<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-51599
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PRIME GROUP REALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENT)
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1300
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL W. RESCHKE
CHAIRMAN OF THE BOARD
PRIME GROUP REALTY TRUST
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 917-1300
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------
COPIES TO:
WAYNE D. BOBERG, ESQ. J. GREGORY MILMOE, ESQ.
BRIAN T. BLACK, ESQ. SKADDEN, ARPS, SLATE,
WINSTON & STRAWN MEAGHER & FLOM LLP
35 WEST WACKER DRIVE 919 THIRD AVENUE
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10022
(312) 558-5600 (212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee................................................ $ 42,407
NASD fee............................................................ 14,875
NYSE listing fee.................................................... 50,425
Blue Sky fees and expenses.......................................... 5,000
Printing and engraving expenses..................................... 700,000
Legal fees and expenses............................................. 300,000
Accounting and due diligence fees and expenses...................... 650,000
Miscellaneous....................................................... 37,293
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Total........................................................... $1,800,000
==========
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES
Not applicable.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"). As to all such
transactions, an exemption is claimed under Section 4(2) of the Securities
Act.
On July 21, 1997, the Company issued 100 Common Shares of beneficial
interest to Mr. Reschke for $10 per share, or an aggregate consideration of
$1,000. Such Common Shares were purchased solely for investment purposes to
facilitate the organization of the Company. Immediately following the IPO, all
of the shares so acquired by Mr. Reschke were redeemed by the Company for an
aggregate redemption price of $1,000.
Simultaneously with the IPO, the Company caused the Operating Partnership to
issue 4,497,317 Common Units to the Limited Partners in exchange for their
respective interests in the Properties and the office and industrial
development, leasing and property management business to be contributed to the
Company. In addition, the Company caused the Operating Partnership to issue
and sell 4,569,893 Common Units to the Primestone Joint Venture for
$85,000,000. Simultaneously with the IPO, the Company granted options to
purchase a total of 1,113,000 Common Shares under its Share Incentive Plan to
key executives and the Company's independent trustees.
On March 25, 1998, the Company issued and sold 2,579,994 Common Shares to
institutional investors for $19.375 per share, or an aggregate consideration
of approximately $50.0 million.
On March 31, 1998, the Company issued (i) 10,000 Common Shares to William M.
Karnes pursuant to the terms of Mr. Karnes' employment agreement with the
Company and (ii) 2,500 Common Shares to Stephen J. Nardi pursuant to the terms
of Mr. Nardi's consulting agreement with the Company.
On December 15, 1997, the Company caused the Operating Partnership to issue
251,572 Common Units, having a value of approximately $5.0 million, to a third
party in exchange for such party's rights to acquire the first mortgage loan
encumbering the office building located at 180 N. LaSalle Street in Chicago,
Illinois. In addition, on each of December 15, 1997 and January 15, February
13, March 13, April 15 and May 15, 1998, the Company caused the Operating
Partnership to issue 5,000 Common Units, having an aggregate value of
approximately $600,000, to such third party to maintain an option to purchase
such third party's second mortgage encumbering the building located at 180
North LaSalle Street.
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<PAGE>
ITEM 34. INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Declaration of Trust and Bylaws authorize the Company to indemnify its
present and former trustees and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding to the
maximum extent permitted from time to time under Maryland law. The MGCL, as
applicable to Maryland REITs, currently provides that indemnification of a
person who is a party, or threatened to be made a party, to legal proceedings
by reason of the fact that such a person is or was a trustee, officer,
employee or agent of a corporation or other firm at the request of a
corporation, or is or was serving as a trustee, officer, employee or agent of
a corporation or other firm at the request of a corporation, against
judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, is mandatory in certain circumstances and permissive in others,
subject to authorization by the board of trustees, a committee of the board of
trustees consisting of two or more trustees not parties to the proceeding (if
there does not exist a majority vote quorum of the board of trustees
consisting of trustees not parties to the proceeding), special legal counsel
appointed by the board of trustees or such committee of the board of trustees,
or by the shareholders, so long as it is not established that the act or
omission of such person was material to the matter giving rise to the
proceedings and was committed in bad faith, was the result of active and
deliberate dishonesty, involved such person receiving an improper personal
benefit in money, property or services, or, in the case of criminal
proceedings, such person had reason to believe that his or her act or omission
was unlawful.
The Company's officers and trustees are also indemnified pursuant to the
Partnership Agreement and their respective employment agreements, which
agreements are filed as exhibits hereto.
The Company purchased an insurance policy which purports to insure the
officers and trustees of the Company against certain liabilities incurred by
them in the discharge of their functions as such officers and trustees, except
for liabilities resulting from their own malfeasance.
ITEM 35. TREATMENT OF PROCEEDS FROM SHARES BEING REGISTERED
Not Applicable
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Prime Group Realty Trust
Pro Forma Condensed Consolidated Financial Information (unaudited):
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1998
Pro Forma Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998 and for the year ended December 31, 1997
Prime Group Realty Trust (the Company) and Predecessor Properties:
Report of Independent Auditors
Consolidated Balance Sheets of the Company as of March 31, 1998 (unaudited)
and December 31, 1997 and Combined Balance Sheet of the Predecessor
Properties as of December 31, 1996
Consolidated Statements of Operations of the Company for the three months
ended March 31, 1998 (unaudited) and for the period from November 17, 1997
to December 31, 1997 and Combined Statements of Operations of the
Predecessor Properties for the three months ended March 31, 1997
(unaudited), for the period from January 1, 1997 to November 16, 1997 and
for the years ended December 31, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for the three
months ended March 31, 1998 (unaudited) and for the period from November
17, 1997 to December 31, 1997
Combined Statements of Changes in Predecessors' Deficit for the period from
January 1, 1997 to November 16, 1997 and for the years ended December 31,
1996 and 1995
II-2
<PAGE>
Consolidated Statements of Cash Flows of the Company for the three months
ended March 31, 1998 (unaudited) and for the period from November 17, 1997
to December 31, 1997 and the Combined Statements of Cash Flows of the
Predecessor Properties for the three months ended March 31, 1997
(unaudited), for the period from January 1, 1997 to November 16, 1997 and
for the years ended December 31, 1996 and 1995
Notes to Consolidated and Combined Financial Statements
Prime Industrial Contribution Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the period from
March 1, 1996 to December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
IBD Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the year ended
December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
NAC Properties
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the year ended
December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
Citibank Office Plaza
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December 31,
1996
Notes to Statements of Revenue and Certain Expenses
Salt Creek Office Center
Report of Independent Auditors
Combined Statements of Revenue and Certain Expenses for the period from
January 1, 1997 to September 30, 1997 (unaudited) and for the year ended
December 31, 1996
Notes to Combined Statements of Revenue and Certain Expenses
280 Shuman Boulevard
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December 31,
1996
Notes to Statements of Revenue and Certain Expenses
475 Superior Avenue
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December 31,
1996
Notes to Statements of Revenue and Certain Expenses
II-3
<PAGE>
Continental Office Towers:
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December 31,
1997
Notes to Statements of Revenue and Certain Expenses
180 North LaSalle Street:
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997 (unaudited) and for the year ended December 31,
1996
Notes to Statements of Revenue and Certain Expenses
2675 Mayfair:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997
Notes to Statement of Revenue and Certain Expenses
33 North Dearborn:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997
Notes to Statement of Revenue and Certain Expenses
Commerce Point:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the period from January 1,
1997 to September 30, 1997
Notes to Statement of Revenue and Certain Expenses
208 South LaSalle Street:
Report of Independent Auditors
Statement of Revenue and Certain Expenses for the year ended December 31,
1997
Notes to Statement of Revenue and Certain Expenses
122 South Michigan Avenue:
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997
Notes to Statements of Revenue and Certain Expenses
6400 Shafer Court:
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997
Notes to Statements of Revenue and Certain Expenses
Two Century Centre:
Report of Independent Auditors
Statements of Revenue and Certain Expenses for the period from January 1,
1998 to March 31, 1998 (unaudited) and for the year ended December 31,
1997
Notes to Statements of Revenue and Certain Expenses
All other schedules are omitted because the required information is not
applicable or the information required has been disclosed in the financial
statements and related notes included in the Prospectus.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
1.1+ Form of Underwriting Agreement
3.1 Articles of Amendment and Restatement of Declaration of Trust of
Prime Group Realty Trust as filed as an exhibit to the Company's
1997 Annual Report on Form 10-K and incorporated herein by reference
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
3.2 Form of Articles Supplementary to the Articles of Amendment and
Restatement of Declaration of Trust of Prime Group Realty Trust
3.3 Amended and Restated Bylaws of Prime Group Realty Trust as filed as
an exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference
3.4 Amended and Restated Agreement of Limited Partnership of Prime Group
Realty, L.P. (the "Amended and Restated Agreement of Limited
Partnership") as filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K and incorporated herein by reference
3.5+ Amendment No. 1 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998
3.6+ Amendment No. 2 to the Amended and Restated Agreement of Limited
Partnership dated as of December 15, 1998
3.7+ Amendment No. 3 to the Amended and Restated Agreement of Limited
Partnership dated as of January 15, 1998
3.8+ Amendment No. 4 to the Amended and Restated Agreement of Limited
Partnership dated as of February 13, 1998
3.9+ Amendment No. 5 to the Amended and Restated Agreement of Limited
Partnership dated as of March 13, 1998
3.10+ Amendment No. 6 to the Amended and Restated Agreement of Limited
Partnership dated as of March 25, 1998
3.11+ Amendment No. 7 to the Amended and Restated Agreement of Limited
Partnership dated as of April 15, 1998
3.12+ Amendment No. 8 to the Amended and Restated Agreement of Limited
Partnership dated as of May 15, 1998
4.1+ Form of Redeemable Preferred Share certificate
5.1+ Opinion of Miles & Stockbridge regarding the validity of the
Redeemable Preferred Shares being registered
8.1 Opinion of Winston & Strawn regarding tax matters
10.1 Form of Indemnification Agreement between Prime Group Realty Trust
and each of its trustees as filed as an exhibit to the Company's
1997 Annual Report on Form 10-K and incorporated herein by reference
10.2 Right of First Offer Agreement dated as of November 17, 1997 between
Prime Group Realty, L.P. and The Prime Group, Inc. as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference
10.3 Share Incentive Plan as filed as an exhibit to the Company's 1997
Annual Report on Form
10-K and incorporated herein by reference
10.4 Employment Agreement dated as of November 17, 1997 by and between
the Company and Michael W. Reschke as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.5 Employment Agreement dated as of November 17, 1997 by and between
the Company and Richard S. Curto as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.6 Employment Agreement dated as of November 17, 1997 by and between
the Company and W. Michael Karnes as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.7 Employment Agreement dated as of November 17, 1997 by and between
the Company and Jeffrey A. Patterson as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.8 Employment Agreement dated as of November 17, 1997 by and between
the Company and Kevork M. Derderian as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.9 Employment Agreement dated as of November 17, 1997 by and between
the Company and Edward S. Hadesman as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
</TABLE>
II-5
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.10 Contribution Agreement dated as of October 20, 1997 by and among the
Prime Group, Inc., Prime Group Realty, L.P., Prime Group Realty
Trust, Narco River Business Center, Narco Tower Road Associates,
Olympian Office Center, Tri-State Industrial Park Joint Venture,
Carol Stream Industrial Park Joint Venture, Narco Enterprises, Inc.,
The Nardi Group Ltd., Narco Construction Inc., Nardi & Co., Nardi
Asset Management, Inc. and Nardi Architectural, Inc. as filed as an
exhibit to the Company's Registration Statement on Form S-11 No.
(333-33547) and incorporated herein by reference
10.11 Option to Purchase Partnership Interests dated as of June 17, 1994
by and between KILICO Realty Corporation, and The Prime Group, Inc.;
as amended by that certain First Amendment to Option Purchase
Partnership Interests dated as of January 21, 1997 by and between
KILICO Realty Corporation and The Prime Group, Inc.; as further
amended by that certain Second Amendment to Option to Purchase
Partnership Interests dated as of July 15, 1997 by and between
KILICO Realty Corporation and The Prime Group, Inc. as filed as an
exhibit to the Company's Registration Statement on Form S-11 No.
(333-33547) and incorporated herein by reference
10.12 Option Agreement by and between Prime Group Realty, L.P. and 300 N.
LaSalle, L.L.C. as filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K and incorporated herein by reference
10.13 Registration Rights Agreement dated as of November 17, 1997 between
Prime Group Realty Trust, Prime Group Realty, L.P., Primestone
Investment Partners L.P. and the other investors named therein as
filed as an exhibit to the Company's 1997 Annual Report on Form 10-K
and incorporated herein by reference
10.14 Contribution Agreement dated as of July 8, 1997 by and among LaSalle
National Trust, N.A., not personally, but solely as Trustee under
Trust Agreement dated June 15, 1982 and known as Trust No. 10-40113-
09, LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated September 7, 1994 and known as
Trust No. 11-9051, LaSalle National Trust, N.A., not personally, but
solely as Trustee under Trust Agreement dated March 30, 1984 and
known as Trust No. 11-107825, LaSalle National Trust, N.A., not
personally, but solely as Trustee under Trust Agreement dated August
1, 1986 and known as Trust No. 11-1358, LaSalle National Trust,
N.A., not personally, but solely as Trustee under Trust Agreement
dated August 1, 1986 and known as Trust No. 11-1357, LaSalle
National Trust
N.A., not personally, but solely as Trustee under Trust Agreement
dated January 17, 1974 and known as Trust No. 286-34, LaSalle
National Trust, N.A., not personally, but solely as Trustee under
Trust Agreement dated October 15, 1995 and known as Trust No. 11-
9869, LaSalle National Trust, N.A., not personally, but solely as
Trustee under Trust Agreement dated December 1, 1987 and known as
Trust No. 11-2868, 310 ERA Limited Partnership, MacArthur Drive
Properties, CLE Limited Partnership, 500 Lindberg Limited
Partnership, 515 Huehl Limited Partnership, 555 Huehl Limited
Partnership, Sky Harbor Associates, 1001 Technology Way, LLC, The
Grandville Road Limited Partnership, Industrial Building and
Development Company and The Prime Group, Inc.; as amended by the
First Amendment to the Contribution Agreement dated as of August 12,
1997, by and between The Prime Group, Inc., an Illinois corporation,
and LaSalle National Trust, NA, t/u/t 10-40113-09 dated June 15,
1982; LaSalle National Trust, NA, t/u/t 11-9051 dated September 7,
1994; LaSalle National Trust, NA, t/u/t 11-107825 dated March 30,
1984; LaSalle National Trust, NA, t/u/t 11-1358 dated August 1,
1986; LaSalle National Trust, NA, t/u/t 11-1357 dated August 1,
1986; LaSalle National Trust, NA, t/u/t 286-34 dated January 17,
1974; LaSalle National Trust, NA, t/u/t 11-9869 dated October 15,
1995; and LaSalle National Trust, NA, t/u/t 11-2868 dated December
1, 1987 as filed as an exhibit to the Company's Registration
Statement on Form S-11 (No. 333-33547) and incorporated herein by
reference
10.15 Environmental Remediation and Indemnification Agreement dated as of
November 17, 1997 by and between Prime Group Realty, L.P. and The
Prime Group, Inc. as filed as an exhibit to the Company's 1997
Annual Report on Form 10-K and incorporated herein by reference
10.16 Formation Agreement dated as of November 17, 1997 between Prime
Group Realty Trust, Prime Group Realty, L.P., Prime Group Realty
Services, Inc., Prime Group Limited Partnership and Jeffrey A.
Patterson as filed as an exhibit to the Company's 1997 Annual Report
on Form 10-K and incorporated herein by reference
</TABLE>
II-6
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.17 Asset Purchase Agreement dated as of November 17, 1997 by and among
Continental Offices, Ltd., Continental Offices Ltd. Realty and Prime
Group Realty, L.P. as filed as an exhibit to the Company's
Registration Statement on Form S-11 (No. 333-33547) and incorporated
herein by reference.
10.18 Non-Compete Agreement dated as of November 17, 1997 by and among
Prime Group Realty Trust, The Prime Group, Inc. and Michael W.
