Kan Pacific: DPL’s Pete A. broke his word

Department of Public Lands Secretary Pete A. Tenorio reneged on commitments made in 2013 to negotiate a new lease for Kan Pacific’s Mariana Resort and Hotel property in Marpi, according to a Kan Pacific document released yesterday. At the same time, the hotel says Open Government Act-requested letters now reveal that Best Sunshine International, Ltd. made specific and expressed requests months after new lease negotiations began to acquire their own lease of the Kan Pacific property in Marpi.

In June this year, DPL announced its decision to seek competitive bids for the Mariana Resort property, whose current lease expires in 2018.

The Kan Pacific document—a letter sent to Tenorio yesterday—describes a timeline of events between DPL and Kan Pacific that suffered an “apparent interruption,” blamed on Best Sunshine’s aggressive pursuit of public lands to meet construction and project mandates as Saipan’s exclusive casino licensee.

The letter, from Kan Pacific lawyer Joseph J. Iacopino, cites OGA-obtained letter from Aug. 4, 2014, that showed that Best Sunshine “specifically requested a lease of the Mariana Resort property.”

The letter was from Terence Tay of Best Sunshine to Tenorio, according to Iacopino.

“Since that time, the DPL discontinued efforts to enter into a subsequent lease with Kan Pacific,” Iacopino said.

He cited another Aug. 22, 2014, letter from Tay to DPL, as follows: “On August 4, 2014, we submitted our Proposal to Lease Public Lands, more specifically, the public lands in Marpi that are currently being leased by Kan Pacific, Ltd.”

“Given mandates of Public Law 18-56 and the casino license agreement, we are left with no choice but to aggressively pursue available lands on Saipan where we can build Phase 1 of the integrated resort,” Tay’s letter stated.

Saipan Tribune tried but failed to obtain comments from Tenorio yesterday. Calls to his cellphone were not answered.

Saipan Tribune also contacted Best Sunshine chief operating officer Matt Harkness’ office yesterday, but no comments were provided as of press time.

It’s unclear right now if draft lease agreements were ever entertained between DPL and Best Sunshine for the Marpi property, or if a monetary offer was ever made. This was posed in an email to Harkness’ office yesterday.

For their part, Kan Pacific submitted proposals with up to $75 million in added investments for a 25-year lease, while lease negotiations were ongoing, according to emails cited in Iacopino’s letter.

Failure to issue notice

Iacopino was responding to a letter from Tenorio to Kan Pacific on Monday, which claimed that DPL was constitutionally prohibited from entering into a new lease with Mariana Resort until after their current 40-year lease expires in 2018.

But Iacopino argues that the property will not automatically revert to the government.

“At least five years before the expiration of the lease extension term, the lessor shall inform the lessee whether it intends to initiate the transition of the management of the facilities to lessor,” Iacopino writes, quoting a provision of the DPL/Kan Pacific lease agreement.

This provision amendment was made in March 2003 between DPL’s predecessor, the Marianas Public Land Authority, and Kan Pacific.

“DPL was contractually obligated to give notice of intent,” Iacopino said. “However, such notice was not given, the deadline passed and, instead of giving such notice, DPL encouraged Kan Pacific to enter into subsequent lease with another 40-year term.”

Iacopino said in the absence of this notice, DPL is in no position to issue bids for the resort property. Such a bid would constitute a “breach” of the lease agreement by the government, he said.

Not good business practice

Iacopino also responded to Tenorio’s claim that the CNMI Constitution requires the reversion of “all lands and improvements to the government” before negotiating a second lease.

“This source of this quoted language is not specified in your letter but it is clear that it is not taken from the CNMI Constitution or from any applicable CNMI statute,” Iacopino said.

This policy would be “neither practical, nor logical and would be quite inconsistent with the actions already taken by DPL.”

“Waiting until the expiration of a lease to commence negotiations would not be practical or logical because it would necessarily result in too much uncertainty about the future of a property,” Iacopino said. This would have “undesirable potential of creating a gap between” the current tenant and the next, which would result in loss of rents and taxes, he said.

“In regard to the Mariana Resort property, the DPL has already clearly demonstrated that there is no need to wait until the expiration of a lease to start negotiations. The DPL actually started negotiations as of May 2013.”

His letter describes the following timeline of letters and meetings:

On May 16, 2013, Tenorio writes a letter titled “Soliciting Expression of Interest to Extend Current Leasehold on Public Land where Your Hotel is Located.” The letter sought the extension of hotel leases for up to 25 to 40 years “instead of turning in your leasehold to the CNMI government upon its expiration,” Tenorio writes.

“The DPL is offering hotel owners an opportunity for extension of their leases,” Tenorio said.

On May 20, 2013, Kan Pacific president Yoshihiro Kitami writes backs in the affirmative, advising that they wish to continue their services as Mariana Resort and Spa. Hotel general manager Gloria Cavanagh also responds affirmatively.

On May 29, 2013, Tenorio thanks Kan Pacific for their response to “DPL’s plan to offer advance approval” of leases nearing their expiration date.

In January 2014, Kan Pacific officials meet with DPL to discuss plans for the subsequent lease, and DPL requests for formal notice for a termination of the existing lease in exchange for a 25-year lease.

On Jan. 21, 2014, Kitami gives the formal notice in a letter to Tenorio to terminate the current lease “in exchange for a new 25-year lease to the same land area.”

On Jan. 28, 2014, Tenorio acknowledges the letter and advises Kan Pacific to begin talks “leading toward a new lease agreement.”

On June 10, 2014, Kan Pacific sends an email to DPL with a first draft of the lease agreement.

On June 11, 2014, DPL replies to the email, stating their hope that Kan Pacific will invest in improvements “as soon as possible, which is why DPL offered to enter a new lease…”

On or about Aug. 4, 2014, Kan Pacific submits an initial proposal for $30 million in added investment, as a response. Kan Pacific also later submitted an amended proposal for $75 million.

Best Sunshine was awarded its exclusive casino license in July 2014. Tay’s letter followed in August.