Andersen, Building Upkeep on Prime Execs' Minds

Prime Group stock rose 5.4% to $7.62 per share Wednesday after the company, still facing a cash crunch, reported a 12.2% increase in first-quarter funds from operations.

The thinning ranks at Prime Group's corporate headquarters are keeping their ears peeled for news about Andersen, which has 678,735 sf at One IBM Plaza at 330 N. Wabash Ave. and 33 W. Monroe St. The $9.8 million in rent represents 6.5% of the firm's revenue.

"We are in constant communication with the folks at Arthur Andersen and are gauging and monitoring any developments," says co-president Louis Conforti. "We check with them on a regular basis. We are careful, and prudent and quantitative in our analysis as anybody would be with respect to what might happen in a draconian scenario."

However, the worst-case scenario is not entirely unpleasant, Conforti notes, as Andersen's current lease rates at 33 W. Wacker Dr. would result in a "substantial net rent arbitrage" is the embattled accounting firm sub-leases its space.

While Andersen is paying $14.44 per sf for its space, asking net least rates in the Central Business District start at $18 per sf, U.S. Equities Realty research indicates.

In addition to cashing a $10-million earnest money check from Blackstone Real Estate Advisors LP for a $133-million suburban office portfolio sale, the REIT remains in close contact with Security Capital Group, which can call in a $40-million preferred stock debt upon 10 days notice. Prime Group has bought some time by agreeing to pay additional interest, resulting in an increase in the dividend rate to a potential 12.25%.

"Our goal is to consummate both of these transactions and resolve our short-term liquidity issues before the end of this quarter," says acting chairman Stephen Nardi.

However, the suburban assets in the deal will require about $25 million worth of work this year, Conforti says. About $4 million is earmarked for Continental Towers, the Rolling Meadows asset where Motorola gave Prime Group leasing agents 187,000 sf to lease last year.