Reschke as filed as an exhibit to the Company's 1997 Annual Report
on Form 10-K and incorporated herein by reference
10.19 Option Agreement dated as of August 4, 1997 by and between
Lumbermens Mutual Casualty Company and The Prime Group, Inc. as
filed as an exhibit to the Company's Registration Statement on Form
S-11 (No. 333-33547) and incorporated herein by reference
10.20 Amended and Restated Agreement dated as of July 15, 1997 by and
among Kemper Investors Life Insurance Company, Federal Kemper Life
Assurance Company, KILICO Realty Corporation, FKLA Realty
Corporation, KR 77 Fitness Center, Inc., 77 West Wacker Limited
Partnership, K/77 Investors Limited Partnership, The Prime Group,
Inc., Prime Group Limited Partnership and Prime 77 Fitness Center,
Inc. as filed as an exhibit to the Company's Registration Statement
on Form S-11 (No. 333-33547) and incorporated herein by reference
10.21 Agreement dated as of July 18, 1997 by and among The Prime Group,
Inc., KILICO Realty Corporation, KFC Portfolio Corp. and Kemper
Investors Life Insurance Company as filed as an exhibit to the
Company's Registration Statement on Form S-11 (No. 333-33547) and
incorporated herein by reference
10.22 Series A Convertible Preferred Securities Purchase Agreement dated
as of November 11, 1997 by and between Security Capital Preferred
Growth Incorporated and Prime Group Realty Trust as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference
10.23 Tax Indemnification Agreement by and between Prime Group Realty,
L.P. and Edward S. Hadesman Trust dated May 22, 1992,
Grandville/Northwestern Management Corporation, Carolyn B. Hadesman
Trust dated May 21, 1992, Lisa Hadesman 1991 Trust, Cynthia Hadesman
1991 Trust, Tucker B. Magid, Francis Shubert, Grandville Road
Property, Inc., H R Trust, Edward E. Johnson and Sky Harbor
Associates as filed as an exhibit to the Company's 1997 Annual
Report on Form 10-K and incorporated herein by reference
10.24 Tax Indemnification Agreement dated as of November 17, 1997 by and
between Prime Group Realty, L.P., Stephen J. Nardi, Narco
Enterprises, Inc. and Nardi Group Limited as filed as an exhibit to
the Company's 1997 Annual Report on Form 10-K and incorporated
herein by reference
10.25 Indemnification Agreement dated as of November 17, 1997 by and
between The Prime Group, Inc. and Prime Group Realty, L.P. as filed
as an exhibit to the Company's 1997 Annual Report on Form 10-K, as
amended by the Company's Form 10-K/A as filed with the Commission on
April 27, 1998 and incorporated herein by reference
10.26 Agreement to Contribute dated as of August 12, 1997 by and between
Tucker B. Magid and The Prime Group, Inc. as filed as an exhibit to
the Company's Registration Statement on Form S-11 (No. 333-33547)
and incorporated herein by reference
10.27 Agreement to Contribute dated as of August 12, 1997 by and between
Frances S. Shubert and The Prime Group, Inc. as filed as an exhibit
to the Company's Registration Statement on Form S-11 (No. 333-33547)
and incorporated herein by reference
10.28 Subscription Agreement by and between Prime Group Realty, L.P. and
Primestone as filed as an exhibit to the Company's Registration
Statement on Form S-11 (No. 333-33547) and incorporated herein by
reference
10.29 Credit Facility dated as of November 11, 1997 between Prime Group
Realty Trust, BankBoston, N.A. and Prudential Securities Credit
Corporation (the "Credit Facility") as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K and incorporated herein by
reference
10.30+ Amendment No. 1 to the Credit Facility dated as of December 15, 1998
</TABLE>
II-7
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.31+ Amendment No. 2 to the Credit Facility dated as of March 16, 1998
10.32+ Amendment No. 3 to the Credit Facility dated as of March 30, 1998
10.33+ Amendment No. 4 to the Credit Facility dated as of April 24, 1998
10.34 Underwriting Agreement dated as of November 11, 1997 between Prime
Group Realty Trust, Prudential Securities Incorporated, Friedman,
Billings, Ramsey & Co., Inc., Smith Barney Inc. and Morgan Keegan &
Company, Inc., as representatives of the other underwriters as filed
as an exhibit to the Company's 1997 Annual Report on Form 10-K and
incorporated herein by reference
10.35+ Purchase Agreement dated as of March 25, 1998 between Prime Group
Realty Trust and the purchasers thereto
10.36+ Registration Rights Agreement dated as of March 25, 1998 between
Prime Group Realty Trust and the other parties thereto
10.37 Registration Rights Agreement dated as of November 17, 1997 between
Prime Group Realty Trust and Security Capital Preferred Growth
Incorporated as filed as an exhibit to the Company's Annual Report
on Form 10-K, as amended by the Company's Form 10-K/A as filed with
the Commission on April 27, 1998 and incorporated herein by
reference
10.38 Tag-along Agreement dated as of November 17, 1997 between Prime
Financing, L.P., Prime Group Limited Partnership, Prime Group II,
L.P., Prime Group III, L.P., Prime Group IV, L.P., Prime Group V,
L.P., The Prime Group, Inc., PG/Primestone, L.L.C. and Security
Capital Preferred Growth Incorporated as filed as an exhibit to the
Company's 1997 Annual Report on Form 10-K, as amended by Company's
Form 10-K/A as filed with the Commission on April 27, 1998 and
incorporated herein by reference
10.39 Placement Fee Letter dated as of November 17, 1997 between Prime
Group Realty Trust, Prime Group Realty, L.P., as Placement Agent,
and Security Capital Markets Group Incorporated as filed as an
exhibit to the Company's 1997 Annual Report on Form 10-K, as amended
by Company's Form 10-K/A as filed with the Commission on April 27,
1998 and incorporated herein by reference
10.40 Registration Rights Agreement dated as of December 15, 1997 between
Prime Group Realty Trust and certain holders of Common Units of
Prime Group Realty, L.P. as filed as an exhibit to the Company's
1997 Annual Report on Form 10-K and incorporated herein by reference
10.41+ Limited Liability Company Agreement of Prime/Beitler Development
Company, L.L.C. dated as of March 30, 1998 between Penny Beitler
L.L.C. and Prime Group Realty, L.P.
10.42 Promissory Note dated as of May 1, 1998 made by certain subsidiaries
of Prime Group Realty Trust to CIBC, Inc.
10.43 Promissory Note dated as of March 23, 1998 made by certain
subsidiaries of Prime Group Realty Trust to State Farm Life
Insurance Company
10.44 Subordination and Intercreditor Agreement dated as of May 14, 1998
between Prime Group Realty, L.P. and Connecticut General Life
Insurance Company
10.45 Promissory Note dated as of May 14, 1998 made by American National
Bank and Trust Company of Chicago, not personally but as trustee
under trust agreement dated July 26, 1977 and known as Trust No.
40935 and American National Bank and Trust Company of Chicago, as
successor trustee to First Bank, N.A., as successor trustee to
National Boulevard Bank of Chicago, not personally, but solely as
trustee under trust agreement dated September 27, 1976 and known as
Trust No. 5602 to Connecticut General Life Insurance Company
12.1+ Computation of Ratios of Earnings to Fixed Charges and Preferred
Share Distributions
21.1 Subsidiaries of Registrant
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1+ Consent of Miles & Stockbridge (included in Exhibit 5.1)
23.2 Consent of Winston & Strawn (included in Exhibit 8.1)
23.3+ Consent of Ernst & Young LLP
23.4 Consent of Rosen Consulting Group
24.1+ Powers of Attorney (included on signature page in Part II of the
initial filing)
99.1 Report of Rosen Consulting Group
</TABLE>
- --------
+Previously filed.
ITEM 37. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
registrant pursuant to the provisions described under Item 33 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on May 29, 1998.
Prime Group Realty Trust
/s/ Richard S. Curto
By: __________________________________
Richard S. Curto
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to registration statement has been signed below on May 29, 1998 by
the following persons in the capacities indicated.
SIGNATURE TITLE
Michael W. Reschke* Chairman of the Board,
- ------------------------------------- Trustee
Michael W. Reschke
/s/ Richard S. Curto President and Chief Executive
- ------------------------------------- Officer (principal executive
Richard S. Curto officer), Trustee
William M. Karnes* Executive Vice President
- ------------------------------------- andChief Financial
William M. Karnes Officer(principal financial
officer)
Roy P. Rendino* Senior Vice President--
- ------------------------------------- Finance and Chief Accounting
Roy P. Rendino Officer (principal
accounting officer)
II-10
<PAGE>
SIGNATURE TITLE
Jacque M. Ducharme* Trustee
- -------------------------------------
Jacque M. Ducharme
Stephen J. Nardi* Trustee
- -------------------------------------
Stephen J. Nardi
Christopher J. Nassetta* Trustee
- -------------------------------------
Christopher J. Nassetta
Thomas J. Saylak* Trustee
- -------------------------------------
Thomas J. Saylak
James R. Thompson* Trustee
- -------------------------------------
James R. Thompson
/s/ Richard S. Curto
*By: ________________________________
Richard S. Curto, Attorney-in-Fact
II-11
<PAGE>
Exhibit 3.2
FORM OF ARTICLES SUPPLEMENTARY RELATING
TO SERIES B CUMULATIVE REDEEMABLE
PREFERRED SHARES
PRIME GROUP REALTY TRUST
================================================================================
Articles Supplementary
Classifying and Designating a Series of
Preferred Shares of Beneficial Interest as
___% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest and
Fixing Distribution and Other Preferences
and Rights of Such Series
================================================================================
Prime Group Realty Trust, a Maryland real estate investment trust (the
"Trust"), hereby certifies to the State Department of Assessments and Taxation
of Maryland pursuant to section 8-203(b) of the Annotated Code of Maryland that:
FIRST: Pursuant to authority granted to the Board of Trustees of the Trust
by the Amended and Restated Declaration of Trust of the Trust (the
"Declaration"), the Board of Trustees has designated and classified 5,750,000
unissued preferred shares of beneficial interest, par value $0.01 per share, as
___% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share, and authorizing the issuance thereof.
SECOND: The following is a description of the ____% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest, including the preferences
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
shares of beneficial interest shall be designated as "___% Series B Cumulative
Convertible Redeemable Preferred Shares of Beneficial Interest" and the number
of shares which shall constitute such series shall be 5,750,000 shares which
number may be decreased (but not below the aggregate number thereof then
outstanding and/or which have been reserved for issuance) from time to time by
the Board of Trustees.
Section 2. Definitions. For purposes of the Series B Preferred Shares
(as hereinafter defined), the following terms shall have the meanings indicated:
<PAGE>
"Board of Trustees" shall mean the Board of Trustees of the Trust or
any committee authorized by such Board of Trustees to perform any of its
responsibilities with respect to the Series B Preferred Shares.
"Business Day" shall mean any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions in
New York City, New York are authorized or required by law, regulation or
executive order to close.
"Common Shares" shall mean the common shares of beneficial interest,
par value $0.01 per share, of the Trust.
"Operating Partnership" shall mean Prime Group Realty, L.P., a
Delaware limited partnership.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series A Preferred Shares" shall mean the Trust's outstanding 7%
Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest, par value $0.01 per share.
"Series B Call Date" shall mean the date specified in the notice to
holders required under Section 5(d) as the Series B Call Date.
"Series B Dividend Payment Date" shall mean (i) the thirty-first day
of each January with respect to the Series B Dividend Period commencing on
October 1 of the then immediately preceding year, (ii) the thirtieth day of
each April with respect to the Series B Dividend Period commencing on
January 1 of such year, (ii) the thirty-first day of each July with respect
to the Series B Dividend Period commencing on April 1 of such year and (iv)
the thirty-first day of each October with respect to the Series B Dividend
Period commencing on July 1 of such year.
"Series B Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year and
ending on and including the day preceding the first day of the next
succeeding Series B Dividend Period with respect to any Series B Preferred
Shares (other than the initial Series B Dividend Period, which shall
commence on the Series B Issue Date and end on and include the last day of
the calendar quarter immediately following such Series B Issue Date, and
other than the Series B Dividend Period during which any Series B Preferred
Shares shall be redeemed pursuant to Section 5, which shall end on and
include the Series B Call Date with respect to the Series B Preferred
Shares being redeemed).
-2-
<PAGE>
"Series B Fully Junior Shares" shall mean the Common Shares, the
Series A Preferred Shares and any other class or series of shares of
beneficial interest of the Trust now or hereafter issued and outstanding
over which the Series B Preferred Shares have preference or priority in
both (i) the payment of dividends and (ii) the distribution of assets on
any liquidation, dissolution or winding up of the Trust.
"Series B Issue Date" shall mean the date on which the Series B
Preferred Shares are issued.
"Series B Junior Shares" shall mean the Common Shares, the Series A
Preferred Shares and any other class or series of shares of beneficial
interest of the Trust now or hereafter issued and outstanding over which
the Series B Preferred Shares have preference or priority in the payment of
dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Trust.
"Series B Parity Shares" shall have the meaning set forth in Section
6(b).
"Series B Preferred Shares" shall mean the Trust's ___% Series B
Cumulative Redeemable Preferred Shares of Beneficial Interest, par value
$0.01 per share.
"Series B Voting Preferred Shares" shall have the meaning set forth in
Section 7.
"Set apart for payment" shall be deemed to include, without any other
action, the recording by the Trust in its accounting ledgers of any
accounting or bookkeeping entry which indicates, pursuant to a declaration
of dividends or other distribution by the Board of Trustees, the allocation
of funds to be so paid on any series or class of shares of beneficial
interest of the Trust; provided, however, that if any funds for any class
or series of Series B Junior Shares or any class or series of shares of
beneficial interest ranking on a parity with the Series B Preferred Shares
as to the payment of dividends are placed in a separate account of the
Trust or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series B Preferred Shares shall
mean placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Transfer Agent" shall mean the Trust, or such other agent or agents
of the Trust as may be designated by the Board of Trustees or their
designee as the transfer agent, registrar and dividend disbursing agent for
the Series B Preferred Shares.
-3-
<PAGE>
Capitalized terms not otherwise defined herein have the meanings ascribed to
them in the Declaration.
Section 3. Dividends.
(a) Subject to the preferential rights of the holders of any Preferred
Shares that rank senior in the payment of dividends to the Series B
Preferred Shares, the holders of Series B Preferred Shares shall be
entitled to receive, when, as and if declared by the Board of Trustees, out
of funds legally available for the payment of dividends, cumulative
preferential dividends payable in cash in an amount per share equal to an
annual rate of ____% of the per share liquidation preference of the Series
B Preferred Shares (equivalent to $____ per Series B Preferred Share). The
dividends shall begin to accrue and shall be fully cumulative from the
first day of the applicable Series B Dividend Period, whether or not in any
Series B Dividend Period or Periods there shall be funds of the Trust
legally available for the payment of such dividends and whether or not such
dividends are authorized by the Board of Trustees, and shall be payable
quarterly, when, as and if declared by the Board of Trustees, in arrears on
Series B Dividend Payment Dates. Each such dividend shall be payable in
arrears to the holders of record of Series B Preferred Shares as they
appear in the records of the Trust at the close of business on such record
date, not less than 10 nor more than 50 days preceding such Series B
Dividend Payment Dates thereof, as shall be fixed by the Board of Trustees.
Accrued and unpaid dividends for any past Series B Dividend Periods may be
declared and paid at any time and for such interim periods, without
reference to any regular Series B Dividend Payment Date, to holders of
record on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Trustees. Any
dividend payment made on Series B Preferred Shares shall first be credited
against the earliest accrued but unpaid dividend due with respect to Series
B Preferred Shares which remains payable.
(b) The initial Series B Dividend Period for the Series B Preferred
Shares will include a partial dividend for the period from the Series B
Issue Date until the last day of the calendar quarter immediately following
such Series B Issue Date. The amount of dividends payable for such period,
or any other period shorter than a full Series B Dividend Period, on the
Series B Preferred Shares shall be computed by dividing the number of days
in such period by 365 and multiplying the result by the product of the
annual dividend rate (i.e., ___%) multiplied by the liquidation preference
of the Series B Preferred Shares (i.e., $25.00 per Series B Preferred
Share). The aggregate amount of dividends payable in respect of the Series
B Preferred Shares for each full Series B Dividend Period shall be computed
by dividing (x) the product of the
-4-
<PAGE>
annual dividend rate multiplied by the liquidation preference of the Series
B Preferred Shares by (y) four (4). Holders of Series B Preferred Shares
shall not be entitled to any dividends, whether payable in cash, property
or shares, in excess of cumulative dividends, as herein provided, on the
Series B Preferred Shares. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series B Preferred Shares which may be in arrears.
(c) So long as any Series B Preferred Shares are outstanding, no
dividends, except as described in the immediately following sentence, shall
be declared or paid or set apart for payment on any class or series of
Series B Parity Shares for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series
B Preferred Shares for all Series B Dividend Periods terminating on or
prior to the dividend payment date on such class or series of Series B
Parity Shares. When dividends are not paid in full or a sum sufficient for
such payment is not set apart, as aforesaid, all dividends declared upon
Series B Preferred Shares and all dividends declared upon any other class
or series of Series B Parity Shares shall be declared ratably in proportion
to the respective amounts of dividends accumulated and unpaid on the Series
B Preferred Shares and accumulated and unpaid on such Series B Parity
Shares.
