Suit seeks foreclosure on Unity House-owned hotel

COURTESY PHOTO

A lender files a foreclosure lawsuit seeking to repossess the 51-room Lotus at Diamond Head hotel in Waikiki from owner Unity House.

A lender has moved to repossess the Lotus at Diamond Head hotel from owner Unity House.

The lender, MK Pacific LLC, filed a foreclosure lawsuit yesterday in Circuit Court, seeking to have the 51-room boutique hotel in Waikiki sold at auction.

MK Pacific said in its lawsuit that Unity House failed to pay off a $5.5 million one-year loan that was due Dec. 23.

Unity House, founded in 1951 by Arthur A. Rutledge, maintains a fund for the benefit of organized laborers. Unity House has a variety of investments that have included real estate.

Unity House board Chairman Jim Boersema said the nonprofit has arranged for a new loan to pay the overdue loan held by MK Pacific and that the transaction is expected to be completed in about 30 days and before any repossession can take place.

Unity House bought the hotel, which is on a mix of leasehold and fee-simple land, for $8.5 million in December 2009 at a foreclosure auction after the previous owner, local developer Brian Anderson, defaulted on mortgages tied to the property.

Boersema said Unity House had sought to obtain a loan with a longer term, but constrained financial markets at the time limited the organization's options.

Boersema said the hotel is doing fine, but Unity House had trouble refinancing the loan earlier.

Unity House initially had contemplated converting hotel rooms for sale as time-share or condominium units, which would have provided sales proceeds to pay off its loan. But the organization has maintained hotel operations since its acquisition.

Boersema said Unity House has prepared to convert the property into condos, and will follow through on that plan after a new loan is in place.

MK Pacific, based in Washington state, said in its suit that part of the reason it agreed to the financing was Unity House's plan to convert the property into condos.

The lender also said Unity House pledged its headquarters, an office building at 1701 Ala Wai Blvd., as collateral.

Unity House owed $5.8 million on the loan, including interest and a late charge, as of Jan. 31, according to MK Pacific. Interest is accruing at $2,750 a day, the lawsuit said.

MK Pacific seeks to have a receiver appointed to sell the hotel at auction. Boersema said he expects foreclosure will be averted and that there will be no change in operations of the Lotus managed by Castle Resorts & Hotels.