Marianne Concepcion-Teregeyo
Members of the public can comment on the proposed new regulation, which will reduce the base rate from 5 percent to up to 3 percent until Jan. 29, she added.
Concepcion-Teregeyo said the “mature” public land leases are those described in Public Law 20-84, which extends public land leases from 40 to 55 years.
Section 4 of the law allows DPL to negotiate a new lease with existing operators of hotels or golf courses, or school and religious organizations with five years or less remaining on their leases under new terms and consideration without publishing a request for proposals.
In an interview on Friday, Concepcion-Teregeyo and DPL real estate director Bonnie Royal said they submitted a proposed amendment to public land lease regulations to address the issues with “mature” public land leases.
Two major hotels fit this definition — Fiesta Resort & Spa whose land lease will expire in July 2021 and Hyatt Regency Saipan whose land lease will expire in December 2021.
The proposed regulation reduces the basis for annual rental fee calculations from 5 percent to “up to 3 percent” of the fair market value or appraisal of the property.
In addition, the lessee will have to pay a percentage of its Business Gross Receipts or BGR.
The bigger the investment the operator makes on the property, the lower the percentage of base rent may be negotiated.
Under the current regulation adopted in March 2017, the base rent for Hyatt and Fiesta in their new leases will be 5 percent of the fair market value of the property, plus BGR and public benefit programs.
This means that both hotels may have to pay a rental fee of an estimated $250,000 a month — an amount that the current hotel room rates cannot support, the Hotel Association of the Northern Marianas Islands told DPL.
Both hotel operators currently pay an average of $300,000 a year.
Concepcion-Teregeyo said DPL commissioned an internal study, conducted by a working group composed of the department’s real estate, compliance and accounting divisions and staff appraisers.
The study considered the many factors that dictate the market conditions in the local hotel industry, she added.
“We had to do our due diligence and make an informed decision. It took us about seven weeks to complete the study,” she said.
So in the end, she said, the study did support or justify the need to consider HANMI’s comment.
Concepcion-Teregeyo said the comment period for the proposed amendment to the regulation will end on Jan. 29. It will be published in the Commonwealth Register next month, and depending on the number of comments, she said, they will push for its adoption by March.
While the proposed amendment is in the works, DPL real estate director Bonnie Royal said Hyatt and Fiesta can submit their initial proposals now.
As of Friday, she said neither Hyatt nor Fiesta had submitted a proposal and an investment package, which should include detailed proposed improvements and plans for the leased properties.
Concepcion-Teregeyo said once Hyatt and Fiesta submit their proposals and if they meet the criteria set forth in P.L. 20-84, the preliminary negotiations could begin.
“We’re already working on the amendment to the regulation. Unless there is major objection from the people, we will move for its adoption. Then, the lessees will have to pay up to 3 percent of the fair market value. They already know that if this moves forward, we are not going to charge them 5 percent,” she said.
