Smith Tower has learned that Munchener Hypothekenbank has retained Holliday Fenoglio Fowler LP on an exclusive basis to arrange the sale of a $34.5-million A mortgage note and an $8 million B mortgage note secured by Smith Tower, a 42-story class B office building totaling 263,807 square feet and the adjacent building, Florence Tower, a two-story 8,829-square-foot building. The property, located at 506 2nd Ave. and 512 2nd Ave. is situated in Downtown Seattle’s Pioneer Square.

The notes are currently in maturity and monetary defaults with current balances of $32.2 million for the A note and $7.3 million for the B note.

The property was constructed in 1914 and from 1998 to 2000, it underwent an extensive $35-million renovation including refurbishing the lobby and upgrading the HVAC, electrical and life safety systems. HFF’s director, Sam Brownell, tells that the property provides significant upside through the lease-up of the vacant space and near-term lease expirations, which are at below market rents. The property is currently 20% leased to technology and social media companies as well as several local law firms.

“With the Seattle office market fundamentals stabilizing, specifically in the north and south ends of the CBD, the property is well positioned to benefit from increased leasing demand  due to its highly desirable location,” says Brownell. “The area is experiencing a resurgence as companies seek renovated, character-rich buildings, which can offer ‘creative space’ as alternatives to the dense high-rises in the CBD.”

Brownell also points out that the property previously received approvals to convert the existing office use to 150 residential condos. “The possibility exists to convert the existing office use to approximately 225 apartments, subject to approvals from local governmental authorities,” Brownell says.