The lands under the only hotel district on the east side of the Big Island would be transferred to the Office of Hawaiian Affairs under a settlement agreement reached between OHA and the state over a long-standing dispute regarding revenues generated from ceded lands.

Also part of the package are a group of lots in Kaka'ako that comprise an area that has seen many development plans, all of which have fallen by the wayside for various reasons, most recently a plan that called for two high-rises, retail spaces and other features.

A third parcel covers 110.1 acres at Campbell Industrial Park, once home to a cattle feed lot. OHA officials said the land may be used for solar energy production.

The proposed settlement agreement, formally announced at a press conference yesterday and which still needs to be approved by the state Legislature, would transfer an estimated $187 million in property and $13 million in cash to OHA. Additionally, OHA would continue to receive $15.1 million annually from state coffers.

The settlement addresses how much OHA is owed by the state from revenues generated from public lands turned over to the United States by the Republic of Hawai'i in 1898.

Both OHA Board Chairwoman Haunani Apoliona and Gov. Linda Lingle called the proposed settlement fair and reasonable to all parties involved. State senators and representatives were cautious and said they wanted to see more details.

Apoliona chastised comments made by Sen. Clayton Hee, a former OHA chairman, who on Thursday said the agreement gave OHA significantly less than a proposal by former Gov. Ben Cayetano in 1999. Apoliona said that proposal was contingent on unreasonable conditions sought by the administration that OHA and its constituencies could not live with.

When OHA then made a counteroffer, it was the administration that walked away, she said.

Of the three areas in which OHA would be gaining acreage, the Hilo property is by far the most developed, although at $34.5 million it has the lowest assessed value. OHA officials yesterday estimated that the six Hilo parcels, which total about 80.4 acres, generate about $800,000 in lease revenues annually to the state.

The parcels include the land under the Hilo Hawaiian Hotel and the Naniloa Volcanoes Resort, formerly known as the Hawai'i Naniloa Resort.

They declined to say how much potential revenue could be generated by redevelopment of the area, which was developed in the 1960s and 1970s.

The reaction from Hilo-area business leaders was mixed.

Rick Toledo, president of the Hawai'i Island Portuguese Chamber of Commerce, asked whether OHA will honor existing leases or renew leases now held by the current hotel owners.

"The devil is in the details," he said, predicting that the settlement will be closely watched by the Big Island business community when the issue surfaces at the Legislature.

Hilo is suffering as a tourist attraction because there is not enough good hotel inventory, said Robert Williams, president of the Hawai'i Island Chamber of Commerce. "It's a limiting factor on our tourism right now," Williams said. "We could use more quality hotel rooms."

Williams said he believes OHA would be obligated to honor existing leases, and a change in ownership for the 80 acres should not be terribly disruptive in the short term.

State and OHA officials confirmed that existing leases would be honored but also noted that many of them are up in 2015.

The state was often blamed over the years for the decline in the Hilo hotels because state law prohibited the Department of Land and Natural Resources from negotiating lease extensions or new leases with the existing hotel owners. By law, at the end of each lease the property must be put out to competitive bid.

The problem has been that as the hotels approach the end of their leases, they have no incentive to refurbish the properties or invest in them because they cannot be sure they will keep the lease, Williams said. Even if the owners are willing to make improvements, lenders are unwilling to finance the improvements as the end of the lease approaches, he said.

That led to some owners allowing their properties to deteriorate as the lease termination date approached.

"That is our main tourist area, and it would be nice to see more dollars put into the area to make the area a more desirable tourist destination for people to stay at," Williams said. "There's a possibility this could be a good thing."

The Honolulu parcels involve four lots totaling about 18.5 acres in Kaka'ako known as Kaka'ako Makai fronting Kewalo Basin that contain a mix of vacant and leased properties. The properties are valued at $92.7 million and comprise a portion of the state lands that recently were part of a redevelopment proposal spearheaded by Alexander & Baldwin Inc.

In 2006, the state Legislature passed a bill that effectively scrapped the A&B plan amid opposition from area residents, surfers and others objecting to the plan.

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com and Kevin Dayton at kdayton@honoluluadvertiser.com.