A group named Committee to Restore Shareholder Value wrote Prime Group directors Monday asking for the removal of the REIT's top two executives. The letter cites a 40% decline in the value of Prime Group stock since an entity controlled by Reschke defaulted on $100 million in loans now held by Vornado Realty Trust and Cadim inc. Meanwhile, the group states, comparable REITs saw their stock prices rise 15% since Primestone Investment's October default.
Vornado and Cadim could end up owning a one-third stake in Prime Group as a result of the default, but a foreclosure auction has been postponed. In addition, Vornado chairman and chief executive Steven Roth and executive vice president Wendy Silverstein will be nominated to seats on Prime Group's board at next month's annual meeting.
Besides questioning whether Reschke had a conflict of interest, shareholders feared the possibility of continued litigation. Meanwhile, they noted Prime Group remains in danger of involuntary bankruptcy because of a $40-million preferred stock debt to Security Capital Group as well as requirements by lenders on the $365-million Dearborn Center project that it have $20 million in cash. Ernst & Young, LLC the REIT's auditors, raised the question of whether Prime Group could continue as a going concern.
After ending the year with less than $7 million in cash, Reschke recently told investors and analysts the REIT was continuing efforts to raise money, including selling some of its 7.8-million-sf office and 3.9-million-sf industrial portfolios. While the 1.5-million-sf Dearborn Center will be the prize asset upon completion, Prime Group's largest tenant is embattled accounting firm Andersen, which has announced massive layoffs here. However, Andersen's lease rates at 33 W. Monroe St. and IBM Plaza at 330 N. Wabash St. are considered below market.
Co-presidents Louis G. Conforti and Jeffrey A. Patterson will report to Nardi until a new chief executive officer is named.
Meanwhile, Boston-based K Capital Partners LLC increased its stake in Prime Group to 15.46% after buying 260,000 shares after the REIT's recent plummet. They paid just over $1.3 million, buying most of their newest shares at $4.98 April 2, when Prime Group shares fell 35% in one day.
Prime Group's stock price, which had rebounded somewhat following the dramatic decline, was up more than 8.5% to $6.92 Tuesday.
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