(d) So long as any Series B Preferred Shares are outstanding, no
dividends (other than dividends or distributions paid solely in shares of,
or options, warrants or rights to subscribe for or purchase shares of,
Series B Fully Junior Shares) shall be declared or paid or set apart for
payment or any other distribution shall be declared or made or set apart
for payment upon Series B Junior Shares, nor shall any Series B Junior
Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for
purposes of an employee incentive or benefit plan of the Trust or any
subsidiary) for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any Series B Junior
Shares) by the Trust, directly or indirectly (except by conversion into or
exchange for Series B Fully Junior Shares), unless in each case (i) the
full cumulative dividends on all outstanding Series B Preferred Shares and
any other Series B Parity Shares of the Trust shall have been or
contemporaneously are declared and paid or declared and set apart for
payment for all past Series B Dividend Periods with respect to the Series B
Preferred Shares and all past dividend periods with respect to such Series
B Parity Shares and (ii) sufficient funds shall have been or
contemporaneously are declared and paid or declared and set apart for the
payment of
-5-
<PAGE>
the dividend for the then current Series B Dividend Period with respect to
the Series B Preferred Shares and the then current dividend period with
respect to such Series B Parity Shares.
(e) No distributions on Series B Preferred Shares shall be declared by
the Board of Trustees or paid or set apart for payment by the Trust at such
time as the terms and provisions of any agreement of the Trust, including
any agreement relating to its indebtedness, prohibits such declaration,
payment or setting apart for payment or provides that such declaration,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be restricted
or prohibited by law.
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Trust, whether voluntary or involuntary, subject to the prior preferences
and other rights of any series of shares of beneficial interest ranking
senior to the Series B Preferred Shares upon liquidation, distribution or
winding up of the Trust, before any payment or distribution of the assets
of the Trust (whether capital or surplus) shall be made to or set apart for
the holders of Series B Junior Shares, the holders of the Series B
Preferred Shares shall be entitled to receive Twenty-Five Dollars ($25.00)
(the "Liquidation Preference") per Series B Preferred Share plus an amount
equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders; but such
holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Trust, the assets of the
Trust, or proceeds thereof, distributable among the holders of the Series B
Preferred Shares shall be insufficient to pay in full the preferential
amount aforesaid and liquidating payments on any other shares of any class
or series of Series B Parity Shares, then such assets, or the proceeds
thereof, shall be distributed among the holders of Series B Preferred
Shares and any such other Series B Parity Shares ratably in accordance with
the respective amounts that would be payable on such Series B Preferred
Shares and any such other Series B Parity Shares if all amounts payable
thereon were paid in full. For the purposes of this Section 4, (i) a
consolidation or merger of the Trust with one or more corporations, real
estate investment trusts or other entities, (ii) a sale, lease or
conveyance of all or substantially all of the Trust's property or business
or (iii) a statutory share exchange shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary, of the
Trust.
-6-
<PAGE>
(b) Subject to the rights of the holders of shares of any series or
class or classes of shares of beneficial interest ranking on a parity with
or prior to the Series B Preferred Shares upon liquidation, dissolution or
winding up, upon any liquidation, dissolution or winding up of the Trust,
after payment shall have been made in full to the holders of the Series B
Preferred Shares, as provided in this Section 4, the holders of Series B
Preferred Shares shall have no other claim to the remaining assets of the
Trust and any other series or class or classes of Series B Junior Shares
shall, subject to the respective terms and provisions (if any) applying
thereto, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Series B Preferred Shares shall not be
entitled to share therein.
Section 5. Redemption at the Option of the Trust.
(a) The Series B Preferred Shares shall not be redeemable by the Trust
prior to ______________, 2003. On and after ___________, 2003, the Trust,
at its option, may redeem the Series B Preferred Shares, in whole at any
time or from time to time in part out of funds legally available therefor
at a redemption price payable in cash equal to 100% of the Liquidation
Preference per Series B Preferred Share (plus all accumulated, accrued and
unpaid dividends as provided below). The redemption price of the Series B
Preferred Shares (other than any portion thereof consisting of accrued and
unpaid dividends) shall be paid solely from the proceeds of the issuance
and sale by the Trust of other capital shares of beneficial interest of the
Trust and not from any other source. For purposes of the preceding
sentence, "capital shares of beneficial interest" means any equity
securities (including Common Shares and Preferred Shares), shares,
interests, participations or other ownership interests (however designated)
and any rights (other than debt securities convertible into or exchangeable
for equity securities) or options to purchase any of the foregoing.
(b) Upon any redemption of Series B Preferred Shares pursuant to this
Section 5, the Trust shall pay all accrued and unpaid dividends, if any,
thereon to the Series B Call Date, without interest, except that if the
Series B Call Date falls after a dividend payment record date and prior to
the corresponding Series B Dividend Payment Date, then each holder of
Series B Preferred Shares at the close of business on such dividend payment
record date shall be entitled to the dividend payable on such shares on the
corresponding Series B Dividend Payment Date notwithstanding any redemption
of such shares before such Series B Dividend Payment Date. Except as
provided above, the Trust shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on Series B Preferred Shares called
for redemption.
-7-
<PAGE>
(c) If full cumulative dividends on the Series B Preferred Shares and
any other class or series of Series B Parity Shares of the Trust have not
been declared and paid or declared and set apart for payment, the Series B
Preferred Shares may not be redeemed under this Section 5 in part and the
Trust may not purchase or acquire Series B Preferred Shares, otherwise than
pursuant to a purchase or exchange offer made on the same terms to all
holders of Series B Preferred Shares.
(d) Notice of the redemption of any Series B Preferred Shares under
this Section 5 shall be mailed by first-class mail to each holder of record
of Series B Preferred Shares to be redeemed at the address of each such
holder as shown on the Trust's records, not less than 30 nor more than 90
days prior to the Series B Call Date. Neither the failure to mail any
notice required by this paragraph (d), nor any defect therein or in the
mailing thereof, to any particular holder, shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect
to the other holders. Each such mailed notice shall state, as appropriate:
(1) the Series B Call Date; (2) the number of Series B Preferred Shares to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3)
the redemption price; (4) the place or places at which certificates for
such shares are to be surrendered; and (5) that dividends on the shares to
be redeemed shall cease to accrue on such Series B Call Date except as
otherwise provided herein. Notice having been mailed as aforesaid, from
and after the Series B Call Date (unless the Trust shall fail to make
available an amount of cash necessary to effect such redemption), (i)
except as otherwise provided herein, dividends on the Series B Preferred
Shares so called for redemption shall cease to accrue, (ii) such shares
shall no longer be deemed to be outstanding, and (iii) all rights of the
holders thereof as holders of Series B Preferred Shares of the Trust shall
cease (except the right to receive the cash payable upon such redemption,
without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon).
The Trust's obligation to provide cash in accordance with the preceding
sentence shall be deemed fulfilled if, on or before the Series B Call Date,
the Trust shall deposit with a bank or trust company (which may be an
affiliate of the Trust) that has an office in the Borough of Manhattan,
City of New York, and that has, or is an affiliate of a bank or trust
company that has, capital and surplus of at least $50,000,000 cash,
necessary for such redemption, in trust, with irrevocable instructions that
such cash be applied to the redemption of the Series B Preferred Shares so
called for redemption. No interest shall accrue for the benefit of the
holders of Series B Preferred Shares to be redeemed on any cash so set
aside by the Trust. Subject to applicable escheat
-8-
<PAGE>
laws, any such cash unclaimed at the end of two years from the Series B
Call Date shall revert to the general funds of the Trust, after which
reversion the holders of such shares so called for redemption shall look
only to the general funds of the Trust for the payment of such cash.
As promptly as practicable after the surrender in accordance with such
notice of the certificates for any such shares so redeemed (properly
endorsed or assigned for transfer, if the Trust shall so require and if the
notice shall so state), such shares shall be exchanged for any cash
(without interest thereon) for which such shares have been redeemed. If
fewer than all the outstanding Series B Preferred Shares are to be
redeemed, shares to be redeemed shall be selected by the Trust from
outstanding Series B Preferred Shares not previously called for redemption
pro rata (as nearly as may be), by lot or by any other method determined by
the Trust in its sole discretion to be equitable. If fewer than all the
Series B Preferred Shares represented by any certificate are redeemed, then
new certificates representing the unredeemed shares shall be issued without
cost to the holder thereof.
Section 6. Ranking. Any class or series of shares of beneficial
interest of the Trust shall be deemed to rank:
(a) prior to the Series B Preferred Shares, as to the payment of dividends
and as to distribution of assets upon liquidation, dissolution or winding up, if
the holders of such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon liquidation, dissolution or winding
up, as the case may be, in preference or priority to the holders of Series B
Preferred Shares;
(b) on a parity with the Series B Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof shall be different from those
of the Series B Preferred Shares, if the holders of such class or series and the
Series B Preferred Shares shall be entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or winding up in proportion
to their respective amounts of accrued and unpaid dividends per share or
liquidation preferences, without preference or priority one over the other
("Series B Parity Shares");
(c) junior to the Series B Preferred Shares, as to the payment of dividends
or as to the distribution of assets upon liquidation, dissolution or winding up,
if such class or series (which includes the Series A Preferred Shares) shall be
Series B Junior Shares; and
-9-
<PAGE>
(d) junior to the Series B Preferred Shares, as to the payment of dividends
and as to the distribution of assets upon liquidation, dissolution or winding
up, if such class or series (which includes the Series A Preferred Shares) shall
be Series B Fully Junior Shares.
Section 7. Voting. If and whenever six consecutive quarterly dividends
payable on the Series B Preferred Shares or any series or class of Series B
Parity Shares having similar voting rights shall be in arrears (which shall,
with respect to any such quarterly dividend, mean that any such dividend has not
been paid in full), whether or not earned or declared, the Board of Trustees of
the Trust shall amend the Bylaws of the Trust (unless the Bylaws had then been
previously amended to increase the number of trustees then constituting the
Board of Trustees pursuant to this Section 7) in order that the number of
trustees then constituting the Board of Trustees shall be increased by two and
the holders of Series B Preferred Shares, together with the holders of shares of
every other series of Series B Parity Shares (any such other series, the "Series
B Voting Preferred Shares"), voting as a single class regardless of series,
shall be entitled to elect the two additional trustees to serve on the Board of
Trustees at any annual meeting of shareholders or special meeting held in place
thereof, or at a special meeting of the holders of the Series B Preferred Shares
and the Series B Voting Preferred Shares called as hereinafter provided.
Whenever all arrears in dividends on the Series B Preferred Shares and the
Series B Voting Preferred Shares then outstanding shall have been paid and
dividends thereon for the current quarterly dividend period shall have been paid
or declared and set apart for payment, then the right of the holders of the
Series B Preferred Shares and the Series B Voting Preferred Shares to elect such
additional trustees shall cease (but subject always to the same provision for
the vesting of such voting rights in the case of any similar future arrearage in
quarterly dividends), and the terms of office of all persons elected as trustees
by the holders of the Series B Preferred Shares and the Series B Voting
Preferred Shares shall, notwithstanding the assignment of such trustees to any
class pursuant to Section 2.2(a) of the Declaration, forthwith terminate and the
number of the Board of Trustees shall be reduced accordingly. At any time after
such voting power shall have been so vested in the holders of Series B Preferred
Shares and the Series B Voting Preferred Shares, the Secretary of the Trust may,
and upon the written request of any holder of Series B Preferred Shares
(addressed to the Secretary at the principal office of the Trust) shall, call a
special meeting of the holders of the Series B Preferred Shares and of the
Series B Voting Preferred Shares for the election of the trustees to be elected
by them as herein provided, such call to be made by notice similar to that
provided in the Bylaws of the Trust for a special meeting of the shareholders or
as required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
any such request, then any holder of Series B Preferred Shares may call such
-10-
<PAGE>
meeting, upon the notice above provided, and for that purpose shall have access
to the records of the Trust. The trustees elected at any such special meeting
shall, notwithstanding the assignment of such Trustees to any class pursuant to
Section 2.2(a) of the Declaration, hold office until the next annual meeting of
the shareholders or special meeting held in lieu thereof if such office shall
not have previously terminated as above provided. If any vacancy shall occur
among the trustees elected by the holders of the Series B Preferred Shares and
the Series B Voting Preferred Shares, a successor shall be elected by the Board
of Trustees, upon the nomination of the then-remaining trustee elected by the
holders of the Series B Preferred Shares and the Series B Voting Preferred
Shares or the successor of such remaining trustee, to serve until the next
annual meeting of the shareholders or special meeting held in place thereof if
such office shall not have previously terminated as provided above.
So long as any Series B Preferred Shares are outstanding, in addition to
any other vote or consent of shareholders required by law or by the Declaration,
the affirmative vote of at least 66 2/3% of the votes entitled to be cast by the
holders of the Series B Preferred Shares given in person or by proxy shall be
necessary for effecting or validating:
(a) Any amendment, alteration or repeal of any of the provisions of the
Declaration or these Articles Supplementary that materially and adversely
affects the voting powers, rights or preferences of the holders of the Series B
Preferred Shares; provided, however, that the amendment of the provisions of the
Declaration so as to authorize or create or to increase the authorized amount
of, any Series B Fully Junior Shares, Series B Junior Shares that are not senior
in any respect to the Series B Preferred Shares or any Series B Parity Shares
shall not be deemed to materially adversely affect the voting powers, rights or
preferences of the holders of Series B Preferred Shares; or
(b) A share exchange that affects the Series B Preferred Shares, a
consolidation with or merger of the Trust into another entity, or a
consolidation with or merger of another entity into the Trust, unless in each
such case each Series B Preferred Share (i) shall remain outstanding without a
material and adverse change to its terms and rights or (ii) shall be converted
into or exchanged for cumulative redeemable preferred shares of the surviving
entity having preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications and term or conditions
of redemption thereof identical to that of a Series B Preferred Share (except
for changes that do not materially and adversely affect the holders of the
Series B Preferred Shares);
provided, however, that no such vote of the holders of Series B Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the
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<PAGE>
issuance of any such prior shares or convertible security is to be made, as the
case may be, provision is made for the redemption of all Series B Preferred
Shares at the time outstanding to the extent such redemption is authorized by
Section 5 of these Articles Supplementary.
For purposes of the foregoing provisions of this Section 8, each Series B
Preferred Share shall have one (1) vote per share, except that when any other
series of Preferred Shares shall have the right to vote with the Series B
Preferred Shares as a single class on any matter, then the Series B Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $25.00 of stated liquidation preference. Except as otherwise required
by applicable law or as expressly set forth herein, the Series B Preferred
Shares shall not have any voting rights, and the consent of the holders thereof
shall not be required for the taking of any Trust action.
Section 8. No Conversion. The Series B Preferred Shares are not
convertible into or exchangeable for any other property or securities of the
Trust, except into Excess Shares in connection with maintaining the ability of
the Trust to qualify as a real estate investment trust for federal income tax
purposes.
Section 9. Record Holders. The Trust and the Transfer Agent may deem
and treat the record holder of any Series B Preferred Shares as the true and
lawful owner thereof for all purposes, and neither the Trust nor the Transfer
Agent shall be affected by any notice to the contrary.
THIRD: The classification of authorized but unissued shares of beneficial
interests as set forth in these Articles Supplementary to be the act of the
Trust does not increase the authorized capital of the Trust or the aggregate par
value thereof.
FOURTH. These Articles Supplementary have been approved by the majority of
the Board of Trustees of the Trust in the manner prescribed by the Declaration
and Maryland law.
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<PAGE>
IN WITNESS WHEREOF, the undersigned, the Executive Vice President and Chief
Financial Officer of the Trust, acknowledges these Articles Supplementary to be
the act of the Trust and, as to all matters or facts required to be verified
under oath, acknowledges that, to the best of his knowledge, information and
belief, the matters and facts set forth herein are true in all material respects
and that this statement is made under the penalties of perjury. These Articles
Supplementary have been executed under seal in the name of the Trust by its
Executive Vice President and Chief Financial Officer and attested by its
Secretary this ____ day of June, 1998.
[SEAL] PRIME GROUP REALTY TRUST
By:___________________________
William M. Karnes,
Executive Vice President and
Chief Financial Officer
Attest:
By:__________________________
James F. Hoffman,
Secretary
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<PAGE>
EXHIBIT 8.1
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
May 29, 1998
Prime Group Realty Trust
77 West Wacker Drive
Suite 3900
Chicago, Il 60601
Re: Qualification as REIT and Prospectus Federal Income Tax
-------------------------------------------------------
Disclosure
----------
Ladies and Gentlemen:
We have acted as special counsel to Prime Group Realty Trust, a
Maryland real estate investment trust (the "Company"), in connection with the
offering of Series B Cumulative Redeemable Preferred Shares of the Company's
beneficial interests (the "Redeemable Preferred Shares") contemplated by the
Company's Registration Statement on Form S-11 (File No. 333-51599), which was
initially filed with the Securities and Exchange Commission ("SEC") on May 1,
1998 (the "Registration Statement") as amended by Amendment No. 1 thereto filed
with the SEC on May 14, 1998, Amendment No. 2 thereto filed with the SEC on May
20, 1998 and Amendment No. 3 thereto filed with the SEC on May 29, 1998 and the
Prospectus constituting a part thereof (the "Prospectus"). Capitalized terms
used herein and not otherwise defined shall have the meanings assigned to such
terms in the Prospectus.
