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Unity House tries to sell Lotus hotel

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    Unity House has found a potential buyer for its 51-room Lotus at Diamond Head hotel, above. An investor has offered $18.5 million, but the deal includes hitches that could void the sale.

An investor has offered to buy the Lotus at Diamond Head hotel in an $18.5 million deal that would help the hotel’s financially struggling owner, Unity House Inc., emerge from bankruptcy.

Unity House, a local nonprofit social welfare organization benefiting organized labor, is seeking U.S. Bankruptcy Court approval to sell the 51-room boutique hotel to Nobuka USA Inc., a company led by Katsuhiro Kinoshita.

However, documents filed in the bankruptcy case show that the deal includes hitches that could get in the way of completing a sale.

Under the proposed sale, Unity House would purchase a fee-simple parcel under the hotel from a local family trust for $5.6 million, and then include that land in the sale to Nobuka.

But the deal is complicated by a requirement that Nobuka receive a potentially lucrative lease to the hotel’s second-floor commercial space previously used as a nightclub and as a restaurant before that.

Washington state-based investor MK Pacific LLC, which helped finance Unity House’s purchase of the Lotus, holds the commercial space lease that gives it control of the space for 75 years for $1 per year.

Unity House has offered to pay MK Pacific $2 million for the lease but has received no response. Under Nobuka’s purchase offer, MK Pacific would have to agree to sell the lease for no more than $2 million to Unity House.

Another condition of the sale is a deadline imposed by the owner of the fee-simple parcel to have bankruptcy court approval for its part of the sale by tomorrow. A hearing to consider approving the entire deal is scheduled for today.

If the sale is approved, Nobuka would allocate some of its payment to purchase the commercial space lease and the fee-simple parcel, leaving proceeds estimated at $10.9 million for Unity House. That would be more than enough to pay off Unity House debts.

Unity House’s biggest debit is $6 million owed to MK Pacific as part of Unity House’s December 2009 purchase of the Lotus for $8.5 million. When Unity House filed for bankruptcy, it said it had less than $10 million in debts.

Unity House said in court filings that the offer from Nobuka was the best of five written offers it received for the hotel, and represents the best chance to pay off its debts. Unity House said Nobuka has the money and can complete the sale by July 2.

"Debtor does not believe that it would be able to find another buyer willing to pay a higher net price for the Lotus Hotel properties," Unity House said in a filing.

Unity House filed for bankruptcy in April mainly to buy time to refinance the debt on the Lotus or sell the hotel on the Gold Coast of Waikiki.

MK Pacific filed a foreclosure lawsuit against Unity House in February, two months after its loan matured. The loan is secured by the Lotus and Unity House’s headquarters building at 1701 Ala Wai Blvd.

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