"When Dearborn Center comes on line and is stabilized early next year, this decline in funds from operations should more than reverse itself," chairman Michael Reschke said in a conference call with investors and analysts.

Funds from operations fell 18% in 2001 to $1.59 per share. That news, along with auditor Ernst & Young LLP raising doubt about Prime Group's ability to remain a going concern, sent the REIT's stock price falling 16% to a 52-week low.

Ernst & Young's concerns stem from Security Capital Group's ability to call in its $40-million preferred stock upon 10 days notice, as well as the construction lender on the $365-million Dearborn Center that the REIT have at least $17.5 million in unrestricted cash. Prime Group has upped the interest on the preferred debt from 7.5% to 11%, with additional increases to 12.75% possible, but finished the year with less than $6.6 million in cash on its books. Now forced to raise at least $60 million through asset sales, Prime Group has at least that much tied up in Dearborn Center, and could nearly double its investment.

While 63% of the office tower on Adams Street between Dearborn and State streets is pre-leased, at least one of the deals has strings attached.

In luring Citadel Investment Group away from the just-completed UBS Tower, Prime Group assumed a 161,000-sf deal between the financial services firm and building owner John Buck Co. that already has cost the REIT nearly $4 million. In getting a 206,000-sf tenant at Dearborn Center, Prime Group is on the hook for $82 million over 10.5 years. While Prime Group can sublease the space that's costing it $48.50 per sf, it is entitled to $47.50 per sf in tenant improvement allowances, according to a Securities and Exchange Commission filing.

Meanwhile, another main Dearborn Center tenant, Bank One, reportedly is considering subleasing some of its space there.

However, Prime Group's pro forma envisions eventual 96% occupancy, with Dearborn Center spinning off $38.5 million in net operating income. Using an 8.5% capitalization rate, which might be considered aggressive in the current Downtown office market, Reschke notes Dearborn Center would be worth $450 million. After paying off $290 million in construction and mezzanine debt along with taking out a minority partner for $15 million, Prime Group would be left with $145 million – nearly double the $78 million equity he says the REIT already has invested in the project.

Citadel agreed to pay $32 per sf net for its upper-floor Dearborn Center space, while law firm Holland & Knight will pay $26 per sf net for mid-rise space. Bank One's low-rise space will cost $22 per sf net.