You have requested our opinion concerning whether, commencing with
the Company's initial taxable year ended December 31, 1997, (i) the Company
has been and is organized in conformity with the requirements for
qualification and taxation as a real estate investment trust ("REIT") for
federal income tax purposes, (ii) the Company's method of operation has
enabled it to meet the requirements for qualification and taxation as a REIT
under the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") and (iii) the Company's method of operation enables it to continue to
meet the requirements for qualification and taxation as a REIT. In rendering
this opinion, we have examined and relied upon the descriptions of the
Company, the Operating Partnership and the Property Partnerships and their
respective investments, as well as proposed investments, activities,
operations, and governance, as set forth in the Prospectus. We have reviewed
originals or copies, certified or otherwise identified to our satisfaction, of
the form of the Amended and Restated Declaration of Trust of the Company (the
"Charter"), the Amended and Restated Agreement of Limited Partnership of Prime
Group Realty Trust, L.P. (the "Operating
<PAGE>
Prime Group Realty Trust
May 29, 1998
Page 2
Partnership"), as amended, each of the Property Partnerships' agreements as
amended, the Registration Statement, the Prospectus and such other documents,
agreements, and information as we have deemed necessary for purposes of
rendering the opinions contained herein. For purposes of such examination, we
have assumed the genuineness of all signatures on originals or copies, the
legal capacity of natural persons, the authority of any individual or
individuals who executed any such documents on behalf of any other person, the
authenticity of all documents submitted to us as originals and the conformity
to originals or certified copies of all copies submitted to us as certified or
reproduction copies.
We have also reviewed and, with your permission, are relying upon
the Officer's Certificate dated on the date hereof and executed by a duly
authorized officer of the Company, setting forth certain factual
representations relating to the formation, ownership, operation, future method
of operation, and compliance with the REIT and partnership provisions of the
Code of the Company, the Operating Partnership, each of the Property
Partnerships, and Prime Group Realty Services, Inc. (the "Services Company").
We have further relied on and assumed the truth and correctness of (i) the
Company's representations in the Agreement of Limited Partnership of the
Operating Partnership and (ii) the certificates of public officials with
respect to the formation of certain limited partnerships. Moreover, for the
purpose of rendering our opinion, we have assumed that no partner in the
Operating Partnership or any of the Property Partnerships will elect to be
excluded from all or part of subchapter K of the Code.
For the purposes of rendering this opinion, we have not made an
independent investigation of the facts set forth in any of the aforementioned
documents, including without limitation the Prospectus and the Officer's
Certificate. We have consequently relied upon your representations that the
information presented in such documents or otherwise furnished to us
accurately and completely describes all material facts relevant to this
opinion.
In rendering this opinion, we have assumed that the transactions
contemplated by the Prospectus will be consummated in accordance with the
operative documents, and such documents accurately reflect the material facts
of such transactions. In addition, the opinions set forth herein are based on
the correctness of the following specific assumptions: (i) the Company, the
Operating Partnership, the Property Partnerships, and the Services Company
will each be operated in the manner described in the relevant partnership
agreement or other organizational documents and in the Prospectus and in
accordance with applicable laws; and (ii) each partner in the Operating
Partnership and in each of the Property Partnerships has been motivated in
acquiring
<PAGE>
Prime Group Realty Trust
May 29, 1998
Page 3
its respective partnership interest by such partner's anticipation of economic
rewards apart from tax considerations.
Our opinion is based upon the current provisions of the Code,
Treasury Regulations promulgated thereunder, current administrative rulings,
judicial decisions, and other applicable authorities, all as in effect on the
date hereof. All of the foregoing authorities are subject to change or new
interpretation, both prospectively and retroactively, and such changes or
interpretation, as well as changes in the facts as they have been represented
to us or assumed by us, could affect our opinion. Our opinion is rendered
only as of the date hereof and we undertake no responsibility to update this
opinion after this date. Our opinion does not foreclose the possibility of a
contrary determination by the Internal Revenue Service (the "IRS") or by a
court of competent jurisdiction, or of a contrary position by the IRS or
Treasury Department in regulations or rulings issued in the future.
Based on the foregoing, and subject to the limitations,
qualifications and exceptions set forth herein, we are of the opinion that:
1. Commencing with the Company's initial taxable year ending
December 31, 1997, the Company has been and is organized in conformity with
the requirements for qualification and taxation as a REIT, and the Company's
method of operation has enabled it to meet the requirements for qualification
and taxation as a REIT under the Code, and its method of operation enables it
to continue to meet the requirements for qualification and taxation as a REIT.
2. The discussion in the Prospectus under the heading "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" fairly summarizes the federal income tax
considerations that are likely to be material to a holder of the Company's
Redeemable Preferred Shares.
The Company's qualification and taxation as a REIT depend upon the
Company's ability to meet on a continuing basis, through actual annual
operating and other results, the various requirements under the Code and
described in the Prospectus with regard to, among other things, the sources of
gross income, the composition of assets, the level of distributions to stockhold
ers, and the diversity of its stock ownership. Winston & Strawn undertakes no
responsibility to, and will not, review the Company's compliance with these
requirements on a continuing basis. Accordingly, no assurance can be given
that the actual results of the Company's operations, the nature of its assets,
the amount and types of its gross income, the level of its distributions to
stockholders and the diversity of its stock ownership for any given taxable
year will satisfy the requirements under the Code for qualification and
<PAGE>
Prime Group Realty Trust
May 29, 1998
Page 4
taxation as a REIT. In particular, we would note that, although the Company's
Charter contains certain provisions which restrict the ownership and transfer
of the Company's capital stock and which are intended to prevent concentration
of stock ownership, such provisions do not ensure that the Company will be
able to satisfy the requirement set forth in Code section 856(a)(6) that it
not be "closely held" within the meaning of Code section 856(h) for any given
taxable year, primarily, though not exclusively, as a result of fluctuations
in value among the different classes of the Company's capital stock.
Other than as expressly stated above, we express no opinion on any
issue relating to the Company, the Operating Partnership, the Services
Company, or any of the Property Partnerships or to any investment therein.
This opinion is being delivered to you solely for use in connection
with the Prospectus as of the date hereof. This opinion is solely for the
benefit of the above-named addressee and may not be relied upon by any other
person in any manner whatsoever without our prior written permission.
Notwithstanding the foregoing, we hereby consent to the incorporation by
reference of this opinion to the Registration Statement and to the use of our
name in the Prospectus under the captions "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" and "LEGAL MATTERS." In giving this consent, we do not admit
that we are included in the category of persons whose consent is required
under section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the SEC.
Very truly yours,
/s/ WINSTON & STRAWN
<PAGE>
Exhibit 10.42
PROMISSORY NOTE
---------------
(with Defeasance and Hyper-Amortization)
$47,000,000.00 May 1, 1998
FOR VALUE RECEIVED, 1401 S. JEFFERSON LANE, L.L.C., 4211 MADISON STREET,
L.L.C., 1051 N. KIRK ROAD, L.L.C., 200 E. FULLERTON, L.L.C., 350 RANDY ROAD,
L.L.C., 4300 MADISON STREET, L.L.C., 370 CAROL LANE, L.L.C., 388 CAROL LANE,
L.L.C., 342 CAROL LANE, L.L.C., 343 CAROL LANE, L.L.C., 4160 MADISON STREET,
L.L.C., 1301 E. TOWER ROAD, L.L.C., 4343 COMMERCE COURT, L.L.C., 11039 GAGE
AVENUE, L.L.C., 11045 GAGE AVENUE, L.L.C., and 550 KEHOE BLVD., L.L.C.
(collectively, "Borrower"), each of which is a Delaware limited liability
company, having an address at c/o Prime Group Realty, L.P., 77 West Wacker
Drive, Suite 3900, Chicago, Illinois 60601, jointly and severally promise to pay
to the order of CIBC INC., a Delaware corporation ("Lender"), at the office of
Lender at 425 Lexington Avenue, New York, New York 10017, or at such other place
as Lender may designate to Borrower in writing from time to time, the principal
sum of FORTY-SEVEN MILLION AND 00/100 DOLLARS ($47,000,000.00) together with
interest on so much thereof as is from time to time outstanding and unpaid, from
the date of the advance of the principal evidenced hereby, at the Applicable
Interest Rate (as hereinafter defined), in lawful money of the United States of
America, which shall at the time of payment be legal tender in payment of all
debts and dues, public and private.
ARTICLE I - TERMS AND CONDITIONS
1.01 Payment of Principal and Interest.
(a) Interest shall be computed hereunder based on a 360-day year and paid
for the actual number of days elapsed for any whole or partial month in which
interest is being calculated. In computing the number of days during which
interest accrues, the day on which funds are initially advanced shall be
included (regardless of the time of day such advance is made), and the day on
which funds are repaid shall be included unless repayment is credited prior to
close of business. Payments in federal funds immediately available in the place
designated for payment received by Lender prior to 2:00 p.m. local time on a
business day in the State of Lender's principal office at said place of payment
shall be credited prior to close of business, while other payments may, at the
option of Lender, not be credited until immediately available to Lender in
federal funds at the place designated for payment prior to 2:00 p.m. local time
at said place of payment on a day on which Lender is open for business.
(b) Principal and interest shall be payable in equal consecutive monthly
installments of $318,076.51 (the "Monthly Payment Amount") on the first day of
each calendar month until payment in full of this Note beginning on the first
day of the second full calendar month following the date of this Note (or on the
first day of the first full calendar month following the date hereof, in the
event the advance of the principal amount evidenced by this Note is the first
<PAGE>
day of a calendar month). On May 1, 2028 (the "Maturity Date"), the entire
outstanding principal balance hereof, together with all accrued but unpaid
interest thereon and all other sums due hereunder, shall be due and payable in
full. So long as no Event of Default (as hereinafter defined) exists hereunder,
each such monthly installment shall be applied first, to any amounts hereafter
advanced by Lender hereunder or under any other Loan Document, second, to any
late fees and other amounts payable to Lender, third, to the payment of accrued
interest and last to reduction of principal.
(c) If the advance of the principal amount evidenced by this Note is made
on a date other than the first day of a calendar month, then Borrower shall pay
to Lender contemporaneously with the execution hereof interest at the Applicable
Interest Rate for a period from the date of such advance through and including
the last day of such calendar month.
1.02 Prepayment.
(a) Voluntary Prepayment. Borrower may not voluntarily prepay this Note in
whole or in part at any time prior to the expiration of the Lock-out Period,
"Lock-out Period" shall mean the period of time from the date hereof to, but not
including, the date that is six (6) months prior to the Anticipated Repayment
Date (as hereinafter defined). After the expiration of the Lock-out Period,
Borrower may prepay this Note in whole only, provided, that (i) written notice
of such prepayment is received by Lender not more than sixty (60) days and not
less than thirty (30) days prior to the date of such prepayment, (ii) such
prepayment is accompanied by all interest accrued hereunder and all other sums
due hereunder and under the other Loan Documents (as defined in Section 1.04)
and (iii) such prepayment (x) is received by Lender on a Payment Date (as
defined in Article III), or (y) if not received on a Payment Date, is
accompanied by a payment of interest, calculated at the Applicable Interest
Rate, on the amount prepaid, based on the number of days from the date such
prepayment is received through the next Payment Date.
(b) Involuntary Prepayment. Except as hereinafter provided in this
subparagraph (b), in the event that any prepayment is received by Lender prior
to the expiration of the Lock-out Period, or if a prepayment results from
Lender's exercise of its remedies hereunder, Borrower shall pay Lender a Yield
Maintenance Charge (as defined in Section 1.03 below) in connection with such
Prepayment. Partial prepayments of this Note prior to the expiration of the
Lock-out Period shall be permitted without the imposition of a Yield Maintenance
Charge in connection with Lender's application of insurance or condemnation
proceeds on account of the Loan in accordance with the terms and provisions of
the Security Instrument (as defined in Section 1.04 hereof), however, if an
Event of Default shall have occurred and be continuing at the time of the
related casualty or condemnation, in addition to applying such proceeds as
provided in the Security Instrument, Borrower shall pay a Yield Maintenance
Charge to Lender. Lender, at its option, may elect to use such proceeds and
Yield Maintenance Charge to economically defease an amount of the Loan equal to
the proceeds applied as a prepayment, in the manner provided in Section 1.03
below. Any prepayment during the Lockout Period shall not reduce the Monthly
Payment Amount payable hereunder unless such prepayment is accompanied by a
Yield Maintenance Charge and Lender elects, in its sole discretion, to
economically defease all or a
2
<PAGE>
portion of the Loan with the related proceeds. No notice of prepayment by
Borrower shall be required in connection with an application of insurance or
condemnation proceeds.
No tender of a prepayment of this Note with respect to which a Yield Maintenance
Charge is due shall be effective unless such prepayment is accompanied by such
Yield Maintenance Charge.
(c) No principal amount repaid or defeased may be re-borrowed.
1.03 Defeasance.
(a) At any time during the Defeasance Period (as hereinafter defined),
Borrower may obtain a release of the Security Property (as hereinafter defined)
from the lien of the Security Instrument upon the satisfaction of the following
conditions:
(1) not less than thirty (30) days' prior written notice shall be
given to Lender specifying a date (the "Defeasance Date") on which the
Defeasance Deposit (as hereinafter defined) is to be delivered, such date
being a Payment Date;
(2) all accrued and unpaid interest and all other sums due under this
Note and under the other Loan Documents up to the Defeasance Date,
including, without limitation, all reasonable costs and expenses incurred
by Lender or its agents in connection with such defeasance (including,
without limitation, any legal fees and expenses incurred in connection with
obtaining and reviewing the Defeasance Collateral (as hereinafter defined)
and the preparation of the Defeasance Security Agreement (as hereinafter
defined) and related documentation), shall be paid in full on or prior to
the Defeasance Date;
(3) no Event of Default, and no event or condition that, with the
giving of notice or passage of time or both, would constitute an Event of
Default, shall exist either at the time Borrower gives notice of the
Defeasance Date to Lender or on the Defeasance Date;
(4) at least ten (10) days prior to the Defeasance Date, Borrower
shall pay to Lender the principal amount of the Loan to be defeased
together with an additional amount (the "Yield Maintenance Charge") such
that the aggregate amount (the "Defeasance Deposit") is sufficient to
purchase direct, non-callable obligations of the United States of America
(the "Defeasance Collateral") that provide for payments prior, but as close
as possible, to all successive Payment Dates occurring after the Defeasance
Date through and including the Anticipated Repayment Date, with each such
payment being equal to or greater than (1) the Monthly Payment Amount and
(2) with respect to the payment due on the Anticipated Repayment Date, the
entire outstanding principal balance of this Note together with any
interest accrued as of such date and all other amounts payable pursuant to
the Loan Documents;
(5) the Defeasance Collateral shall be duly endorsed by the holder
thereof as directed by Lender or accompanied by a written instrument of
transfer in form and
3
<PAGE>
substance wholly satisfactory to Lender (including, without limitation,
such instruments as may be required by the depository institution holding
such securities to effectuate book-entry transfers and pledges through the
book-entry facilities of such institution) in order to create a first
priority security interest therein in favor of Lender in conformity with an
applicable state and federal laws governing granting of such security
interests;
(6) Borrower shall deliver the following to Lender on or prior to the
Defeasance Date:
A. a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Defeasance
Deposit and the Defeasance Collateral (the "Defeasance Security
Agreement"), which shall provide, among other things, that any excess
received by Lender from the Defeasance Collateral over the amounts
payable by Borrower hereunder shall be refunded to Borrower promptly
after each monthly Payment Date;
B. a certificate of Borrower certifying that all of the
requirements set forth in this Section 1.03(a) have been satis fied;
C. an opinion of counsel for Borrower in form and substance and
delivered by counsel satisfactory to Lender in its sole discretion
stating, among other things, (x) that Lender has a perfected first
priority security interest in the Defeasance Deposit and the
Defeasance Collateral, (y) that the Defeasance Security Agreement is
enforceable against Borrower in accordance with its terms and (z) that
the defeasance will not cause the Trust (as hereinafter defined) to
fail to qualify as a "real estate mortgage investment conduit" (a
"REMIC"), within the meaning of Section 860D of the Internal Revenue
Code of 1986, as amended from time to time or any successor statute
(the "Code");
D. evidence in writing from each of the Rating Agencies (as
defined in the Security Instrument) to the effect that such release
will not result in a qualification, downgrade or withdrawal of any
rating in effect immediately prior to the Defeasance Date for any
securities issued in connection with a Secondary Market Transaction
(as defined in the Security Instrument); and
E. such other certificates, opinions, documents or instruments
as Lender may reasonably require.
The "Defeasance Period" shall mean the period of time commencing on the
date which is the earlier to occur of (i) two (2) years after the "startup day",
within the meaning of Section 860G(a)(9) of Code, of the REMIC that holds this
Note (the "Trust") and (ii) four (4) years after the date hereof, and ending on
the Anticipated Repayment Date.
