Palace’s indebtedness by another $40 or so million. The Land Use Commission was told that Palace was “the development arm” of its parent company, Mount Lebanon Hawai’i Corporation. The developer’s agents explained to the Commission the need to have the two separate entities. The Commission was not told of the merger of those two corporations in February of this year and thus was deprived of an opportunity to hear the developer’s agents explain why the previous conditions necessitating two separate corporations apparently no longer obtained. Moreover, although the name of the surviving corporation (Palace Development Corporation) suggests the original petitioner has survived, in fact, the petitioning corporation has been dissolved. The surviving corporation is Mount Lebanon Hawai’i, which changed its name to Palace after “eating” Palace up, corporately speaking.
Practically speaking, the difference may be inconsequential, since Charles Chidiac controlled both corporations so closely. Legally speaking, however, the change may not be so blithely dismissed. With the legal petitioner (the pre-merger Palace) for the boundary amendment having vanished off the face of the Earth, it would appear that the surviving corporation (post-merger Palace, a.k.a. Mount Lebanon) would need to seek proper approval from the Land Use Commission as a substitute petitioner. This would probably have been easily accomplished, with LUC rules permitting substitution “upon motion and for good cause shown.” Motion to do so was not made, however, and good cause not shown.
An Incurious Commission
The Land Use Commission has the responsibility to look into the financial ability of petitioners to carry their projects through to completion. In this case, the Commission failed dismally to check out the petitioner’s financial resources. Indeed, it admitted as much when it conditioned the land reclassification on the requirement that Palace prepare a financing plan for submittal to and approval by the Commission before Palace undertook to have the parcel rezoned at the county level. The argument for doing this (Palace’s argument, which the commissioners accepted) was that the developer could get the firm financial commitments needed to satisfy the Commission only after the Commission had indicated its approval of the proposed resort. Perhaps Palace will be able to lasso a cash cow into its scheme in the next few weeks, one that will be able to allay reasonable concerns that the project is too thinly capitalized to be viable. Maybe.
On the other hand, if Palace says it needs Commission approval before it can attract a financial partner, why would it not also need county zoning approval? Any investor cautious enough to want LUC approval before letting go of the $100 or so million Palace is seeking would probably want to have county zoning approvals in hand as well. In any case, if Palace does present a financial plan to the Commission, the Commission should not let slip through its hands once more the opportunity to ask some hard questions of Palace’s principals – including Charles Chidiac himself. Although Chidiac is by all accounts the moving force behind this resort, in more than two years of LUC hearings on his proposal, he testified not one time. Why?
Caribbean Connection
No one knows except Charles Chidiac. Nonetheless, it is not far-fetched to think he avoided testifying the hope he would not be cross-examined on at least some of his past business deals. Environment Hawai’i makes no claim to full knowledge in this area; still, what we have been able to learn leaves unresolved questions concerning Chidiac’s business ethics and managerial capability- here, on the Mainland, in the Caribbean, and at points further east.
One of the interveners in the Riviera case, Glen Winterbottom of Na’alehu, raised much the same point in his closing remarks to the Commission: “During the course of the hearings the petitioner submitted no evidence documenting the track record of project principals … And I mean no evidence… I don’t think any of us can name a project that Charles Chidiac has built prior to this, because it was not mentioned in the testimony. There’s no track record, no people coming here saying they know Charles, he’s built this dam, or whatever, and it hasn’t leaked. Nothing … Chidiac refused repeated requests by the parties to testify under oath … and declined to provide a current profit and loss statement for his Smoki Foods of Hawai’i venture… The petitioners also failed to update their balance sheets in the record, which are almost three years old. Thus the financial ramifications of a recent unexplained acquisition by Palace Development Corporation of a substantial portion of Hawai’i Ka’u `Aina’s stake in the proposed project can simply not be determined. We don’t know – we don’t know where this company stands as far as finances. They could be on the verge of bankruptcy; for all we know.”
Minutes after Winterbottom’s eminently sensible remarks, the Commission gave Chidiac the thumbs-up sign.
Respectability for Rent
What enabled Chidiac to pull it off was the participation of some of Hawai’i’s best known firms in the area of development. The consultants and hired hands that appeared on Chidiac’s behalf lent their own good names to the project, giving it a semblance of serious intent. At the same time that they were vouching for him, they were also conveniently insulated from any knowledge of his enterprises that might have allowed them to answer some of the questions about Chidiac’s background that cropped up from time to time in the proceedings. James Bell of Belt Collins & Associates was head cheerleader – for which may he forever be embarrassed. He talked of Chidiac’s “big, bold plans,” unaware of his big, bold debts. The need to make certain that he was representing a reputable client with a project worthy of his firm’s backing evidently did not occur to Bell.
Others in Chidiac’s pep squad included John Knox, of Community Resources, Inc., who surveyed the social and economic havoc this project would wreak on the Ka’u District and pronounced it acceptable; Steven Dollar of Marine Research Consultants; S.K. Djou and Thomas E. Jensen of Dames & Moore, who, with the engineer’s typical hubris, believe they can find ways to build safely atop the huge ground cracks in the resort area; Ernest Watari, the president of Pannell Kerr Forster, who claims to have given Chidiac the inspiration for making his resort the exclusive purview of the world’s super-luxury tourist class. Patti Cook & Associates hardly counts; if you’ve got the money, they’ve got the time.
