Collateral for the high-interest loans are partnership units that can be converted into more than 7.9 millions of Prime Group stock, which rose about 10% last week to $9.96 per share. Even though those shares would give Vornado a stake of nearly one-third in Prime Group, its collateral is worth less than $80 million. The stock price bounce comes after a precipitous fall following Cadim, Inc.'s decision not to pursue a buyout of the company's stock at $14.50 per share. Meanwhile, Prime Group's market capitalization has plummeted by about $70 million in less than three months.
"We're back-dooring ourselves into a situation, whether we want to or not," Fascitelli told the Gerald Fogelson Forum on Real Estate at Roosevelt University last week. He later expanded on the plusses and minuses of Vornado's expansion in the market via a foreclosure auction scheduled for Tuesday.
"It's a bigger presence and a bigger footprint in the Chicago market, adding to what we already have," Fascitelli told GlobeSt.com. Besides adding 13 million sf of city and suburban office and industrial space to its 4.9-million-sf Chicago portfolio, Fascitelli says the REIT already has a local management team to run its three current properties here.
Meanwhile, Prime Group chairman Michael W. Reschke and CEO Richard S. Curto rescinded their letters of resignation last week. The loan to Primestone required them to tender their resignations to Vornado if the REIT was successful in its foreclosure action.
The downsides in a Vornado expansion here include the office market in general and Prime Group's balance sheet more specifically, Fascitelli adds.
"The market's quite soft, in our view," Fascitelli says. "The company has assets that have not matured yet, and its liquidity is low."
Most recently, Prime Group had $19.4 million in cash. It has paid nearly $53 million in interest the past 12 months on more than $907 million in debt against properties worth nearly $1.3 billion.
Fascitelli does not appear disturbed at the possibility Prime Group may solve some of its liquidity problem by selling off assets, specifically the renovated office building at 180 N. LaSalle St., in addition to again exploring a possible sale of the entire company. However, the same market softness is producing a second round of bids that has failed to produce a clear winner, or noticeable excitement by Prime Group's management.
"As long as they do intelligent things, that won't bother me," Fascitelli says.
In addition to the Merchandise Mart, Vornado owns 1.15-million-sf 330 N. Orleans as well as 33 N. Dearborn St.
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