(b) Upon a defeasance in accordance with Section 1.03(a), Borrower shall,
at Lender's request, assign all its obligations and rights under this Note to a
special-purpose, bankruptcy-
4
<PAGE>
remote entity ("Successor Borrower") to be formed by Borrower at its sole cost
and expense. In connection therewith, the Successor Borrower shall execute an
assumption agreement in form and substance satisfactory to Lender in its sole
discretion pursuant to which it shall assume Borrower's obligations under this
Note and the Defeasance Security Agreement. The sole asset of Successor Borrower
shall be the Defeasance Collateral. In connection with such assignment and
assumption, Borrower and/or Successor Borrower shall:
(1) deliver to Lender an opinion of counsel in form and substance and
delivered by counsel satisfactory to Lender in its sole discretion stating,
among other things, that such assumption agreement is enforceable against
Borrower and Successor Borrower, as applicable, in accordance with its
terms and that this Note, the Defeasance Security Agreement and any other
documents executed in connection with such defeasance are enforceable
against Borrower or Successor Borrower, as applicable, in accordance with
their respective terms, and
(2) pay all reasonable costs and expenses incurred by Lender or its
agents in connection with such assignment and assumption (including,
without limitation, any fees and disbursements of legal counsel).
Upon an assumption by Successor Borrower acceptable to Lender, Borrower
shall be relieved of its obligations under this Note and the Defeasance Security
Agreement and, to the extent such documents relate to the Security Property, the
other Loan Documents.
(c) Upon compliance with the requirements of Sections 1.03(a) and (b), the
Security Property shall be released from the lien of the Security Instrument and
the other Loan Documents, and the Defeasance Collateral shall constitute
collateral which shall secure this Note. Lender will, at Borrower's expense,
execute and deliver any agreements reasonably requested by Borrower to release
the lien of the Security Instrument from the Security Property.
(d) Lender, as attorney-in-fact of Borrower, shall cause the purchase of
the Defeasance Collateral with the Defeasance Deposit, which purchase may be
through an affiliate of Lender. Borrower shall be responsible for the payment of
any commercially reasonable brokerage or other transaction fees in connection
with such purchase.
(e) Notwithstanding anything contained herein to the contrary, on any
Payment Date during the Defeasance Period, Borrower may obtain a release of a
single Security Property from the lien of the Security Instrument (a "Partial
Defeasance") upon the satisfaction of the following conditions:
(1) not less than thirty (30) days' prior written notice shall be
given to Lender specifying a date (the "Partial Defeasance Date") on which
the Partial Defeasance Deposit (as hereinafter defined) for the Security
Property to be released is to be delivered, such Partial Defeasance Date
being a Payment Date;
(2) all accrued and unpaid interest and all other sums due under this
Note and under the other Loan Documents up to the Partial Defeasance Date,
including, without
5
<PAGE>
limitation, all reasonable costs and expenses incurred by Lender or its
agents in connection with such defeasance (including, without limitation,
any legal fees and expenses incurred in connection with obtaining and
reviewing the Partial Defeasance Collateral (as hereinafter defined), the
preparation of the Partial Defeasance Note, the preparation of the Partial
Defeasance Security Agreement (as hereinafter defined) and related
documentation), shall be paid in full on or prior to the Partial Defeasance
Date;
(3) no Event of Default, and no event or condition that, with the
giving of notice or passage of time or both, would constitute an Event of
Default, shall exist either at the time Borrower gives notice of the
Partial Defeasance Date to Lender or on the Partial Defeasance Date;
(4) at least ten (10) days prior to the Partial Defeasance Date,
Borrower shall pay to Lender the Release Price (as hereinafter defined)
together with any applicable Yield Maintenance Charge such that the
aggregate amount (the "Partial Defeasance Deposit") is sufficient to
purchase direct, non-callable obligations of the United States of America
(the "Partial Defeasance Collateral") that provide for payments prior, but
as close as possible, to all successive Payment Dates occurring after the
Partial Defeasance Date through and including the Anticipated Repayment
Date, with each such payment being equal to or greater than (1) the amount
of the corresponding installment of principal and interest (plus servicing
fees as the case may be) required to be made under the Partial Defeasance
Note, and (2) with respect to the payment due on the Anticipated Repayment
Date, the entire outstanding principal balance of the Partial Defeasance
Note together with any interest accrued as of such date and all other
amounts payable pursuant to the Loan Documents;
(5) the Partial Defeasance Collateral shall be duly endorsed by the
holder thereof as directed by Lender or accompanied by a written instrument
of transfer in form and substance wholly satisfactory to Lender (including,
without limitation, such instruments as may be required by the depository
institution holding such securities to effectuate book-entry transfers and
pledges through the book-entry facilities of such institution) in order to
create a first priority security interest therein in favor of Lender in
conformity with an applicable state and federal laws governing granting of
such security interests;
(6) Borrower shall deliver the following to Lender on or prior to the
Partial Defeasance Date:
A. a promissory note (the "Partial Defeasance Note") prepared
by Lender's counsel which shall contain terms and conditions
substantially similar to those contained in this Note, including
without limitation, the Initial Term Interest Rate, the Maturity Date
and the Anticipated Repayment Date, except that the Partial Defeasance
Note shall, among other things, (i) reflect a principal balance in the
amount of the Release Price, (ii) require monthly payments of
principal and interest in an amount sufficient to fully amortize the
Partial Defeasance Note over
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the remaining term of the Loan, and (iii) be secured solely by the
Partial Defeasance Collateral;
B. a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Partial
Defeasance Deposit and the Partial Defeasance Collateral (the "Partial
Defeasance Security Agreement");
C. a certificate of Borrower certifying that all of the
requirements set forth in this Section 1.03(e) have been satisfied;
D. such other agreements and instruments executed by Borrower
as Lender shall reasonably request or the Rating Agencies shall
require modifying, amending and/or restating the Loan Documents in
order to reflect the effect of such Partial Defeasance upon the terms
of the Loan, including without limitation, modifying the Note to (a)
reduce the Monthly Payment Amount to an amount equal to (X) the
Monthly Payment Amount due immediately prior to the Partial Release
Date less (Y) the Monthly Payment Amount due under the Partial
Defeasance Note, and (b) reduce the principal amount thereof by an
amount equal to the principal amount of the Partial Defeasance Note;
E. an opinion of counsel for Borrower in form and substance and
delivered by counsel satisfactory to Lender in its sole discretion
stating, among other things, (x) that Lender has a perfected first
priority security interest in the Partial Defeasance Deposit and the
Partial Defeasance Collateral, (y) that the Partial Defeasance
Security Agreement is enforceable against Borrower in accordance with
its terms and (z) that the defeasance will not cause the Trust to fail
to qualify as a REMIC, within the meaning of Section 860D of the Code;
F. evidence in writing from each of the Rating Agencies (as
defined in the Security Instrument) to the effect that such partial
release will not result in a qualification, downgrade or withdrawal of
any rating in effect immediately prior to the Partial Defeasance Date
for any securities issued in connection with a Secondary Market
Transaction (as defined in the Security Instrument); and
G. such other certificates, opinions, documents or instruments
as Lender may reasonably require.
As used herein "Release Price" means an amount equal to the greater of: (x)
125% of the Allocated Loan Amount set forth Schedule I attached hereto and made
a part hereof for the applicable Security Property to be released, or (y) an
amount which, if deemed applied in reduction of the Loan, would provide a Debt
Service Coverage Ratio (as determined by Lender) of not less than 1.25:1.00,
calculated with respect to the Security Property other than the Security
Property which is the subject of the proposed Partial Defeasance.
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(7) On the Partial Release Date, Borrower shall transfer the Security
Property being released to a third party.
(f) Upon a partial defeasance in accordance with Section 1.03(e), Borrower
shall, at Lender's request, assign all its obligations and rights under the
Partial Defeasance Note to a Successor Borrower to be formed by Borrower at its
sole cost and expense. In connection therewith, the Successor Borrower shall
execute an assumption agreement in form and substance satisfactory to Lender in
its sole discretion pursuant to which it shall assume Borrower's obligations
under the Partial Defeasance Note and the Partial Defeasance Security Agreement.
The sole asset of Successor Borrower shall be the Partial Defeasance Collateral.
In connection with such assignment and assumption, Borrower and/or Successor
Borrower shall:
(1) deliver to Lender an opinion of counsel in form and substance and
delivered by counsel satisfactory to Lender in its sole discretion stating,
among other things, that such assumption agreement is enforceable against
Borrower and Successor Borrower, as applicable, in accordance with its
terms and that the Partial Defeasance Note, the Partial Defeasance Security
Agreement and any other documents executed in connection with such
defeasance are enforceable against Borrower or Successor Borrower, as
applicable, in accordance with their respective terms, and
(2) pay all reasonable costs and expenses incurred by Lender or its
agents in connection with such assignment and assumption (including,
without limitation, any fees and disbursements of legal counsel).
Upon an assumption by Successor Borrower acceptable to Lender, Borrower
shall be relieved of its obligations under the Partial Defeasance Note and the
Partial Defeasance Security Agreement.
(g) Upon compliance with the requirements of Sections 1.03(e) and (f), the
applicable Security Property shall be released from the lien of the Security
Instrument and the other Loan Documents, and the Partial Defeasance Collateral
shall constitute collateral which shall secure the Partial Defeasance Note.
Lender will, at Borrower's expense, execute and deliver any agreements
reasonably requested by Borrower to release the lien of the Security Instrument
from applicable the Security Property.
(h) Lender, as attorney-in-fact of Borrower, shall cause the purchase of
the Partial Defeasance Collateral with the Partial Defeasance Deposit, which
purchase may be through an affiliate of Lender. Borrower shall be responsible
for the payment of any commercially reasonable brokerage or other transaction
fees in connection with such purchase.
1.04 Security. The indebtedness evidenced by this Note and the obligations
created hereby are secured by, inter alia, that certain Mortgage and Security
Agreement (as amended, consolidated, modified, severed or spread from time to
time, the "Security Instrument") from Borrower to Lender, dated on or about the
date hereof, concerning property located in the State of Illinois and more
particularly described therein. The Security Instrument together with this Note,
the Cash Management Agreement (as defined in Article III) and all other
documents to or
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of which Lender is a party or beneficiary now or hereafter evidencing, securing,
guarantying, modifying or otherwise relating to the indebtedness evidenced
hereby, as amended or modified from time to time, are herein referred to
collectively as the "Loan Documents". All of the terms and provisions of the
Loan Documents are incorporated herein by reference. Some of the Loan Documents
are to be filed for record on or about the date hereof in the appropriate public
records.
1.05 Exculpation. Notwithstanding anything in the Loan Documents to the
contrary, but subject to the qualifications hereinbelow set forth, Lender agrees
that (i) Borrower shall be liable upon the indebtedness evidenced hereby and for
the other obligations arising under the Loan Documents to the full extent (but
only to the extent) of the security therefor, the same being all properties
(whether real or personal), rights, estates and interests now or at any time
hereafter securing the payment of this Note and/or the other obligations of
Borrower under the Loan Documents (collectively, the "Security Property"), (ii)
if default occurs in the timely and proper payment of all or any part of such
indebtedness evidenced hereby or in the timely and proper performance of the
other obligations of Borrower under the Loan Documents, any judicial or other
proceedings brought by Lender against Borrower shall be limited to the
preservation, enforcement and foreclosure, or any thereof, of the liens,
security titles, estates, assignments, rights and security interests now or at
any time hereafter securing the payment of this Note and/or the other
obligations of Borrower under the Loan Documents, and no attachment, execution
or other writ of process shall be sought, issued or levied upon any assets,
properties or funds of Borrower other than the Security Property except with
respect to the liability described below in this section, and (iii) in the event
of a foreclosure of such liens, security titles, estates, assignments, rights or
security interests securing the payment of this Note and/or the other
obligations of Borrower under the Loan Documents, no judgment for any deficiency
upon the indebtedness evidenced hereby shall be sought or obtained by Lender
against Borrower, except with respect to the liability described below in this
section; provided, however, that, notwithstanding the foregoing provisions of
this section, Borrower shall be fully and personally liable and subject to legal
action:
(a) for proceeds paid under any insurance policies (or paid as a result of
any other claim or cause of action against any person or entity) by reason of
damage, loss or destruction to all or any portion of the Security Property, to
the full extent of such proceeds not previously delivered to Lender, but which,
under the terms of the Loan Documents, should have been delivered to Lender;
(b) for proceeds or awards resulting from the condemnation or other taking
in lieu of condemnation of all or any portion of the Security Property, or any
of them, to the full extent of such proceeds or awards not previously delivered
to Lender, but which, under the terms of the Loan Documents, should have been
delivered to Lender;
(c) for all tenant security deposits or other refundable deposits paid to
or held by Borrower or any other person or entity in connection with leases of
all or any portion of the Security Property which are not applied in accordance
with the terms of the applicable lease or other agreement;
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(d) for rents, issues, profits and revenues of all or any portion of the
Security Property received or applicable to a period after any notice of default
from Lender which are not either applied to the ordinary and necessary expenses
of owning and operating the Security Property or paid to Lender;
(e) for waste committed on the Security Property, damage to the Security
Property as a result of the intentional misconduct or gross negligence of
Borrower or Prime Group Realty, L.P. ("Guarantor") or any of their principals,
officers, members or general partners, or any agent or employee of any such
persons, or any removal of all or a portion of the Security Property in
violation of the terms of the Loan Documents, to the full extent of the losses
or damages incurred by Lender on account of such occurrence;
(f) for failure to pay any valid taxes, assessments, ground rents,
mechanic's liens, materialmen's liens, charges for labor or materials or any
other charge, which if unpaid, could result in liens on any portion of the
Security Property which would be superior to the lien or security title of the
Security Instrument or the other Loan Documents, to the full extent of the
amount claimed by any such lien claimant;
(g) for failure by Borrower to pay the premiums on insurance policies
required under the Loan Documents to be maintained by Borrower or with respect
to the Property;
(h) for all obligations and indemnities of Borrower under the Loan
Documents relating to hazardous or toxic substances or compliance with
environmental laws and regulations to the full extent of any actual losses or
damages incurred by Lender as a result of the existence of such hazardous or
toxic substances or failure to comply with environmental laws or regulations;
(i) for fraud or material misrepresentation or failure to disclose a
material fact by Borrower, Guarantor, any guarantor, any indemnitor or any
agent, employee or other person authorized or apparently authorized to make
statements or representations on behalf of Borrower, any guarantor or any
indemnitor, or any of the principals (including, without limitation, Guarantor),
members, officers, managers, or general partners of any of them, to the full
extent of any actual losses, damages and expenses of Lender on account thereof;
and
(j) for the filing of any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or state
law, by or against Borrower, but if such filing was involuntary only if Borrower
consented to or acquiesced in the same or colluded with other creditors to cause
such an involuntary bankruptcy filing. Borrower shall be deemed to have
consented to or acquiesced in such bankruptcy filing if reasonable grounds to
oppose such filing exists and Borrower shall have failed to use reasonable
commercial efforts, including all necessary or appropriate court filings and
appeals, to oppose, contest or prevent the same.
Notwithstanding anything to the contrary in the Loan Documents: (i) the
Loan shall be fully recourse to Borrower; and (ii) Lender shall not be deemed to
have waived any right which Lender may have under Section 506 (a), 506 (b),
1111(b) or any other provisions of the U.S.
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Bankruptcy Code to file a claim for the full amount of the Loan or to require
that all collateral shall continue to secure all of the indebtedness owing to
Lender in accordance with the Loan Documents, in the event that: (A) Borrower
fails to obtain Lender's prior written consent to any subordinate financing or
other voluntary lien encumbering the Security Property; or (B) Borrower fails to
obtain Lender's prior written consent to any assignment, transfer or conveyance
of the Premises or any interest therein as required by Loan Documents.
Nothing contained in this section shall (1) be deemed to be a release or
impairment of the indebtedness evidenced by this Note or the other obligations
of Borrower under the Loan Documents or the lien of the Loan Documents upon the
Security Property, or (2) preclude Lender from foreclosing the Loan Documents in
case of any default or from enforcing any of the other rights of Lender except
as stated in this section, or (3) reduce, release, relieve, waive, limit or
impair in any way whatsoever the Indemnity and Guaranty Agreement and the
Hazardous Substances Indemnity Agreement each of even date executed and
delivered in connection with the indebtedness evidenced by this Note or release,
relieve, reduce, waive or impair in any way whatsoever, any obligation of any
party to such Indemnity and Guaranty Agreement and Hazardous Substances
Indemnity Agreement.
1.06 Event of Default. It is hereby expressly agreed that should any
default occur in the payment of principal or interest as stipulated above and
such payment is not made within seven (7) days of the date such payment is due
(provided that no grace period is provided for the payment of principal and
interest due on the Maturity Date), or should an "Event of Default" (as defined
in the Security Instrument) occur, or should any other default occur under any
of the Loan Documents which is not cured within any applicable grace or cure
period, then an "Event of Default" shall exist hereunder, and in such event the
indebtedness evidenced hereby, including all sums advanced or accrued hereunder
or under any other Loan Document, and all unpaid interest accrued thereon,
shall, at the option of Lender and without notice to Borrower, at once become
due and payable and may be collected forthwith, whether or not there has been a
prior demand for payment and regardless of the stipulated date of maturity.
