Flame Sako Resort land lease OK’d

The Legislature voted yesterday to approve a Korean firm’s proposal to lease more than 100,000 square meters of land in As Matius to build a multi-million dollar resort.

By a vote of 25-2 the House and Senate granted Flame Sako Resort and Spa the right to proceed with the $50 million-$60 million resort.

Flame Sako president Dae Sik Kang said through a translator that he was confident the Legislature would approve the lease because he considers everyone in the CNMI his friends and family.

With the CNMI’s current economic slump, Flame Sako must be commended for coming to Saipan, Sen. Joseph Mendiola said.

“We have to applaud Sako for taking such a bold action or risk to come to the CNMI,” he said.

Rep. Rosemond Santos said she hopes Flame Sako understands the value of leasing land in the CNMI.

“I hope as a foreign investor you are privileged to do business here and you remember that,” she said.

Under the lease, Flame Sako would pay DPL $52,320 for the first year. The amount would increase to $78,840 by the fifth year of the lease. The alternative would be to pay 3 percent of the gross receipts. After the initial five years, the company must pay based on a percentage of the fair market value. In the sixth year, the resort’s owners must pay 4 percent of the fair market value or 3 percent of the gross receipts. By the end of the lease period, Flame Sako must pay 8 percent of the fair market value or 3 percent of the gross receipts-whichever is greater.

The 357-room resort covering 109,003 square meters will include hotel rooms, villas, a convention center, sea restaurant, water park, marine port and yacht basin.

The decision to grant the lease did not come without considerable discussion, as members of the House and Senate spent nearly two hours questioning Public Lands Secretary John DelRosario and DPL legal counsel Braddock Huesman about the lease contract.

Rep. Heinz Hofschneider asked why Flame Sako’s annual rental lease was set at 2 percent of the $2.616 million appraised value, while Kumho Asiana, which is building a $68-million “golftel” is leasing land at an annual rate of .6 percent of their $17 million appraisal.

“Why this disparity on appraisal between Kumho and Asiana?” the representative asked.

The important factor is whether DPL and the lessee agree on the terms, Rep. Victor Hocog said.

“If that’s the case, I guess we can move ahead with the agenda today,” he said. “I’m glad the companies agree and I would like to tell the secretary this is a better rental rate.”

Afterward, Dae said he was not worried and believed he was getting a good deal.

Some members questioned if financing was available for Flame Sako to begin construction within six months after the lease is signed.

“It is my understanding that financial statements are due at the time of the application,” Rep. Tina Sablan said.

“The chairman of Flame Sako has secured financing,” DelRosario said.

When pressed for letters of credit or bank statements, the DPL secretary said Flame Sako has discussed financing with the bank and investors.

The resort’s possible future use of a Qualifying Certificate was also a concern among some members. Committee members raised similar questions and were told they would not be asking for the tax credit, according to House Committee on Natural Resources chair Ramon Tetuteb. The House has passed a resolution asking the Commonwealth Development Authority to deny Kumho Asian’s request for $22 million in tax rebates—$4 million more than the company was originally granted.

“I think the magnitude of investment will overshadow any thoughts on the QC,” Hocog said, adding that he urged Flame Sako officials to contribute funding to nearby GTC Elementary School so that it can repair classrooms.

Sablan, who, along with Sen. Luis Crisostimo voted against approving the lease, noted that four taxpayers are suing Gov. Benigno Fitial, DPL and DelRosario over the Kumho acquisition, saying it was leased at an unreasonably low rate.

“I’d be concerned about us exposing the CNMI government to another lawsuit,” she said.