AUGUSTA — Key Plaza, one of the most prominent buildings in the city’s downtown, is scheduled to be foreclosed upon and auctioned off Feb. 1.

City officials said they’re hopeful the current owners will be able to either retain the building or buy it back at auction, and that the building will continue to house hundreds of workers, most of whom work for the state in office space the state leases in the 286 Water St. building.

However, the building now is scheduled to be foreclosed upon by the mortgage holder and sold Feb. 1 at a public auction.

Roughly 280 employees of the state Department of Health and Human Services work in the nine-story building, and some downtown merchants have said they rely on visits from employees of the building to keep their shops in business.

Terms of the sale, according to a legal advertisement taken out by representatives of the mortgage holder, U.S. Bank National Association, appear to specify new owners of the building would be subject to existing leases, and thus expected to retain the current tenants.

David Heidrich Jr., director of communications for the state Department of Administrative and Financial Services, said the state anticipates its lease agreements will be honored and the state will continue to conduct business there, regardless of who owns the building.

“While the state of Maine is never happy to see one of our landlords experience financial difficulties, we anticipate there will be no interruption to state operations at Key Plaza as a result of the scheduled auction,” Heidrich said Tuesday. “We expect that our lease agreement will be honored and look forward to building a relationship with the new property owner.”

City Manager William Bridgeo and Mayor David Rollins said their understanding, from communications with the current owners of the building, SRA Augusta SPE LLC and four other New Jersey-based LLCs, is the current owners still hope to retain the building and are in, and possibly have concluded successfully, negotiations with the state to extend state leases for space there. Without extending the lease with the state, Bridgeo said, the owners aren’t likely to be able to get new financing that would allow them to keep the building.

Bridgeo said he spoke with the building’s owners Tuesday and they told him they had secured an agreement with the state to renew a lease, which expires in June 2018, with state officials to keep state offices in the prominent downtown building.

“I believe that auction probably won’t occur now that a lease agreement has been negotiated,” Bridgeo said, “or, even if the sale goes through, that the (current owners) will be the ones to buy it. I’m much less concerned, having had the opportunity to speak to the owners today.”

Representatives of the owners could not be reached for comment Tuesday.

Bridgeo said the owners told him the terms of their proposed lease with the state would prompt them to “put a couple million” dollars worth of upgrades into the building.

Heidrich said he did not have information on the status of lease negotiations for Key Plaza and he could neither confirm nor deny the state had reached a deal to extend its lease there.

Rollins said the owners have been negotiating with the state for about two years. He said he is optimistic they’ll reach a deal with the state and, with that secured, be able to obtain financing to keep Key Plaza.

“I understand they’ve worked those details out and believe it’s going to be enough to satisfy the ability of the bank to call off the process,” Rollins said. “I think it’s going to work out. We were shocked to see that (legal advertisement announcing the auction) this morning.”

The property is currently under a federal receivership, with a Maine-based representative of CBRE Boulos appointed to oversee day-to-day operations at the building.

District court filings indicate the building’s owners defaulted on a $7.2 million promissory note by not paying money due on the loan at its maturity.

The property is valued, for tax purposes, at $9 million, according to city assessing records.

Unrelated to the possible foreclosure, state officials plan to move some of the workers who now work at Key Plaza to an office building the state plans to have built by a private developer on the site of the former state Department of Transportation building at 109 Capitol St. in Augusta, which is roughly adjacent to the rest of the State House complex.

Information included in the packet of materials provided to companies interested in submitting their qualifications for the 109 Capitol St. project included an office plan that indicates space would be needed for 689 state workers. Included in that total were 280 Center for Disease Control employees now primarily based at Key Plaza.

However, Heidrich said that doesn’t mean the state may not move workers from other departments into the Key Plaza space if it can negotiate a new lease. The state’s lease for 58,000 square feet of space in Key Plaza expires in June 2018.

Michael Hall, executive director of the Augusta Downtown Alliance, said the alliance is monitoring the situation carefully but declined to speculate about the future of the property or its effect on the downtown.

Bidders at the 11 a.m., Feb. 1 auction at the building are required to submit a deposit of $50,000. The mortgage holder reserves the right to reject any and all bids, or to purchase the property itself.

Keith Edwards — 621-5647

[email protected]

Twitter: @kedwardskj