Gov. Linda Lingle's plan to buy the Turtle Bay Resort — and keep the hotel and golf courses operating — does not make economic sense without another money-generating project on the property, the attorney for the resort's management said yesterday.

"You cannot sustain a resort or a large area of land with amenities like golf courses with one hotel of this size," said Terry O'Toole, who is representing Kuilima Resort Co. "A lot of people have looked at this resort and done their due diligence. ... I can't for the life of me understand how the state would run it."

A spokesman for the governor said yesterday that there were no new details about the proposal Lingle outlined on Tuesday.

In her sixth State of the State speech, Lingle called for the state to buy the financially troubled resort, maintain the current businesses there and involve the community in deciding what to do with the undeveloped land. She listed several ways of paying for the purchase but did not offer any ideas on how to keep the businesses running.

"It sounds great when you first say it," O'Toole said. "When you begin to study it, you start to scratch your head."

O'Toole said yesterday that the revenues from the hotel and golf course are not enough to sustain their operations, let alone pay off the $400 million debt that any future owners would accrue in buying the 880-acre property.

Lingle said one option would be "selling off the resort portion of the property to pay down the debt," but O'Toole said that is not viable.

"It may make no sense at all," O'Toole said. "The existing hotel and golf courses and facilities cannot function on a stand-alone basis. The reality is the economics don't support that."

It's also unlikely the state would get into the business of actually running the Turtle Bay Resort, real estate developers and consultants said yesterday.

"She (Lingle) is not going to step in and manage the hotel," said Stephany Sofos, a local real estate consultant, who echoed others' interpretation of Lingle's vision. "No one would want the state to manage a hotel. That's not their business. Their business is protecting the public's natural resources."

SMALLER EXPANSION?

Developer Peter Savio believes the best economic model for the state buying the property would need to include a much smaller expansion project that would generate enough income for a new developer to pay off the purchase price of the hotel and golf courses.

"You can't generate enough money from the hotel to buy it," Savio said.

Community members who oppose Kuilima's current plans to add five new hotels with up to 3,500 rooms and condominium units probably would allow a new developer to build 200 to 500 low-rise, plantation-style bungalows, Savio said.

In exchange, Savio said, the new developer could give up future development and land rights and the public could get an oceanfront park on the resort property that could include cabins.

O'Toole also worries that Lingle's call to buy the resort might interfere with state agencies that are considering permits and applications to expand the property with five new hotels.

"The state is wearing two hats: One as a prospective buyer on terms that are less than clear while there are one or more state agencies that have review and permitting responsibilities," he said. "We fully expect the state will honor the obligation to make sure that my client's applications are timely processed. We don't want the state's interests, as outlined by the governor, to supercede the rights of the owner to develop the property as it's already been approved.

"The governor's State of the State address has left people a bit confused as to exactly what's involved here."

Pulling off the purchase will mean working through a series of complex issues, including how to accurately asses the value of an oceanfront resort that includes lands zoned for resort, agriculture and preservation — and figuring out what to do with the hotel workers' union and private condominium owners sitting on leasehold land.

DEAL WOULD BE A FIRST

State and county governments have long histories of getting involved in public-private partnerships for popular sites in financial trouble. The state owns the land underneath hotels in Hilo.

But the Turtle Bay deal would be the first in which the state would be directly involved in deciding who would run the hotel and its two adjoining golf courses, said Joseph Toy, a hotel, tourism and real estate consultant who has served as a court-appointed receiver and foreclosure commissioner on several hotel and golf course projects.

"Hotel operations are fairly complex," Toy said. "Whether the state is willing to take that on, I don't know. But it will be interesting to see how they would treat the hotel and golf course components separately from the undeveloped portions."

THE BACKGROUND

In 1998, California-based Oaktree Capital Management LLC and related companies loaned Hawai'i developer Bill Mills $52 million to buy the Turtle Bay Hilton Golf & Tennis Resort — $38 million to acquire the resort, $5 million to refurbish it and $9 million to purchase two European properties.

Mills declined comment yesterday.

In the years that followed, the resort suffered labor disputes and drew the anger of North Shore protesters when it announced plans to add five new hotels.

Since June 2006, Kuilima Resort Co. has been looking for a development partner — or a buyer. Last July talks broke off with Starwood Hotels & Resorts as a possible purchaser or development partner.

Keith Vieira, senior vice president and director of operations for Starwood Hotels & Resorts in Hawai'i and French Polynesia, said yesterday that Turtle Bay is a beautiful property "but it wasn't the right deal for us."

"We think the governor's effort to look for areas to preserve Hawai'i's open space makes sense," Vieira said. "It certainly has opened up a lot of dialogue. But a lot of work has to happen ... so the right decision is made for the community and the right decision is made for the economy."

FORECLOSURE SUIT

Last month, international lender Credit Suisse filed a $283 million mortgage foreclosure lawsuit against Kuilima in state court, seeking to foreclose on the resort because of delinquent principal and interest payments.

Nicola Jones, CEO of Kuilima Resort Co., said in a statement yesterday, "While we were surprised by the governor's statement (Tuesday) in her State of the State of address, we are open to discussing the purchase proposal with her. As yet, no one from the governor's office has reached out to anyone at Kuilima Resort Co. but we look forward to exploring possible options.

"One of our primary concerns ... would be to protect the commitments made in the unilateral agreement that guarantee certain community amenities such as parks, maintenance of open space, affordable housing and childcare facilities, the costs of which would be borne by the land owner. In the meantime, we will continue to work with city and state agencies to move the project forward."

Lingle estimated the purchase price at less than $500 million.

Sofos, the owner of SL Sofos & Co., could not speculate on a dollar value for the resort because she also serves as a real estate appraiser.

But because much of the land is zoned for agriculture and preservation, Sofos said, "it won't cost as much as everybody thinks it is."

"You have to look at the greater good," she said. "And the greater good is to preserve the land. If you want to stabilize and grow tourism, you have to provide a portion of Hawai'i for them. If you keep developing your coastal properties, you're killing your golden goose."

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com.