Citadel Center Trades in $560M Transaction

The purchase and sales agreement stipulates that Prime Group will remain as the manager and leasing agent through Aug. 31, 2012. The building is approximately 93% occupied, with tenants such as Citadel, JP Morgan Chase, Holland & Knight, Seyfarth Shaw and Perkins Coie LLP.

Jeff Patterson, president and chief executive officer of Prime Group, says the sale "is by far the biggest deal in Chicago this year. We felt we created as much value as we could with this asset. The capital markets have been very favorable with high-level space."He tells GlobeSt.com that the sale took five to six months to put together, and that the deal should be finalized in the first two weeks of November. Cari LLC put up $20 million in earnest money for the purchase.

The purchase agreement also provides that at the closing, Prime Group Realty LP will indemnify the purchaser against any costs or expenses in connection a reimbursement obligation. The obligation requires Dearborn LLC, in its lease with Citadel Investment Group LLC, to reimburse Citadel for the financial obligations, consisting of base rent and the pro rata share of operating expenses and real estate taxes, under Citadel's pre-existing lease for 161,488 sf of space at the One North Wacker Dr.

The REIT has executed subleases at One North Wacker Dr. for all of the space to partially mitigate its obligation under the agreement. The obligation will be partially secured by a total of $7.1 million held in escrow at closing. In connection with the sale, Prime Group will be entitled to receive its annual distribution of income from Dearborn LLC of $4.1 million. The ownership REIT estimates that the share of the net proceeds from the sale will be approximately $82.5 million, with a book gain of approximately $11 million from the transaction. Patterson says Prime Group will use approximately $57 million of the net proceeds to pay down corporate level debt. Germany-based US Treuhand has a 70% stake in 131 S. Dearborn St.

Prime Group developed the 37-story building in 2003. The REIT, through its owner Lightstone Group, owns 10 office properties containing almost four million sf, including 330 N. Wabash. Prime Group recently retained New York City-based Carlton Advisory Services Inc. to arrange funding for a $318-million redevelopment of the former IBM Plaza, with a plan to convert at least 14 floors of the 47-story, 1.4-million-sf office tower into residential condos.