Hyatt Corp. this week moved closer to owning the Hyatt Regency Waikiki Resort & Spa after agreeing to pay substantially more to lease most of the land under the 1,234-room hotel complex.

The ground rent agreement avoids what was a potential hitch in Hyatt's planned $445 million purchase of the leasehold hotel and other assets from bankrupt Azabu Buildings Co. Ltd.

The sale is an important part to resolving Azabu's nearly 2-year-old bankruptcy case involving roughly $4 billion in creditor claims, so the lease agreement is viewed as a positive development.

"It really indicates the buyer is committed to the transaction," said Chuck Choi, an attorney representing Azabu.

U.S. Bankruptcy Judge Robert Faris approved the lease settlement Wednesday after Hyatt, a creditors committee and Azabu agreed to a rent increase covering the next 10 years on the property's biggest lease.

The lease, held by the Steiner family doing business as 2424 Kalakaua Associates, covers about two acres of the three-acre site under the hotel. Two other landlords own the balance. All three leases run through 2047, and contained provisions to adjust rent as of Jan. 1, 2007.

Azabu had been paying the higher of $745,550 or 3.5 percent of revenues annually under the Steiner lease, which now calls for the higher of $5 million or 6.25 percent of revenues annually.

According to court records, Azabu last year paid just under $2.9 million in rent to the Steiner family.

Local commercial real estate appraiser James Hallstrom Jr. testified on behalf of Azabu that based on market factors including sales and rates of return on investments, the Hyatt Regency's renegotiated lease rent is "fair and reasonable."

The lease agreement is expected to establish benchmarks for renegotiating rents with the two other landlords — the C.K. (Nevada) Corp. and Okumoto Joint Irrevocable Trust. According to court records, the two landlords together received about $2 million in rent last year.

Earlier this year, Hyatt objected to the proposed terms for the Steiner lease, but an attorney involved in the case said the opposition stemmed from Hyatt not having been confirmed yet by the court as the hotel's buyer.

Hyatt made its purchase offer in December in response to a court auction that invited competing bids for Azabu's hotel, which Hyatt has managed since it opened in 1976.

The settlement over the Steiner lease was proposed in February, and was expected to encourage more bidding because the lease terms provided more certainty about hotel operating costs.

But no superior bids were submitted, and the court in March confirmed Hyatt as the highest bidder. Hyatt's $445 million offer is for the hotel plus assets of an Azabu affiliate that include the King's Village shopping center in Waikiki.

As the approved buyer, Hyatt agreed to the initial settlement terms over the Steiner lease. One critical provision in the lease still has yet to be resolved. It involves the hotel's owner paying to cover estimated costs to demolish the hotel when leases terminate. That provision is being arbitrated.

Rent on the Steiner lease is retroactive to Jan. 1 with 10 percent interest.

Hyatt's purchase is slated to be completed in mid-December.

Azabu bought the Hyatt Regency in 1986 as part of $565 million in acquisitions of six Hawai'i hotels, including the Maui Marriott and Kona Lagoon Hotel, plus other property in the 1980s.

The purchases were made with highly leveraged loans, and created trouble for Azabu during the state's economic downturn and Japan's financial crisis in the early 1990s.

The company gradually lost control of all but two of its hotels — the Hyatt Regency and the Ala Moana Hotel — mostly to lenders. Azabu sold the Ala Moana Hotel to Miami-based Crescent Heights in 2004 for $85 million.

Creditors forced Azabu into bankruptcy in November 2005, and the company consented to reorganization in February 2006.

Reach Andrew Gomes at agomes@honoluluadvertiser.com.