1.07 Late Charges and Default Interest Rate. In the event that any payment
is not received by Lender on the date when due (subject to the applicable grace
period), then in addition to any default interest payments due hereunder,
Borrower shall also pay to Lender a late charge in an amount equal to five
percent (5.0%) of the amount of such overdue payment. So long as any Event of
Default exists hereunder, regardless of whether or not there has been an
acceleration of the indebtedness evidenced hereby, and at all times after
maturity of the indebtedness evidenced hereby (whether by acceleration or
otherwise), interest shall accrue on the outstanding principal balance of this
Note at a rate per annum equal to four percent (4.0%) plus the Applicable
Interest Rate, or if such increased rate of interest may not be charged or
collected under applicable law, then at the maximum rate of interest, if any,
which may be charged or collected from Borrower under applicable law (the
"Default Interest Rate"), and such default interest shall be immediately due and
payable. Borrower acknowledges that it would be extremely difficult or
impracticable to determine Lender's actual damages resulting from any late
payment or Event of Default, and such late charges and default interest are
reasonable estimates of those damages and do not constitute a penalty.
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1.08 Cumulative Remedies. The remedies of Lender in this Note or in the
Loan Documents, or at law or in equity, shall be cumulative and concurrent, and
may be pursued singly, successively or together in Lender's discretion. In the
event this Note, or any part hereof, is collected by or through an attorney-at-
law, Borrower agrees to pay all costs of collection including, but not limited
to, reasonable attorneys' fees.
ARTICLE II - GENERAL CONDITIONS
2.01 No Waiver: Amendment. No failure to accelerate the debt evidenced
hereby by reason of default hereunder, acceptance of a partial or past due
payment, or indulgences granted from time to time shall be construed (i) as a
novation of this Note or as a reinstatement of the indebtedness evidenced hereby
or as a waiver of such right of acceleration or of the right of Lender
thereafter to insist upon strict compliance with the terms of this Note, or (ii)
to prevent the exercise of such right of acceleration or any other right granted
hereunder or by any applicable laws; and Borrower hereby expressly waives the
benefit of any statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or in conflict
with the foregoing. No extension of the time for the payment of this Note or any
installment due hereunder, made by agreement with any person now or hereafter
liable for the payment of this Note shall operate to release, discharge, modify,
change or affect the original liability of Borrower under this Note, either in
whole or in part unless Lender agrees otherwise in writing. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.
2.02 Waivers. Presentment for payment, demand, protest and notice of
demand, protest and nonpayment and all other notices (except such notices as may
be required to be given by Lender to Borrower under the Loan Documents) are
hereby waived by Borrower. Borrower hereby further waives and renounces, to the
fullest extent permitted by law, all rights to the benefits of any moratorium,
reinstatement, marshalling, forbearance, valuation, stay, extension, redemption,
appraisement, exemption and homestead now or hereafter provided by the
Constitution and laws of the United States of America and of each state thereof,
both as to itself and in and to all of its property, real and personal, against
the enforcement and collection of the obligations evidenced by this Note or the
other Loan Documents.
2.03 Limit of Validity. The provisions of this Note and of all agreements
between Borrower and Lender, whether now existing or hereafter arising and
whether written or oral, are hereby expressly limited so that in no contingency
or event whatsoever, whether by reason of demand or acceleration of the maturity
of this Note or otherwise, shall the amount paid, or agreed to be paid
("Interest"), to Lender for the use, forbearance or detention of the money
loaned under this Note exceed the maximum amount permissible under applicable
law. If, from any circumstance whatsoever, performance or fulfillment of any
provision hereof or of any agreement between Borrower and Lender shall, at the
time performance or fulfillment of such provision shall be due, exceed the limit
for Interest prescribed by law or otherwise transcend the limit of validity
prescribed by applicable law, then ipso facto the obligation to be performed or
fulfilled shall be reduced to such limit and if, from any circumstance
whatsoever, Lender shall
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ever receive anything of value deemed Interest by applicable law in excess of
the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under this Note in the
inverse order of its maturity (whether or not then due) or at the option of
Lender be paid over to Borrower, and not to the payment of Interest. All
Interest (including, but not limited to, any amounts or payments deemed to be
Interest) paid or agreed to be paid to Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal balance of this Note so that the
Interest thereof for such full period will not exceed the maximum amount
permitted by applicable law. This Section 2.03 will control all agreements
between Borrower and Lender.
2.04 Use of Funds. Borrower hereby represents that the proceeds of this
Note will be used for the purposes specified in 815 ILCS 205/4, as amended, and
that the indebtedness evidenced hereby constitutes a "business loan" within the
purview of that Section. Borrower hereby warrants, represents and covenants that
no funds disbursed hereunder shall be used for personal, family or household
purposes.
2.05 Unconditional Payment. Borrower is and shall be obligated to pay
principal, interest and any and all other amounts which become payable hereunder
or under the other Loan Documents absolutely and unconditionally and without any
abatement, postponement, diminution or deduction and without any reduction for
counterclaim or setoff. In the event that at any time any payment received by
Lender hereunder shall be deemed by a court of competent jurisdiction to have
been a voidable preference or fraudulent conveyance under any bankruptcy,
insolvency or other debtor relief law, then the obligation to make such payment
shall survive any cancellation or satisfaction of this Note or return thereof to
Borrower and shall not be discharged or satisfied with any prior payment thereof
or cancellation of this Note, but shall remain a valid and binding obligation
enforceable in accordance with the terms and provisions hereof, and such payment
shall be immediately due and payable upon demand.
ARTICLE III - HYPERAMORTIZATION
3.01 Deposit of Rents and Profits. From and after (x) the date that is six
(6) months prior to the Anticipated Repayment Date, or (y) the occurrence of an
Event of Default, Borrower shall thereafter cause the Rents and Profits (as
defined in the Security Instrument) to be deposited in the applicable accounts
required by the Cash Management Agreement and such sums shall be applied on the
first day of each calendar month in the following listed order of priority:
(a) First, payments to the Impound Account (as defined in the
Security Instrument) in accordance with the terms and
conditions of the Security Instrument;
(b) Second, the payment of the Monthly Payment Amount;
(c) Third, payments to the Replacement Reserve (as defined in
the Security Instrument) in accordance with the terms and
conditions of the Security Instrument;
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(d) Fourth, payments to the Leasing Reserve (as defined in the
Security Instrument) in accordance with the terms and
conditions of the Security Instrument;
(e) Fifth, payments of any other amounts due under the Loan
Documents; and
(f) Lastly, payment to Borrower of any excess amounts.
3.02. Amounts Outstanding at the Anticipated Repayment Date. In the event
that Borrower does not pay to Lender on or before May 1, 2008 (the "Anticipated
Repayment Date") the outstanding principal balance of this Note together with
all accrued and unpaid interest hereon and all other sums then due and payable
hereunder and under the Loan Documents, the following shall apply:
(a) From and after the Anticipated Repayment Date, interest shall accrue
on the unpaid principal balance from time to time outstanding on this Note at
the Extended Term Rate. Interest accrued at the Extended Term Rate and not paid
pursuant to this Section 1.01 shall be deferred and added to the outstanding
principal balance of this Note (together with all accrued interest thereon) and
shall earn interest at the Extended Term Rate to the extent permitted by
applicable law (such accrued interest together with any interest accrued thereon
is hereinafter defined as "Accrued Interest"). All of the outstanding principal
balance, including any Accrued Interest, shall be due and payable on the
Maturity Date.
(b) Borrower shall cause all Rents and Profits to be deposited directly
into the applicable accounts required by the Cash Management Agreement and
Borrower shall pay on the Anticipated Repayment Date and each Payment Date
thereafter up to and including the Maturity Date, the following payments from
Rents and Profits on or before such day in the listed order of priority:
(i) First, payments to the Impound Account in accordance with the
terms and conditions of the Security Instrument;
(ii) Second, the payment of the Monthly Payment Amount to be applied
first to the payment of interest computed at the Initial Term
Interest Rate (as hereinafter defined) with the remainder
applied to the reduction of the outstanding principal balance of
this Note;
(iii) Third, payments to the Replacement Reserve, each in accordance
with the terms and conditions of the Security Instrument;
(iv) Fourth, payments to the Leasing Reserve, each in accordance with
the terms and conditions of the Security Instrument;
(v) Fifth, payments for monthly Cash Expenses (as hereinafter
defined), less management fees payable to affiliates of
Borrower, pursuant to the terms
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and conditions of the related Approved Annual Budget (as
hereinafter defined);
(vi) Sixth, payment for monthly Net Capital Expenditures (as
hereinafter defined), pursuant to the terms and conditions of
the related Approved Annual Budget;
(vii) Seventh, payment for Extraordinary Expenses (as hereinafter
defined) approved by Lender, if any;
(viii) Eighth, payments to Lender to be applied against the
outstanding principal due under this Note (but not including
any Accrued Interest) until such principal amount (not
including any Accrued Interest) is paid in full;
(ix) Ninth, payments to Lender for Accrued Interest;
(x) Tenth, payments to Lender of any other amounts due under the
Loan Documents; and
(xi) Lastly, payment to the Borrower of any excess amounts.
(c) In the event that the Borrower must incur an Extraordinary Expense,
then Borrower shall promptly deliver to Lender a reasonably detailed explanation
of such proposed Extraordinary Expense for the Lender's approval.
3.03. Payment of Monthly Payment Amount. Nothing in this Article III shall
limit, reduce or otherwise affect Borrower's obligations to make payments of the
Monthly Payment Amount, payments to the Impound Account, the Replacement Reserve
or the Leasing Reserve due hereunder and under the other Loan Documents, whether
or not Rents and Profits are available to make such payments.
3.04. Annual Budgets. For each fiscal year commencing with the fiscal year
in which the Anticipated Repayment Date occurs, Borrower shall submit to Lender
for Lender's written approval an Annual Budget (as hereinafter defined) not
later than sixty (60) days prior to the commencement of such fiscal year, in
form satisfactory to Lender setting forth in reasonable detail budgeted monthly
operating income and monthly operating capital and other expenses for the
Property (as hereinafter defined). Each Annual Budget shall contain, among other
things, limitations on management fees, third party service fees, and other
expenses as Borrower may reasonably determine. Lender shall have the right to
approve such Annual Budget (which approval shall not be unreasonably withheld),
and in the event that Lender objects to the proposed Annual Budget submitted by
Borrower, Lender shall advise Borrower of such objections within fifteen (15)
days after receipt thereof (and deliver to Borrower a reasonably detailed
description of such objections) and Borrower shall within three (3) days after
receipt of notice of any such objections revise such Annual Budget and resubmit
the same to Lender. Lender shall advise Borrower of any objections to such
revised Annual Budget within ten (10) days after receipt thereof (and deliver to
Borrower a reasonably detailed description of such
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objections) and Borrower shall revise the same in accordance with the process
described in this subparagraph until the Lender approves an Annual Budget,
provided, however, that if Lender shall not advise Borrower of its objections to
any proposed Annual Budget within the applicable time period set forth in this
paragraph, then such proposed Annual Budget shall be deemed approved by Lender.
Until such time as Lender approves a proposed Annual Budget, the most recently
Approved Annual Budget shall apply; provided that such Approved Annual Budget
shall be adjusted to reflect actual increases in real estate taxes, insurance
premiums and utilities expenses.
3.05. Definitions. The following items, as used in this Note, shall have
the following meaning which meaning shall be applicable equally to the singular
and the plural of the items defined:
(a) "Annual Budget" shall mean an annual budget submitted by Borrower
to Lender in accordance with the terms of Section 1.01(h) herein.
(b) "Applicable Interest Rate" shall mean from (a) the date of this
Note through but not including the Anticipated Repayment Date, the Initial Term
Interest Rate, and (b) from and after the Anticipated Repayment Date through and
including the date this Note is paid in full, the Extended Term Rate.
(c) "Approved Annual Budget" shall mean each Annual Budget approved
by Lender in accordance with the terms herein.
(d) "Capital Expenditures" shall mean for any period, the amount
expended for items capitalized under generally accepted accounting principles,
including expenditures for building improvements or major repairs.
(e) "Cash Expenses" shall mean for any period, the operating expenses
for the Property (as defined in the Security Instrument and hereinafter referred
to as the "Property") as set forth in an Approved Annual Budget to the extent
that such expenses are actually incurred by Borrower minus payments into the
Impound Account, the Replacement Reserve and the Leasing Reserve.
(f) "Cash Management Agreement" shall mean that certain Cash
Management Agreement of even date herewith executed by Borrower, Prime Group
Realty, L.P. and Lender in connection with this Note.
(g) "Extended Term Rate" shall mean a rate per annum equal to the
greater of (i) the Initial Term Interest Rate plus five (5) percentage points or
(ii) the Treasury Rate plus five (5) percentage points.
(h) "Extraordinary Expense" shall mean an extraordinary operating
expense or capital expense not set forth in the Approved Annual Budget or
allotted for in the Replacement Reserve and/or the Leasing Reserve.
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(i) "Initial Term Interest Rate" shall mean a rate of Seven and
Seventeen One-Hundredths percent (7.17%) per annum.
(j) "Net Capital Expenditures" shall mean for any period the amount
by which Capital Expenditures during such period exceeds reimbursements for such
items during such period from any fund (including, but not limited to, the
Leasing Reserve and the Replacement Reserve) established pursuant to the Loan
Documents.
(k) "Payment Date" shall mean with respect to any month shall be the
first day of such month; provided, however, that if the first day of a given
month shall not be a business day, then the Payment Date for such month shall be
the next business day to occur after the first day of such month.
(l) "Treasury Rate" shall mean, as of the Anticipated Repayment Date,
the yield, calculated by linear interpolation (rounded to the nearest one-
thousandth of one percent (i.e., 0.001%)) of the yields of noncallable United
States Treasury obligations with terms (one longer and one shorter) most nearly
approximating the period from the Anticipated Repayment Date to the Maturity
Date, as determined by Lender on the basis of Federal Reserve Statistical
Release H.15-Selected Interest Rates under the heading U.S. Governmental
Security/Treasury Constant Maturities, or other recognized source of financial
market information selected by Lender.
ARTICLE IV - MISCELLANEOUS
4.01 Miscellaneous. This Note shall be interpreted, construed and enforced
according to the laws of the State of Illinois. The terms and provisions hereof
shall be binding upon and inure to the benefit of Borrower and Lender and their
respective heirs, executors, legal representatives, successors, successors-in-
title and assigns, whether by voluntary action of the parties or by operation of
law. As used herein, the terms "Borrower" and "Lender" shall be deemed to
include their respective heirs, executors, legal representatives, successors,
successors-in-title and assigns, whether by voluntary action of the parties or
by operation of law. If Borrower consists of more than one person or entity,
each shall be jointly and severally liable to perform the obligations of
Borrower under this Note. All personal pronouns used herein, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural and vice versa. Titles of articles and
sections are for convenience only and in no way define, limit, amplify or
describe the scope or intent of any provisions hereof. Time is of the essence
with respect to all provisions of this Note. This Note and the other Loan
Documents contain the entire agreements between the parties hereto relating to
the subject matter hereof and thereof and all prior agreements relative hereto
and thereto which are not contained herein or therein are terminated.
17
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Note under seal as of the
date first above written.
