Company officials declined during an earnings conference call Tuesday to discuss specifics of the talks with MetLife, including a discount of the first mortgage. However, the appraisal prompted Trizec Properties to write down its $70-million junior mortgage on Sears Tower to about 34 cents on the dollar.

Metropolitan Life has a first mortgage of $778.9 million that Trizec Properties is scheduled to assume on Jan. 1. Ownership of the 110-story Sears Tower is held by a trust, with a Sears, Roebuck & Co. subsidiary as the beneficiary. Trizec Properties has the option to assume the non-recourse first mortgage and take an equity position on Jan. 1.

"What was a successful turn-around has changed overnight," says Callahan, who joined the No. 2 office REIT in the US from the largest, Equity Office Properties Trust. "The aftermath of 9/11 has caused us to view this asset in a very different light."

Occupancy at Sears Tower has held up in the wake of Sept.11, 2001, standing most recently 94.2%, according to Trizec's third-quarter report, but the company expects it to slide to 91% by year-end. That is more than 4 percentage points off estimates given by the company in March. Meanwhile, all but one of Trizec Properties' four Downtown buildings--three of them are in the West Loop--show higher occupancy levels.

Company officials blame the drop in Sears Tower's appraised value of $911 million in 2001 on a softening of rental rates, which at 233 S. Wacker Dr. has translated to 25% less.

"Tenant retention and new leasing are difficult in light of the 9/11 impact and softening of the Chicago market," says chief operating officer Casey Wold. While the local leasing team has signed deals for 130,000 sf in the last two weeks, Wold notes they were at a "deep discount" off asking rental rates of $42 per sf and up.

While the Trizec Properties assets are performing better than a Downtown office market that is averaging 14% vacancy, Wold adds rental rates are down 10% with increased concessions. Also, sublease space in Sears Tower is being offered as low as $25 per sf.