The resignations came hours after a letter to the REIT's board of directors demanding the removal of Reschke and Curto from the helm of the financially-troubled company. However, the letter's author, believes it was coincidental.
"I was quite pleased to see the first step that's already been taken," says Daniel Kaufman, whose New York investment firm has a stake of more than 1% in Prime Group. However, his Committee to Restore Shareholder Value has grown from a handful of investors with similar-sized stakes to about 100 shareholders who represent 15% of the outstanding common stock, he tells GlobeSt.com.
Now that Reschke and Curto have resigned, Kaufman says, it may be easier for Prime Group to approach lenders who previously were reluctant to make loans.
"It was a totally implausible situation with them running things," Kaufman says.
Besides a looming $40-million preferred stock debt that Security Capital Group could call in upon 10 days notice, the office and industrial REIT also is required by Dearborn Center construction lenders to have nearly $20 million in cash on hand. Prime Group had less than $7 million, prompting auditors from Ernst & Young to question the REIT's ability to continue as a going concern. Now, Kaufman says, Security Capital may be patient, perhaps waiting a year until the 1.5-million-sf Dearborn Center is completed.
In addition, an entity controlled by Reschke defaulted on more than $100 million in debt, which has since been bought by Paramus, NJ-based Vornado Realty Trust and Montreal-based Cadim inc. Although Reschke has delayed foreclosure proceedings, Kaufman expects the real estate operators to prevail, which could give them a one-third stake in Prime Group.
Kaufman concedes Vornado may end up making a tender offer for the remainder of Prime Group shares. However, his group will nonetheless be watchful of the larger REIT, especially if it comes to sale of Prime Group assets to Vornado. Prime Group has attempted for months to sell some of its 7.8-million-sf city and suburban office portfolio as well as its 3.9-million-sf industrial portfolio, noting Vornado has had a chance to make offers along with other suitors.
"Now, getting a large chunk of the company isn't the recommended path," Kaufman says.
Meanwhile, Curto will receive $935,000 in severance while Reschke will get $625,000. Each also received 30 days pay.
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