What a great view! You could do some bunk beds: search beach houses for lots of ideas. I would also put a small table and chairs and a Kerrigan so guests can enjoy coffee.

Put up some walls? There isn't any privacy.

I see you have two twins on the end. Are those staying? A daybed usually needs a wall to go up against. Where would you put it?

If you are thinking of having four people sharing the lower level area, you want to offer a bit of privacy, too. Others may have some good suggestions.
I would urge you to get those beds up off the floor onto bed frames and box springs: no adult wants to crawl around on the floor when getting out of bed. Costco has cheap and sturdy bed frames often on special @$37.
IKEA closet units may work for guests, but attach them firmly to the walls for safety. You should have some comfortable seating downstairs for the guests, too....maybe IKEA again.

Put in a wall where you have columns? Use day beds? Use futons?

We are thinking either bunk beds for two kids (or a trundle day bed) in order to have an extra space to sit.

i would say 4 people max would be down there.

We can‘t put up walls but maybe privacy screens.

two nice futons would be a good idea!

You have the perfect opportunity between the walls and support posts to add curtains for privacy. They would slide closed when needed and be easy to open and keep out of the way during the day. A daybed with trundle seems to be the better idea since it can turn into a king size bed if needed or accommodate 2 kids or be used for seating. If you can find some nightstands with drawers, they can be used as small dressers as well. Then just a couple of smaller hanging units are all you need. The IKEA Brimnes wardrobes are only $129.

Is there a bathroom that all would have to share who sleeps in this space. If so, then it must be accessible for all so you can't block it with a bed.