Unity House Inc. has completed its planned sale of the Lotus at Diamond Head hotel on Kalakaua Avenue, paving the way for the local social welfare organization to emerge from bankruptcy.

The nonprofit sold the 51-room boutique hotel on Waikiki’s "Gold Coast" for $18.5 million. The buyer was N2885 LLC, a partnership of Japanese investors led by Nobuka USA Inc. and Katsuhiro Kinoshita.

N2885 plans to renovate the hotel, re-brand it under a new operator and open a fine-dining restaurant in vacant commercial space in the building, according to Steve Sombrero, president of the local real estate firm NAI Chaney Brooks, which represented N2885 in its purchase.

The new owner has no plans to pursue a conversion of hotel units to condominiums as was planned by Unity House, said Sombrero, who is acting as the asset manager for the hotel’s new owner.

"We think the property will operate very well as a world-class boutique hotel," he said. "We’re going to bring it back up to its glory days … the old W hotel days. There’s definitely a niche to fulfill out on that side of Waikiki."

The Lotus was operated for much of the last decade as the upscale W Honolulu-Diamond Head and was home to David Paul’s Diamond Head Grill. For the last several years, the property has been managed as the Lotus by Castle Resorts and Hotels.

No decisions have been made about who will manage the hotel, how much renovations will cost or who will operate in the restaurant space, Sombrero said.

The sale will allow Unity House to pay off a roughly $6 million debt tied to the hotel. But other expenses are expected to leave the organization with relatively little proceeds from the sale.

Unity House, which operates programs benefiting organized labor, bought the Lotus in December 2009 for $8.5 million with the intent to convert the hotel largely on leasehold land into condominiums for sale.

But a nearly $6 million loan obtained from Washington state-based investor MK Pacific LLC matured before Unity House could execute its plan or refinance the loan. That led MK Pacific to begin foreclosure proceedings in February. Unity House filed for bankruptcy in April, preventing a foreclosure auction.

As part of the sale approved by a bankruptcy judge, N2885 acquired the fee-simple interest under the hotel from a trust representing local families for $5.6 million.

The value of a lease MK Pacific had for the hotel’s commercial space must still be resolved in bankruptcy court and could further affect proceeds from Unity House’s sale.

Jim Boersema, Unity House chairman, said the organization will probably end up losing $1 million on the Lotus when costs for improvements and other items are included. But he said paying off the overdue mortgage allows Unity House to move forward financially and restore charitable programs cut in recent years.

"Unity House will survive," he said.

When healthy, Unity House provided Hawaii families affiliated with organized labor with child care support, school scholarships, recreational activities and other assistance. But its financial problems led to cutbacks in charitable spending. The nonprofit shelved two of its three biggest social welfare programs, child care and scholarships, along with some less costly services more than two years ago.