Net worth $17.6b $4.6b

The Beach Tree, one of seven restau­rants at the re­sort

Bloomberg Businessweek (North America) - - Focus On/mid-market -

Once upon a time, thou­sands of years ago, a surg­ing mass of magma be­neath the Pa­cific Ocean burst through the earth’s crust and be­gan burp­ing out a stream of lava, first un­der­wa­ter, then above, to form land. As the tec­tonic plate shifted, the erup­tion created a string of four is­lands—all of which are pretty nice, but the largest, known to­day as Hawaii’s Big Is­land, is as close to par­adise as any hu­man might de­serve. On the beaches, the tem­per­a­ture hardly ever roams above the mid-80sf or be­low 70. It’s the trop­ics, yet it’s sel­dom muggy. And rain, when it comes, is like an af­ter­thought—the gen­tlest of re­minders of how achingly won­der­ful the is­land is the rest of the time. But even in par­adise,

$33.7b some spots are bet­ter than oth­ers. The is­land’s north­west shore is a gold coast made re­mote and ex­clu­sive by a border of long, flat fields of vol­canic rock. Lau­rance Rock­e­feller opened the Mauna Kea Beach Ho­tel there in 1965. Then came the Ha­puna, the Mauna Lani, the Orchid, and the Waikoloa. In his fi­nal years, Steve Jobs of­ten hid out in Kona Vil­lage, a rus­tic, low-fi, Bali Ha’i- style hide­away best reached by

$5.6b pri­vate plane. Nearby is Kukio, a quiet home­own­ers’ com­mu­nity where KKR’S Paul Hazen, Sut­ter Hill Ven­tures’ David An­der­son, and Sil­ver Lake Part­ners’ David Roux be­came neigh­bors. And last to be built, nes­tled be­tween Kukio and Kona Vil­lage, came the place that in many ways would out­class them all.

Hualalai, de­vel­oped in 1996 by Ja­pan’s Ka­jima Corp., is a pris­tine, man­i­cured 865 acres on which are tucked a $1,000a-night (for starters) Four Sea­sons ho­tel and a res­i­den­tial com­mu­nity of more than 300 homes and con­do­mini­ums. The home­own­ers are served by their own pri­vate Hualalai Re­sort Club, and can also make use of the ho­tel’s phe­nom­e­nal ameni­ties. All in all, Hualalai has the scale to sus­tain two cham­pi­onship­cal­iber golf cour­ses, seven bustling restau­rants, five main swim­ming pools, and a snor­kel­ing-friendly la­goon fre­quented by a spot­ted ea­gle ray and 4,000 other fish. The spa has an apothe­cary with com­pound­able herbal reme­dies and sup­ple­ments made on- site. Along the links, golfers stop at “com­fort sta­tions” stocked with com­pli­men­tary candy bars and bour­bon. Pool­side at­ten­dants of­fer chilled tow­els, sun­glass clean­ing, and Evian spritz ser­vice.

Michael Dell liked Hualalai so much that in 2006 he bought the whole thing—ho­tel, re­sort, ev­ery­thing ex­cept the pri­vate homes. When his part­ner,

He didn’t know it at the time, but he was en­coun­ter­ing a new pol­icy en­acted by Hualalai Re­sorts, Dell’s man­age­ment com­pany on the ground. It has three prongs: First is the com­plex sched­ule of steep re­sort ac­cess fees based on the time of year and the re­la­tion­ship of the guest to the home­owner (sons and daugh­ters are OK; nieces and neph­ews, friends, and renters have to pay). Next there’s a sta­tus hi­er­ar­chy for mak­ing din­ner reser­va­tions at any of the restau­rants. Fi­nally there’s the rule gov­ern­ing the use of the chaises longues by the pools, which the Firesteins en­coun­tered at its most cog­ni­tively dis­so­nant mo­ment, on a de­serted pool deck in the rain.

The word “no” was get­ting an aw­ful lot of use. And it was said to peo­ple who weren’t ac­cus­tomed to hear­ing it. “Peo­ple who have in­vested mil­lions of dol­lars be­ing home­own­ers— ba­si­cally our needs are not as im­por­tant as the ho­tel guests,” says Mike Green­feld, owner of a Hol­ly­wood post­pro­duc­tion com­pany and a Hualalai home­owner for al­most a decade. In Oc­to­ber he tried to re­serve spots for some friends at a luau in De­cem­ber, a peak pe­riod. (“Frankly, if you’ve been to one, you’ve been to them all,” he says, but “they wanted to go.”) It was the ear­li­est rec­om­mended time to re­serve, but he was told the luau was full. “That was bull----,” Green­feld says. “They were just hold­ing space for ho­tel guests.” He called and com­plained, the ho­tel re­lented, and when his group got to the luau, there was plenty of room. It was clear what had hap­pened: The friends weren’t im­me­di­ate fam­ily, so they were in a lower caste.

Ten­sion over the pol­icy boiled over in Au­gust, when three ex­ec­u­tives from Hualalai Re­sorts con­vened a spe­cial meet­ing of the Hualalai Home­own­ers As­so­ci­a­tion to an­nounce the re­sort was in­creas­ing the peak-pe­riod unac­com­pa­nied guest fee to $250 and ex­pand­ing the pe­ri­ods to sev­eral months of the year. The steep fee, they said, was meant to make it harder for peo­ple to rent out their homes—some­thing they ar­gued was hap­pen­ing more and more fre­quently and clog­ging up the ho­tel’s ameni­ties. “A fam­ily of four is star­ing down the gun bar­rel of $1,000 a day be­fore you ever pay for any­thing else, like rent,” says Taber An­der­son, a long­time home­owner. With a sur­charge like that, why would any­one rent a place at all?

