ALBANY — 74 State, the boutique Albany hotel, could be put up for sale as part of a plan to maximize the value of investments made by the embattled brokerage McGinn, Smith Co.

The plan was suggested by William Brown, the Buffalo attorney who is overseeing McGinn, Smith’s assets as part of the U.S. Securities and Exchange Commission civil fraud case against the defunct Albany brokerage.

Earlier this year, 74 State’s major lender, CIT Lending Services Corp., moved to foreclose on the hotel in state court, claiming it was owed more than $9 million.

That was just a month before the SEC filed its securities fraud case against McGinn, Smith, claiming that its founders, Timothy McGinn and David Smith, mismanaged $136 million raised from clients through a series of high-risk investment funds that were created starting in 2003.

One of those funds, Third Albany Income Notes, loaned $2.5 million to 74 State, although about half of that loan appears to have been converted into equity in the hotel.

In early 2009, another McGinn, Smith fund called First Independent Income Notes also made a $95,000 loan to 74 State. Nearly $80,000 in principal is still outstanding, court documents show.

CIT’s foreclosure of the hotel was essentially halted when a federal judge agreed to freeze all of McGinn, Smith’s assets as part of the SEC case, a common move designed to preserve any money to be repaid to investors.

Last month, CIT’s attorneys asked the judge overseeing the case to lift the freeze on 74 State so CIT could proceed with the foreclosure.

But Brown, the receiver, says in court papers that he will only consent to that if the hotel is sold “in a professional manner” rather than being auctioned off through the foreclosure process.

74 State opened in 2007 on State Street and quickly became a trendy location that signaled a resurgence of downtown Albany.

In court papers, Brown says he believes that if CIT were to foreclose on the hotel, the lender would seek the appointment of a receiver to manage the hotel.

“If an experienced hotel operator were to be appointed by the state court as a receiver in the foreclosure action, such a person would have the best chance to determine if the market supports a better sale prospect than simply permitting a classic New York real property foreclosure action to proceed,” Brown wrote in a filing made Monday in U.S. District Court in Albany.

CIT’s local attorney, James Schultz of Albany, did not immediately return a call seeking comment. Hotel officials also did not respond to requests for comment.

Brown would like to have the hotel listed for sale within two weeks of a receiver being appointed.

Now the judge overseeing the case must decide what to do with the hotel. Brown said Tuesday that a decision wouldn’t be made until mid-December at the earliest.

Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.