The Ritz at Leura is to become an up-market aged care home.
The historic landmark building was sold late last year to Pathways Residences, which plans to restore it to its former glory.
The Ritz was owned for nearly 40 years by Millie Phillips of Milstern Health Care. She operated it as a high-care nursing home but was forced to close it in December 2017 after it failed to meet 30 of 44 performance standards.
Apart from inadequacies in patient care, the Australian Aged Care Quality Agency also found the physical surroundings had been allowed to deteriorate.
"Both the interior and exterior of the home have not been well maintained. The home does not provide a safe and secure environment. The home was observed to be poorly maintained and dirty with many malodours throughout."
Pathways Residences' managing director, Graeme Skerritt, agreed the building was in "terrible condition. It's very sad."
But Pathways Residences has a track record for repurposing grand old homes, with a successful transformation at Roseville on Sydney's north shore.
The company also runs high quality nursing homes at Killara, Northbridge and Cronulla.
Mr Skerritt said a colleague who lives in the Mountains suggested the area would be a good place for Pathways Residences to operate. When they learnt the Ritz was on the market, they jumped.
"We're very excited. I think it's a site that provides a lot of scope for something very nice."
Pathways Residences would be needing tradespeople to work on the construction of the new aged care home and would also need people to staff it in the long term.
They would be pleased to be able to add to the local economy, Mr Skerritt said.
The local branch of the National Trust was pleased to hear of the change of ownership of the Ritz, said president Rod Stowe.
"The branch calls on the new owners of the Ritz site to attend to the conservation and maintenance of this locally heritage-listed site without delay."
In making this request, we note the 2017 report of the Australian Aged Care Quality Agency which found that both the interior and exterior had not been well maintained and that no apparent action has been taken to address the situation since that time.
"Ideally, we would like to see the Blue Mountains City Council's Heritage Advisory Committee consulted on any future renovations or development plans the owners might have for one of the Mountain's most significant heritage properties."
The Ritz was built in 1892 as a coffee palace with accommodation. It operated as a hotel for decades before becoming a nursing home in 1968.