1401 S. JEFFERSON LANE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
4211 MADISON STREET, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
1051 N. KIRK ROAD, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
[SIGNATURE PAGE CONTINUED ON NEXT PAGE]
<PAGE>
200 E. FULLERTON, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
350 RANDY ROAD, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
4300 MADISON STREET, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
[SIGNATURE PAGE CONTINUED ON NEXT PAGE]
19
<PAGE>
370 CAROL LANE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
388 CAROL LANE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
342 CAROL LANE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
[SIGNATURE PAGE CONTINUED ON NEXT PAGE]
20
<PAGE>
343 CAROL LANE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
4160 MADISON STREET, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
1301 E. TOWER ROAD, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
[SIGNATURE PAGE CONTINUED ON NEXT PAGE]
21
<PAGE>
4343 COMMERCE COURT, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
11039 GAGE AVENUE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
11045 GAGE AVENUE, L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
[SIGNATURE PAGE CONTINUED ON NEXT PAGE]
22
<PAGE>
550 KEHOE BLVD., L.L.C.,
a Delaware limited liability company
By: Prime Group Realty, L.P.,
a Delaware limited partnership,
its Managing Member
By: Prime Group Realty Trust,
a Maryland Real Estate Investment Trust,
its Managing General Partner
By: /s/ Jeffrey A. Patterson
--------------------------------------
Name: Jeffrey A. Patterson
Title: Executive Vice President
23
<PAGE>
SCHEDULE I
----------
ALLOCATED LOAN AMOUNTS
<TABLE>
<CAPTION>
Premises Location Allocated Loan Amount
- -------------------------- ------------- ---------------------
<S> <C> <C>
1401 S. Jefferson Street Chicago $ 474,000
550 Kehoe Blvd. Carol Stream $ 2,263,000
1051 N. Kirk Rd. Batavia $ 3,411,000
4211 Madison Hillside $ 2,494,000
200 E. Fullerton Carol Stream $ 1,930,000
350 Randy Road Carol Stream $ 776,000
4300 Madison Street Hillside $ 4,062,000
370 Carol Lane Elmhurst $ 1,954,000
388 Carol Lane Elmhurst $ 1,345,000
342-346 Carol Lane Elmhurst $ 2,336,000
343 Carol Lane Elmhurst $ 1,385,000
4160-4190 Madison St. Hillside $ 2,579,000
11039 Gage Ave. Franklin Park $ 667,000
11045 Gage Ave. Franklin Park $ 4,059,000
4343 Commerce Court Lisle $13,100,000
1301 E. Tower Road Schaumburg $ 4,165,000
</TABLE>
24
<PAGE>
Exhibit 10.43
PROMISSORY NOTE
$29,430,000.00 MARCH 23, 1998
CHICAGO, ILLINOIS
FOR VALUE RECEIVED, the undersigned, PRIME GROUP REALTY, L.P., a Delaware
limited partnership, 515 HUEHL ROAD, L.L.C., a Delaware limited liability
company, 555 HUEHL ROAD, L.L.C., a Delaware limited liability company, 306 ERA
DRIVE, L.L.C., a Delaware limited liability company, 3818 GRANDVILLE, L.L.C., a
Delaware limited liability company, 1301 RIDGEVIEW DRIVE, L.L.C., a Delaware
limited liability company, and 801 TECHNOLOGY WAY, L.L.C., a Delaware limited
liability company, (collectively, "Maker"), jointly and severally, promise to
pay to the order of STATE FARM LIFE INSURANCE COMPANY, an Illinois corporation,
its successors or assigns (collectively, "State Farm") the principal sum of
TWENTY NINE MILLION FOUR HUNDRED THIRTY THOUSAND DOLLARS ($29,430,000.00)
("Principal") together with interest on the unpaid Principal balance outstanding
from the date hereof until paid at the rate of six and 85/100ths percent (6.85%)
per annum ("Note Rate"). Interest shall be computed on the basis of a three
hundred sixty (360) day year having twelve (12), thirty (30) day months.
Principal and interest accrued thereon, together with all other sums which may
be at any time due, owing or required to be paid by the terms of the Mortgage
(hereinafter defined) and other Loan Documents (as defined in the Mortgage) are
hereinafter collectively called the "Indebtedness".
I. Payments.
A. On March 23, 1998 (the date of this Promissory Note) Maker shall pay
interest only from the date hereof to and including March 31, 1998. Thereafter,
on May 1, 1998 and on the first (1st) day of each succeeding month thereafter
("Regular Payment Date") to and including March 1, 2008. Principal and interest
shall be paid in fixed monthly installments of TWO HUNDRED FIVE THOUSAND ONE
HUNDRED NINETY-EIGHT DOLLARS ($205,198.00) each ("Monthly Payment"). A final
payment of all outstanding Principal and accrued and unpaid interest thereon
shall be due and payable on April 1, 2008 ("Maturity Date").
B. All required payments are to be made to State Farm at One State Farm
Plaza, Bloomington, Illinois 61710, Attention: Investment Accounting, D-2, or at
any other place State Farm shall designate in writing.
C. All Obligations (as defined in the Mortgage) are payable in lawful
money of the United States of America which is legal tender for public and
private debts.
D. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Mortgage and other Loan Documents.
1 Borrower's Initials /s/ PLM
<PAGE>
II. Events of Default.
A. It shall constitute an event of default ("Event of Default") of and
under this Promissory Note ("Note") if any of the following events shall occur:
1. Maker shall fail to pay any installment of Principal and interest
when due under this Note. However, Monthly Payments received by State Farm
within ten (10) days of the Regular Payment Date shall be considered made as
required. If payment is not received by State Farm by the tenth (10th) day of
the month when due, the Default Rate shall apply from the first (1st) day of the
month.
2. Maker shall fail to perform or observe any of the other
covenants, agreements or conditions of this Note or of any of the Loan Documents
now or hereafter evidencing or securing the Indebtedness after notice, if any,
is required to be given, and with applicable grace or cure period(s), if any, is
provided herein or in any of the Other Loan Documents.
B. While any Event of Default exists, the Note Rate shall be increased to
eleven and 85/100ths percent (11.85%) per annum ("Default Rate"). The Default
Rate shall accrue from the date of the Event of Default until the date upon
which the Event of Default is cured. It is a condition precedent to the cure of
any Event of Default that Maker shall pay all Principal and accrued interest
required under this Note (i.e., that would have been paid but for the Event of
Default) to the most current Regular Payment Date, and the difference between
the Default Rate and the Note Rate from the date of the first occurrence of the
Event of Default to the date upon which the Event of Default is cured.
C. Prior to an Event of Default, payments received by State Farm shall be
applied first to interest and the remainder to Principal. After an Event of
Default, State Farm may, at its option, apply any payments or other amounts
received first to the payment of State Farm's expenses incurred in accordance
with the provisions of the Loan Documents, then to interest and the remainder to
Principal.
D. In case of an Event of Default by Maker in the performance or
observance of any of the covenants, agreements or conditions of this Note or the
other Loan Documents and the expiration of any applicable grace or cure periods,
State Farm, at its option and without further notice, may declare the
Indebtedness, including the entire Principal balance, together with all interest
accrued and unpaid thereon, to be immediately due and payable. Failure to
exercise this option for a particular Event of Default shall not constitute a
waiver of the right to exercise same in case of any subsequent Event of Default.
2 Borrower's Initials /s/ PLM
<PAGE>
III. Security.
This Note is secured by, among other Loan Documents, (i) a Mortgage and
Security Agreement executed by Maker to and in favor of State Farm of even date
with this Note ("Mortgage") which encumbers and constitutes a lien upon and
security interest in certain real property and fixtures located in Cook, McHenry
and Lake Counties, in the State of Illinois (the "State") and certain other
properties, rights and interests, all as more fully described in the Mortgage
(the "Premises") and (ii) an Assignment of Rents and Leases executed by Maker to
and in favor of State Farm of even date with this Note ("Assignment of Rents and
Leases") in which the Rents (as defined therein) and the Leases (as defined
therein) are absolutely and unconditionally assigned by Maker to State Farm. The
terms and provisions of the Mortgage and the Assignment of Rents and Leases are
incorporated herein by reference and made a part hereof.
IV. Prepayment.
A. Except for the limited rights of prepayment provided in Sections 7.15
(a) and (b) of the Mortgage, the loan evidenced by this Note ("Loan") shall be
closed to prepayment for a period of five (5) years (i.e., until the later to
occur of (i) April 1, 2003 or (ii) after sixty (60) Monthly Payments have been
made on this Note). Only thereafter, provided Maker first gives State Farm
written notice at least thirty (30) days, but no more than sixty (60) days,
before the Regular Payment Date selected by Maker for prepayment ("Prepayment
Date"), Maker may prepay the entire outstanding Principal on the Prepayment
Date; provided that (i) all other amounts due under the Loan Documents as
Indebtedness are also paid and (ii) the amount prepaid is accompanied by a fee
("Prepayment Fee") equal to the greater of the following:
1. An amount equal to one percent (1%) of the entire Principal
amount to be prepaid, or
2. If at the time of prepayment the Reinvestment Yield (as defined
herein) is less than the Note Rate, the Prepayment Fee shall be calculated by:
a. Using the Reinvestment Yield corresponding to the payment
frequency of the Note, combine the present values of: (i) the scheduled
payments remaining until the Maturity Date of the Note, and (ii) the final
principal and accrued interest payment due on the Maturity Date of the
Note;
b. From the amount so obtained, subtracting the par value of
the Principal balance of this Note as of the Prepayment Date;
The remainder so obtained shall be the Prepayment Fee.
3 Borrower's Initials /s/ PLM
<PAGE>
B. For purposes of this Note, the term "Reinvestment Yield" shall mean
the yield on United States Treasury Securities having the closest maturity
(month and year) to the Maturity Date of this Note. Should more than one United
States Treasury Security be quoted as maturing on the Maturity Date of this
Note, then the yield of the Security closest to par will be used in the
calculation of the Prepayment Fee;
C. The Prepayment Fee shall be calculated two (2) business days before
the scheduled Prepayment Date;
D. Failure of Maker to prepay on the selected Prepayment Date shall be
considered a waiver by Maker of the present right to prepay;
E. If State Farm declares the entire Indebtedness to be immediately due
and payable, Maker agrees that the Prepayment Fee, calculated as if the
Prepayment Date were the date of acceleration, shall apply if allowed by
Applicable Law (as hereinafter defined). No Prepayment Fee shall be payable
after one hundred seventeen (117) Monthly Payments have been made on this Note
or January 1, 2008, whichever comes later in time; and
F. If State Farm consents to a sale, conveyance or transfer of the
Premises described in the Mortgage, or any interest therein, but requires, as a
condition to such consent, an increase in the Note Rate, Maker shall have the
right, for ninety (90) days from State Farm's written notification of such
required rate increase, to prepay the Indebtedness secured by the Loan Documents
in full without a Prepayment Fee.
V. Limitation of Liability.
In consideration of the security provided by Maker to State Farm for
repayment of the Indebtedness, including, without limitation, the liens on and
security interests in the Premises granted pursuant to the Mortgage and the
absolute and unconditional assignment of Rents and Leases pursuant to the
Assignment of Rents and Leases, upon the occurrence of an Event of Default
hereunder or under any of the Loan Documents, State Farm agrees that, except as
otherwise set forth in this Section, State Farm shall not be entitled to
enforce, and State Farm shall not seek to enforce, any deficiency or monetary
judgment against Maker, any Partner of Maker, including, without limitation,
Prime Group Realty Trust ("Trust"), a Maryland real estate investment trust,
which is the managing general partner of Maker Prime Group Realty, L.P., ( if
Maker is a partnership), any Member of Maker (if Maker is a limited liability
company), or any Beneficiary of Maker (if Maker is a trust) (individually, an
"Exculpated Party" and collectively, the "Exculpated Parties"), personally, and
State Farm shall not levy or execute judgment upon any property of the
Exculpated Parties or their respective interests, other than the Premises; it
being expressly agreed, acknowledged and understood, however, that nothing
contained herein shall in any manner or way release, affect or impair:
4 Borrower's Initials /s/ PLM
<PAGE>
A. The existence of the Indebtedness and Obligations created in and
evidenced by the Loan Documents.
B. The enforceability of the liens and security interests created in and
granted by the Loan Documents against the Premises.
C. The right of State Farm to recover from the Exculpated Parties (or
from Maker only, if so indicated):
1. After the occurrence of any Event of Default under any of the
Loan Documents:
a. Any Rents received by the Exculpated Parties from tenants of
the Premises and not applied to the Indebtedness or to the ordinary operating
expenses of the Premises during Maker's current fiscal year; provided, however,
in the case of Trust, that Trust has culpability in the failure to so apply such
Rents, and, then, only to the extent of such culpability on the part of Trust;
b. From Maker only, an amount equal to any Rents from the
Premises not paid by any Tenant of the Premises due to Maker's and/or Trust's
failure to perform the obligations of the landlord under any lease or leases of
the Premises or any part thereof;
c. Any amount(s) necessary to repair or replace any damage to
or destruction of the Premises which is caused by the willful or wanton act or
omission of the Exculpated Parties; provided, however, in the case of Trust,
that Trust has culpability in such willful or wanton act or omission, and, then,
only to the extent of such culpability on the part of Trust; or
d. From Maker only, any sums expended by State Farm in
performance of or in compliance with the obligations of the landlord under all
covenants, agreements and provisions of any Lease assigned to State Farm as
security for the Indebtedness and Obligations due to Maker's and/or Trust's
failure or refusal to so perform such obligations;
2. Any insurance proceeds or condemnation awards received by the
Exculpated Parties and not delivered over to State Farm or used for Restoration
of the Premises; provided, however, in the case of Trust, that Trust has
culpability in such failure to so deliver such insurance proceeds or
condemnation awards, and, then, only to the extent of such culpability on the
part of Trust;
3. Any costs, expenses, damages, attorneys' and paralegals' fees or
other liabilities or obligations incurred by State Farm, directly or indirectly
arising out or on account of or attributable to the use, generation, storage,
release, threatened release, discharge, disposal, or presence on, under, or
about the Premises of any materials, substances or wastes, defined or
5 Borrower's Initials /s/ PLM
<PAGE>
classified as hazardous or toxic under applicable federal, state or local laws
or regulations or arising out of or from any failure on the part of Maker and/or
Trust to comply with the provisions of the Environmental Indemnification
Agreement executed by Maker and/or Trust to and in favor of State Farm of even
date with this Note; or
4. Any loss, damage, cost, expense, liability or obligation suffered
or incurred by State Farm arising out or on account of or based upon any fraud
or willful misrepresentation of a material fact by the Exculpated Parties in any
document executed or presented to State Farm in connection with the Loan;
provided, however, in the case of Trust, that Trust has culpability in any such
fraud or willful misrepresentation of a material fact, and, then, only to the
extent of such culpability on the part of Trust.
VI. Non-Usurious Loan.
A. It is the intention of Maker and State Farm that this Note and all
other Loan Documents shall comply with any Applicable Law. To that end, the
parties stipulate and agree that none of the terms and provisions of this Note
or the Loan Documents shall ever be construed to create a contract that violates
any Applicable Law or exceeds the limits imposed or provided by law for the use
or detention of money or for forbearance in seeking its collection.
B. In the event that interest paid or received under this Note or the
other Loan Documents shall result, because of any reduction of Principal or any
other reason, in an effective rate of interest which for any period is in excess
of applicable usury limits, such excess interest for the period in question
shall, at State Farm's option, be refunded to Maker or be applied upon the
outstanding Principal of the Note without a Prepayment Fee.
C. The term "Applicable Law", as such term is used in this Note shall
mean any Federal or State statute or other law, including, but not limited to,
the applicable usury laws of the State or the United States (whichever allows
the greater rate of interest), as such Applicable Law now exists, is amended or
is enacted during the term of this Note.
D. The Maker represents and agrees that the Indebtedness evidenced by
this Note constitutes a commercial business loan which comes within the purview
of 815 ILCS 205/4(1)(c)(1992).
VII. State Farm's Attorney Fees.
Should the Indebtedness evidenced by this Note or any part thereof be: (i)
collected at law or in equity or through any legal, bankruptcy, receivership,
probate or other court proceedings; (ii) placed in the hands of attorneys for
collection after the occurrence of an Event of Default; or (iii) the subject of
any court proceeding involving the lien of the Mortgage or its priority, Maker
and all endorsers, guarantors and sureties of such Indebtedness jointly and
severally agree to pay to State
6 Borrower's Initials /s/ PLM
<PAGE>
Farm, in addition to the Principal and interest due and payable hereunder,
reasonable attorneys' and paralegals' fees and collection costs, and all other
Obligations due pursuant to the terms of the Loan Documents including those
incurred by State Farm on any appeal.
VIII. Maker's Waivers.
Except for such notice(s) as may be required to be given pursuant to the
terms of the Loan Documents, Maker and all endorsers, guarantors and sureties of
the Indebtedness evidenced by this Note and any other persons liable or to
become liable on or for such Indebtedness hereby severally waive presentment for
payment, demand and notice of demand, dishonor and notice of dishonor, protest
and notice of protest, and nonpayment and notice of nonpayment of this Note, and
all other notices and demands, including without limitation, notice of intention
to accelerate the maturity of this Note, notice of acceleration of the maturity
of the Note, diligence in collection and the bringing of suit against any other
party and hereby further agree to all renewals, extensions, modifications,
partial payments, releases or substitutions of security, in whole or in part,
with or without notice, whether before or after maturity.
IX. Payment of Taxes and Fees.
Maker agrees to pay all costs, expenses, fees and taxes on or with respect
to the execution, delivery, recordation, existence or possession of this Note,
the Mortgage and the other Loan Documents, including, without limitation, all
recording fees and any documentary stamp tax or intangible personal property tax
now or hereafter required by Applicable Law to be affixed or paid with respect
to this Note, the Mortgage or the other Loan Documents.
X. Waiver of Trial by Jury.
Maker hereby waives, to the fullest extent permitted by Applicable Law, the
right to trial by jury in any action, proceeding or counterclaim filed by any
party, whether in contract, tort or otherwise relating directly or indirectly to
this Note or any acts or omissions of the Maker in connection therewith or
contemplated thereby.
XI. Releases.
State Farm may, without notice, and without regard to the consideration, if
any, given or paid therefor, release or substitute any part of the Premises
given as security for the repayment of the Indebtedness evidenced and
represented by this Note without releasing any other property given as security
for such Indebtedness, or may release any party obligated on or liable for the
payment of the Indebtedness evidenced and represented by this Note without
releasing any other party obligated on or liable for such Indebtedness, or may
agree with any party obligated or liable for the repayment of the Indebtedness
evidenced and represented by this Note to extend the time for payment of any
part or all of such Indebtedness without releasing any party obligated on or
liable for such Indebtedness.
