The Ritz-Carlton Kapalua hotel is headed for a May auction, potentially giving the 404-unit luxury property a new owner after loans taken out to finance a lavish renovation in 2008 couldn’t be repaid.

Lehman Bros. received approval earlier this month to put the oceanfront property in West Maui up for auction after filing a foreclosure lawsuit in September against owners that include institutional investors and Maui Land & Pineapple Co.

The investment banking firm issued $232 million in loans to finance a $180 million renovation and condominium conversion plan that the hotel’s owners envisioned would be repaid by selling 107 units in one hotel wing as residential condos.

But downturns in the economy and real estate market inhibited sales, and the owners defaulted on the loan in early 2009. As of November, Lehman was owed $268 million including late fees, according to the foreclosure suit.

A new owner, which could include Lehman if no one is willing to pay more than the investment bank is owed, would be in a position to resume condo sales efforts or restructure the existing operating plan.

The original plan was created by a partnership led by Miami-based hotel investment and development firm Gencom Group, which bought the then-548-room hotel on land leased from Maui Land in 2006 for about $200 million.

At that time, Hawaii’s real estate and tourism markets were peaking, with annual visitor arrivals topping 7 million and luxury resort condos selling for eye-popping prices.

Initially, Gencom and partners Highgate Holdings and an investment fund affiliated with Goldman Sachs announced plans for a $45 million renovation. Then in 2007, the Gencom-led partnership said it would spend $95 million on the renovation and convert 107 units in the hotel to condos by reducing the number of hotel rooms.

Maui Land sold the land under the hotel in 2007 to the partnership for $25 million plus what ended up being a 16 percent ownership stake in the project.

The hotel was closed from July to December 2007 for the redevelopment work, which swelled to $180 million as the real estate market was cooling.

Still, the plan appeared on track for success as Gencom announced in early 2008 that it had signed 93 binding condo sales contracts for an average of $1.9 million, or $176 million in total.

Most of those sales, however, failed to close. Ultimately, only 34 sales were completed. Since then, the market has struggled with recovery, as one unit in the project that sold for $1.48 million in 2008 was resold last June for $700,000, according to property records.

Up for auction will be the 73 unsold condo units, 297 hotel units, common areas, commercial space and 21 acres of undeveloped land. The assets are being sold in bulk, not separately. The auction is scheduled for May 5 on Maui.

Local real estate industry executive Chris Lau is serving as foreclosure commissioner handling the auction.

Lau said early interest has been strong. “I’ve had many, many calls,” he said.

Under auction rules, Lehman could assume ownership if no one is willing to bid more than what it is owed, though the investment bank could let a bidder acquire the property for less.

A winning bid is subject to confirmation by a Circuit Court judge.

Joseph Toy, principal of Hospitality Advisors LLC, noted that several other Hawaii hotels that went to foreclosure auction during the economic downturn were retained by lenders, though he said it is too hard to predict whether someone will outbid Lehman for the Ritz-Carlton Kapalua. “You just don’t know,” he said.

If the hotel changes hands at auction, the Ritz-Carlton Kapalua would have its fourth owner since it was built in 1992. Japan-based Nissho Iwai Corp., Ritz-Carlton Co. and Maui Land developed the hotel in 1992 for $206 million. After the hotel struggled financially in the mid-1990s, Nissho bought out its partners in 1996, and in 2001 sold the hotel to Marriott International and investment firm Blackacre Capital Management LLC for $144 million.