The cast of supporting characters numbers several hundred, including some whose services were not so apparent. For example, Francis N. Kauhane Jr., a part-Hawaiian who at one point was trying to help Chidiac overcome objections of Native Hawaiians, received a $100,000 loan as a “second mortgage” from Palace Development Corporation in June of 1989, two months before he actually closed on the property.
Coming Up Short
Add it all up – a million or two for the environmental impact statement, a few hundred thousand for preliminary architectural work, a like sum for engineering reports and expert witnesses, a few tens of thousands for campaign contributions – and you still don’t come up with a total that’s in the same league, much less the same ballpark, as the funds that Chidiac has already been advanced. Where has the money gone?
All of modern banking rests on the principle that interest rates on borrowed money must be higher than those paid for money on deposit. Therefore, one customarily holds off incurring indebtedness until right up to the very moment that it is essential to have the borrowed funds in hand. Chidiac has not done this. If he is “investing” the borrowed funds (as his friend and consultant Karl Hippmann told us), he is doing it either in the stock market or in other uninsured securities. In either event, the Securities and Exchange Commission prohibits banks with U.S. charters from lending money for purposes of investment. The foreign institutions with whose money Chidiac is playing evidently are not so punctilious (although at one point several of Chidiac’s notes were held by a Manhattan branch of the Norwegian-based Bergen Bank, which branch was established under the laws of New York state and had an office in Manhattan).
An Unknown Quantity
If the Hawaiian Riviera Resort is developed, it will forever alter the character of Ka’u. Land that is still cheap enough for working men and women to afford will disappear, in all likelihood. The Riviera may control tightly the structures built on its land, holding them to someone’s standard of architectural prettiness. The rest of the district will probably not be as thoughtfully developed. Unsightly strip development may be expected to occur. The 850-unit support community Palace has promised to build for workers at the resort will not begin to accommodate the several thousand people who will be needed to fill all the jobs that will be created when the resort is fully developed. As was discussed in the June 1991 issue (scroll down to see June article listings), the county government will be consigned forever to playing catch-up with services in the area; it is unlikely that increased tax revenues resulting from higher assessed valuations of properties in Ka’u will be able to pay for the complete range of services required – and all so that super-rich luxury tourists can enjoy an artificial “authentic” Hawaiian-Mediterranean experience.
This is not a scenario that any thinking person should welcome. Indeed, LUC Chairman Renton Nip indicated he was concerned about the prospect that more and more, Hawai’i was catering to the luxury class of tourist: Should luxury hotel and condominium development “be the only option with respect to development on this island … or can the government, together with the private sector, develop other alternatives?”
Nip continued: “I guess a further question is: Assuming those factors don’t change and we only have an environment in which luxury hotels are economically feasible in West Hawai’i, what kind of society does that create for the future? What is our future, you know? Not so much us, but our grandchildren and the people who come after us.
“[I]sn’t there an increasing dichotomy between the haves and the have-nots? It seems to me there is. And we all should think about ways to address that.”
Evidently, however, Nip did not think withholding approval of the Riviera project was an effective way of addressing those concerns.
Remedies?
Nip’s comment (not his vote) was on target. Resorts such as the Riviera will increase the distance between haves and have-nots. They will inevitably create social and economic dislocations. They cause full-time residents, people who are the mainstay of the local economy, to be disadvantaged with respect to the enjoyment of the state’s resources (natural and financial), in favor of wealthy tourists to whom it matters not so much where their pleasures are taken, so much as that they are taken. If Hawai’i has one less luxury resort, in other words, not one of its potential customers will be inconvenienced; they have lots of other interesting, exciting places to go, places where they can enjoy the same kind of gourmet pizza shops, bowling alleys and video arcades planned for the Riviera’s exclusive commercial area.
So, if the resort is not of surpassing benefit to the economy, to the locals, or to the proposed clients, exactly to whom is it of such overarching benefit? Few people other than Charles Chidiac, his bankers, and his minions.
We submit that altering the face of the island as a favor to Chidiac, or to any other person, does not constitute wise public policy. The Land Use Commission fell short of the standards set in its own rules by not requiring proof of economic feasibility to be made before the grant of approval to the land reclassification petition.
It may be able to recover on this, when (if) Palace Development Corporation comes forward with a financing plan. We hope so.
With hearings on this particular case lasting more than two years, the commissioners may have thought they know all there was to know. We submit they did not scratch the surface. In the future, the Commission would do well to display greater curiosity about the petitioners who come before it. It is dangerous to allow developers to testify by proxy, as occurred in this case. If the principals themselves are unwilling to present themselves for questioning, that should in itself be grounds for suspicion.
A Postal Conspiracy?
As readers will note, this is the second of two issues discussing the proposed Hawaiian Riviera Resort. If you did not receive the first installment, please let us know. About two dozen copies were returned as undeliverable after the Postal Service’s machinery had peeled off the address labels, leaving both them and us in the dark as the intended recipients. Extra copies are available; let us know if you need one. Our apologies for the inconvenience.
Volume 2, Number 1 July 1991
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