A U.S. Bankruptcy Court judge cleared the way yesterday for nonprofit labor organization Unity House Inc. to sell a Waikiki hotel it owns as part of a plan to pay off its creditors.

Judge Robert Faris approved in principle the sale of the Lotus at Diamond Head for $18.5 million to Nobuka USA, a company led by Japanese businessman Katsuhiro Kinoshita. Faris acknowledged that there are details that need to be worked out in order for the sale to close, but said Unity House appeared to be in a good position to finalize the deal and emerge from bankruptcy.

"I guess all you can say to the debtor is that you lucked out," Faris said after approving the plan.

Unity House bought the 51-room boutique hotel in 2009 for $8.5 million, borrowing $5.5 million from MK Pacific, a commercial real estate firm based in Washington state. Unity House fell behind on the loan and filed for bankruptcy in April to prevent MK Pacific from foreclosing.

At the heart of the proposal is an agreement between Unity House to buy the fee-simple land under the hotel from a local family trust for $5.6 million and then include the land in the sale to Nobuka. All parties are in agreement on that part of the transaction, Unity House attorney Donald Spafford told the court.

The hearing was called on short notice because the landowner had set a deadline of today for the bankruptcy court to give its blessing for the sale of the land.

Yet to be resolved is what happens to a lease owned by MK Pacific for the hotel’s second-floor commercial space. Unity House is offering to buy the lease from MK Pacific for $2 million and include it in the sale to Nobuka. However, Unity House and MK Pacific have not yet reached agreement on a sale price for the lease, Spafford said. Also yet to be determined is how the attorneys’ fees will be divided and the amount of the closing costs.

Unity House said the offer from Nobuka was the best of five written offers it received for the hotel. Unity House Chairman Jim Boersema paid an initial deposit of $10,000 from his own funds for the purchase of the fee-simple parcel under the hotel. Unity House will pay a second deposit of $104,200 deposit to the landowner. The deal is expected to close by July 15.