The goal, the ex­ec­u­tives said, was to pro­tect what they called Hualalai’s “ex­pe­ri­ence of ex­clu­siv­ity,” ac­cord­ing to those who at­tended. No one in the room dis­puted that ex­clu­siv­ity de­served to be pro­tected. But no one in man­age­ment seemed to care that some home­own­ers, those who rent their places for sev­eral months out of the year, could lose tens or even hun­dreds of thou­sands of dol­lars in an­nual rental in­come— or that ev­ery­one’s re­sale val­ues might plum­met once prospec­tive buy­ers learn about the ex­tra charge for any­one who rents. Days af­ter the meet­ing, San­dra Hol­stead, a home­owner since 2004, told a Hualalai ex­ec­u­tive she might be able to find at least a few peo­ple will­ing to pay the $250 fee. “Maybe the fees would have to be higher then,” she says the ex­ec­u­tive replied.

This could end in only one place: court. In Oc­to­ber, Christo­pher Zyda, a Hualalai home­owner, filed a law­suit, which he hopes to make a class-ac­tion suit, against the Hualalai own­ers, in­clud­ing Dell’s fam­ily of­fice, MSD Cap­i­tal, and the Four Sea­sons. He and a group of about 75 Hualalai home­own­ers who openly sup­port the suit say they’ve been bait-andswitche­d—they were promised they could use their homes and the ho­tel’s ameni­ties freely and with­out any guest fees, then the rules changed.

The re­sort has es­sen­tially re­sponded that the home­own­ers might want to check the fine print of their home­owner agree­ments. Man­age­ment can raise guest fees. It can set up a metaphor­i­cal vel­vet rope, cut­ting off ac­cess. It can alien­ate the home­own­ers who use their places for cash flow. And if it means cer­tain home­own­ers have to sell their places to wealth­ier buy­ers who aren’t put off by those fees, so be it.

“This may sound like a bat­tle of the 1 per­cent vs. the .001 per­cent over a bunch of beach chairs,” says Zyda, who decries the re­sort’s

“I’m a rule-fol­lower type of per­son,” Zyda says, shout­ing over the buzz of his groundskee­per’s weed whacker. We’re sit­ting in the back­yard of his five-bed­room spread at Hualalai, sip­ping wa­ter and look­ing out on the ninth green of the re­sort’s Jack Nicklaus golf course. “I don’t try to make trou­ble.”

A 54-year- old fi­nan­cial ad­viser, Zyda dis­cov­ered Hualalai 16 years ago while on va­ca­tion from his for­mer job as trea­surer of Ama­zon. com. He loved it so much that he used some of his stock op­tions to buy a devel­op­ment lot. Like oth­ers who sup­port his law­suit, he re­mem­bers be­ing told by his real es­tate agent that one of the great things about buy­ing at Hualalai was the money he could make rent­ing out his home when he wasn’t there, with no re­stric­tions or fees. Since then, Zyda has changed ca­reer tracks and moved, and he and his hus­band, Michael Wieland, fin­ished build­ing their home only in early 2015. By then, he says, many of the things that had made be­ing a home­owner at Hualalai so spe­cial were well on their way to be­ing rolled back, all in the name of crowd con­trol.

He shows me the lat­est two- page sched­ule of guest fee rules, fea­tur­ing an ex­haus­tively de­tailed ta­ble des­ig­nat­ing dif­fer­ent types of guests (club mem­bers, im­me­di­ate fam­ily, ex­tended fam­ily, es­corted guests, ac­com­pa­nied guests, unac­com­pa­nied guests) and dif­fer­ent times of year (“peak,” “peak of peak”). “It’s like a com­pli­cated, ever-chang­ing video game,” he says. “I can’t keep up with the rule changes and what I’m al­lowed and not al­lowed to do. None of this crazi­ness ex­isted when I pur­chased in 2000.”

The dis­pute is, nat­u­rally, about money. But it’s about so much else, too. It’s about power, or the loss of it. It’s about feel­ing jilted. Many of the home­own­ers sup­ported the re­sort from the be­gin­ning, putting down roots on what had been lava fields. Now that the ho­tel guests mat­ter more, the home­own­ers are forced to watch as their ex pa­rades new com­pan­ions in front of them.

More than any­thing, per­haps, it’s about hu­mil­i­a­tion. These are wealthy peo­ple un­ac­cus­tomed to be­ing put in their place by some­one even wealth­ier.

Wo

But you oa know, it was just a busi­ness de­ci­sion that was im­por­tant for the sus­tain­abil­ity of the re­sort go­ing for­ward.” Bi If there’s any com­mon ground, it’s that ev­ery­one be­lieves Hualalai is spe­cial— ho too spe­cial to be de­stroyed. Zyda says he’s open to re­solv­ing the case with­out more bad blood. He pauses to do a lit­tle men­tal math. “We’d have to value the loss of mar­ket value, be­cause we can’t rent the house any­more,” he says. He has trou­ble set­tling on an an­swer. “If they want Michael and me to not rent,” he fi­nally says, “I’ll en­ter­tain the of­fer. As long as we’re ad­e­quately com­pen­sated.” He wants to get back the aloha spirit. But it won’t come cheap. <BW>

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