7 Borrower's Initials /s/ PLM
<PAGE>
Failure on part of State Farm to exercise any right granted herein, in the
Mortgage or the other Loan Documents shall not constitute a waiver of such right
or preclude the subsequent exercise thereof.
XII. Governing Law.
This Note and the rights, duties, obligations and liabilities of the
parties hereunder and/or arising from or relating in any way to the Indebtedness
evidenced by this Note or the loan transaction of which such Indebtedness and
this Note are a part shall be governed by and construed for all purposes under
the law of the State.
IN WITNESS WHEREOF, Maker has executed, or caused these presents to be
executed on its behalf, as of the day and year first above written.
Maker's Address: PRIME GROUP REALTY, L.P., a Delaware
limited partnership
c/o Prime Group Realty Trust
Attention: James F. Hoffman, Esquire
77 West Wacker Drive, Suite 3900 By: PRIME GROUP REALTY TRUST, a
Chicago, Illinois 60601 Maryland real estate investment trust,
its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------------------
Name: Patrick L. McGaughy
---------------------------------
Title: Vice President
--------------------------------
515 HUEHL ROAD, L.L.C., a Delaware limited
liability company
By: PRIME GROUP REALTY, L.P., a
Delaware limited partnership, its
Administrative Member
By: PRIME GROUP REALTY TRUST, a
Maryland real estate investment
trust, its Managing General
Partner
By: /s/ Patrick L. McGaughy
------------------------------
Name: Patrick L. McGaughy
----------------------------
Its: Vice President
-----------------------------
8
<PAGE>
555 HUEHL ROAD, L.L.C., a Delaware limited
liability company
By: PRIME GROUP REALTY, L.P.,
a Delaware limited partnership,
its Administrative Member
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment
trust, its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------
Name: Patrick L. McGaughy
Its: Vice President
306 ERA DRIVE, L.L.C., a Delaware limited
liability company
By: PRIME GROUP REALTY, L.P.,
a Delaware limited partnership,
its Administrative Member
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment
trust, its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------
Name: Patrick L. McGaughy
Its: Vice President
3818 GRANDVILLE, L.L.C., a Delaware limited
liability company
By: PRIME GROUP REALTY, L.P.,
a Delaware limited partnership,
its Administrative Member
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment
trust, its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------
Name: Patrick L. McGaughy
Its: Vice President
9
<PAGE>
1301 RIDGEVIEW DRIVE, L.L.C., a Delaware
limited liability company
By: PRIME GROUP REALTY, L.P.,
a Delaware limited partnership,
its Administrative Member
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment
trust, its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------
Name: Patrick L. McGaughy
Its: Vice President
801 TECHNOLOGY WAY, L.L.C., a Delaware
limited liability company
By: PRIME GROUP REALTY, L.P.,
a Delaware limited partnership,
its Administrative Member
By: PRIME GROUP REALTY TRUST,
a Maryland real estate investment
trust, its Managing General Partner
By: /s/ Patrick L. McGaughy
-----------------------
Name: Patrick L. McGaughy
Its: Vice President
10
<PAGE>
Exhibit 10.44
SUBORDINATION AND INTERCREDITOR AGREEMENT
between
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
and
PRIME GROUP REALTY, L.P.
Continental Towers
Rolling Meadows, Illinois
May 14, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Defined Terms.......................................................... 1
2. Subordination.......................................................... 1
3. Payments on Junior Indebtedness........................................ 1
4. Distributions Held in Trust............................................ 2
5. Lock Box Distributions................................................. 2
6. Payoff Obligation...................................................... 4
7. Reset.................................................................. 4
8. Purchase Option........................................................ 5
9. Intentionally Omitted.................................................. 5
10. Blocked Accounts Agreement............................................. 5
11. Tenant Estoppels and SNDAs............................................. 5
12. Insurance.............................................................. 5
13. Reporting.............................................................. 6
14. Management............................................................. 6
15. Release of Parcels..................................................... 6
16. Capital Loans and Capital Improvements................................. 7
17. Events of Default...................................................... 7
18. Remedies............................................................... 9
19. Default Interest; Administrative Costs; Protective Advances;
Collection Costs....................................................... 9
20. Performance by Prime; Waiver of Subrogation............................ 10
21. Standstill............................................................. 11
22. Enforcement Interference by Prime...................................... 11
23. Consent by Prime....................................................... 12
24. Waivers................................................................ 12
25. Priority of Payments, Distributions.................................... 13
26. Additional Covenants of Prime.......................................... 14
27. Representations of Prime............................................... 16
28. Senior Lender Representations.......................................... 17
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
29. Nature of Relationship................................................. 18
30. Governing Law.......................................................... 18
31. Notice................................................................. 18
32. Waiver................................................................. 19
33. Binding Agreement...................................................... 20
34. Construction........................................................... 20
35. Severability........................................................... 20
36. Counterparts........................................................... 20
37. No Other Agreements.................................................... 20
38. Time of the Essence.................................................... 21
39. Rule of Construction................................................... 21
40. Saturday, Sunday or Legal Holiday...................................... 21
41. Amendments............................................................. 21
42. No Third Party Beneficiaries; No Relationship.......................... 21
43. Exhibits............................................................... 21
44. Jury Waiver; Venue..................................................... 22
45. Assignment............................................................. 22
46. Attorneys' Fees........................................................ 22
47. Prime Exculpation...................................................... 23
48. Senior Lender Exculpation.............................................. 23
Schedules and Exhibits
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SCHEDULE 1 DEFINED TERMS
EXHIBIT 7 RESET RECOURSE LIABILITY
EXHIBIT 15 PRELIMINARY SITE PLAN
EXHIBIT 1-43 JUNIOR LOAN DOCUMENTS
EXHIBIT 1-67 PROPERTY
EXHIBIT 1-90 SENIOR LOAN DOCUMENTS
</TABLE>
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SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT is made as of May 14,
1998 among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation, ("Senior Lender"), and PRIME GROUP REALTY, L.P., a Delaware limited
partnership ("Prime").
RECITALS:
Prime is the holder of the Junior Loan Documents which evidence the
Junior Loan and which encumber the Property. Simultaneously with the execution
and delivery hereof, Senior Lender has made the Senior Loan to Borrower which
Senior Loan is evidenced and secured by the Senior Loan Documents which also
encumber the Property. This Agreement is entered into to evidence the
subordination of the Junior Loan and the Junior Loan Documents to the Senior
Loan and the Senior Loan Documents, to set forth the relative rights of the
holders thereof and to evidence additional agreements between the holders.
Therefore, the parties agree as follows:
1. Defined Terms.
In addition to the terms defined elsewhere in this Agreement and the
Exhibits hereto, certain terms shall have the meanings ascribed to such terms in
Schedule 1 attached hereto.
2. Subordination.
2.1. Prime hereby subordinates and does hereby declare to be
subordinate the Junior Loan Documents, the Junior Loan and the Junior
Indebtedness to the Senior Loan Documents, the Senior Loan and the Senior Loan
Indebtedness. The security interests of Prime in the Collateral are hereby made
subject and subordinate in all respects to the security interests of Senior
Lender in the Collateral. Prime agrees that it does not have nor will it assert
any lien or security interest in or against the Lock Box Accounts or the
partnership interests in Beneficiary.
2.2. This Agreement is a Subordination Agreement under Section 510 of
the United States Bankruptcy Code.
3. Payments on Junior Indebtedness.
Notwithstanding any provision contained herein to the contrary, as
long as no Senior Default exists with respect to the payment when due of any
principal, interest, prepayment premium or any other amount payable to Senior
Lender by Borrower or Beneficiary under the Senior Loan Documents, and as long
as no Senior Event of Default
<PAGE>
has occurred and is continuing, Prime shall have the right to receive payments
due under the Junior Loan Documents to the extent, but only to the extent, cash
is available for such payments under the terms of the Blocked Accounts Agreement
("Permitted Payments"). Prime agrees that it will not accept or demand any
payments (by acceleration, set-off or otherwise) with respect to the Prime
Indebtedness other than the Permitted Payments. If a Senior Event of Default or
such monetary Senior Default occurs and is continuing, Prime shall not be
entitled and shall not accept any payment or prepayments (whether by
acceleration, set-off or otherwise) on the Junior Indebtedness, such payments to
be held and distributed, if received, in accordance with Section 4.
4. Distributions Held in Trust.
If Prime shall receive any payment or distribution from or for the
account of Borrower or Beneficiary or any cash or other proceeds of the
Collateral, other than a Permitted Payment, Prime shall hold the same in trust,
as trustee, for the benefit of Senior Lender and shall promptly deliver the same
to the Lock Box Account or as otherwise directed by Senior Lender, for the
benefit of Senior Lender in precisely the form received (except for the
endorsement or assignment thereof by Prime without recourse or warranty). In the
event Prime fails to make any such endorsement or assignment, Senior Lender, or
any of its officers or employees, is hereby irrevocably authorized to make the
same.
5. Lock Box Distributions.
5.1. Distributions Prior to Senior Acceleration.
(a) Prior to the occurrence of a Senior Acceleration, all funds
deposited in the Lock Box Account from time to time and all other revenues
of the Property, including all Rents as defined in the Lock Box Agreement,
all Gross Revenues other than Special Service Payments and all Net Proceeds
and TIA Periodic Payments (collectively "Funds"), shall be distributed as
provided in Section 2.3 of the Lock Box Agreement. The Applied Amount
shall, until the occurrence of an Event of Default hereunder, be
distributed as follows and in the following order of priority:
(i) To Senior Lender, any unpaid Monthly Secondary Payments
due in prior months and any outstanding Default Charges.
(ii) To Senior Lender, any unreimbursed Administrative Costs
and Protective Advances.
(iii) To Senior Lender, the amount of $73,989.41 (each a
"Monthly Secondary Payment") in payment of the balance of the
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Scheduled Payment due in such month remaining after payment to Senior
Lender of the Minimum Payment.
(iv) To Lock Box Bank, the deposits due in each such month under
the terms of the Blocked Accounts Agreement.
(v) To Prime, the balance on account of the Junior
Indebtedness.
(b) Prime shall cause to be deposited in the Lock Box Account all
Funds which are received by Prime or any of its Affiliates. Prime will
cause to be deposited in the Property Management Account all Special
Service Payments which are received by Prime or any of its Affiliates. So
long as an Affiliate of Prime is the Manager, Prime will not permit any
withdrawal from the Property Management Account except as permitted by the
Management Agreement.
5.2. Distribution Following Event of Default or Senior Acceleration.
(a) Following an Event of Default and so long as no Senior
Acceleration has occurred, all Funds theretofore deposited and as and when
deposited thereafter into the Lock Box Account or otherwise collected by
Senior Lender shall be applied in accordance with and in the order of
priority set forth in Section 2 of the Lock Box Agreement with the Applied
Amounts to be applied to any one or more of the following (to the extent
not paid with distributions under Section 2.3(b)(i)-(vii) of the Lock Box
Agreement) and in such order as Senior Lender may determine in its absolute
discretion: any Operating Expenses of the Property; any required deposits
under the Blocked Accounts Agreements; payment of re-leasing costs and
capital expenditures of whatever nature not funded from any remaining funds
in the Blocked Accounts; any Default Charges, any Deferred Payments;
accrued and unpaid Prime Interest, including Deferred Interest; Outstanding
Principal; Prepayment Premium; and any other component of Senior
Indebtedness.
(b) Following a Senior Acceleration, all Funds theretofore deposited
and as and when deposited thereafter into the Lock Box Account or otherwise
collected by Senior Lender shall be applied upon the sole direction of
Senior Lender to any one or more of the following in such order as Senior
Lender may determine in its absolute discretion: current or past Operating
Expenses; any required deposits under the Blocked Accounts Agreements;
payment of real estate taxes, re-leasing costs and capital expenditures of
whatever nature not funded from any remaining funds in the Lock Box
Accounts or Blocked Accounts; Default Charges; accrued and unpaid Interest,
including Deferred Interest; Outstanding Principal; Prepayment Premium; and
any other component of Senior Indebtedness.
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5.3. Senior Lender Notices.
Senior Lender shall give such Senior Lender Notices under and as
defined in the Lock Box Agreement as may be required to effect the
distributions described in Sections 5.1 and 5.2 above.
6. Payoff Obligation.
On January 5, 2013 ("Final Payoff Date") or such earlier date as
provided in this Agreement, Prime will pay off the Senior Indebtedness by paying
to Senior Lender by Wire Transfer an amount equal to the Payoff Amount (without
Prepayment Premium), upon receipt of which Senior Lender will perform the
Release Actions.
7. Reset.
On a date which is between one hundred forty (140) and one hundred
sixty (160) days prior to the Reset/Payoff Date, Senior Lender will, by written
notice to Prime (the "Reset Notice"), effective on the Reset/Payoff Date and
continuing for the balance of the Term (the portion of the Term commencing on
the Reset/Payoff Date being the "Reset Period"): (a) reset the Interest Rate
(the "Reset Interest Rate"), (b) establish an underwriting fee payable on the
Reset/Payoff Date, (c) reset the amortization schedule (the "Reset Amortization
Schedule"), (d) calculate and set forth the Reset Scheduled Payment and the
Reset Secondary Payment Amount and (e) set forth any other modifications of the
payment terms of the Senior Note (the terms set forth in the Reset Notice being
the "Reset Terms"). If Senior Lender fails to give the Reset Notice on a timely
basis, the only consequence shall be that the Reset/Payoff Date shall be
postponed to the date which is one hundred forty (140) days following the giving
of a late Reset Notice. Senior Lender shall be free to quote such Interest Rate,
underwriting fees, amortization schedule, Closed Period, Prepayment Premium and
such other terms and conditions applicable to the Reset Period as Senior Lender
may determine in its absolute discretion (except that Senior Lender may not
change the formula for calculation of the Reset Secondary Payment Amount). Prime
will advise Senior Lender, by written notice (the "Reset Response"), given
within sixty (60) days following receipt of the Reset Notice, whether Prime
accepts or rejects the Reset Terms. Failure by Prime to give a timely Reset
Response shall be deemed a rejection of the Reset Terms. If the Reset Terms are
so accepted, Senior Lender will prepare within thirty (30) days thereafter, and
Senior Lender and Prime will promptly execute, a modification or modifications
of this Intercreditor Agreement and the Prime Documents in accordance with
Exhibit 7 attached hereto and otherwise as Senior Lender and Prime deem
necessary to reflect the Reset Terms. Senior Lender shall also prepare an
appropriate amendment to the Senior Loan Documents (the "Reset Amendment") and
tender it to Borrower for execution, provided that the refusal or other failure
of Borrower to execute such amendment shall not affect, as between Senior Lender
and Prime, Senior Lender's right to receive interest and debt service based upon
the Reset Terms. Accordingly, the Secondary Payment Amount shall
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be reset to reflect the Reset Terms whether or not the Senior Note is ever
amended to reflect the Reset Terms. Such modification or modifications shall
become effective on the Reset/Payoff Date. If the Reset Terms are so rejected or
deemed rejected, Prime shall, on the Reset/Payoff Date, pay off the Senior
Indebtedness by paying to Senior Lender by Wire Transfer the Payoff Amount
(without Prepayment Premium), upon receipt of which Senior Lender will perform
the Release Actions.
8. Purchase Option.
Prime shall have the option to purchase the Senior Loan at any time
after the Closed Period upon thirty (30) days prior written notice to Senior
Lender and payment to Senior Lender by Wire Transfer of the Payoff Amount plus
the Prepayment Premium. Upon receipt of such payment, Senior Lender shall
perform the Transfer Actions.
9. Intentionally Omitted.
10. Blocked Accounts Agreement.
Simultaneously with the execution and delivery hereof, (a) Prime,
Senior Lender, and Lock Box Bank have entered into the Blocked Accounts
Agreement and (b) Prime has made the initial deposits of funds pursuant thereto.
Prime hereby pledges its interest in the Blocked Accounts to Senior Lender as
security for its obligations under this Intercreditor Agreement and the other
Prime Documents.
11. Tenant Estoppels and SNDAs.
To the extent that Tenant Estoppels and SNDAs from Tenants occupying
100% of the total rentable space in the Property have not been delivered to
Senior Lender on the date hereof, Prime will diligently pursue the missing
Tenant Estoppels and SNDAs and report on the progress thereof as requested by
Senior Lender.
12. Insurance.
Throughout the Term, so long as Prime or an Affiliate of Prime is the
Manager, Prime will cause Manager to maintain policies of All Risk Replacement
Cost Insurance and Agreed Amount Endorsement, flood insurance (if the Property
is in an area which is considered a flood risk area by the U.S. Department of
Housing and Urban Development), rent insurance in an amount not less than twelve
months gross rent, comprehensive general and excess or umbrella liability
insurance and such other appropriate insurance as Senior Lender may require from
time to time in amounts, form, and substance satisfactory to Senior Lender, with
companies acceptable to Senior Lender which have a Best's rating of at least A-
(superior), Class: "X." Senior Lender shall be named additional insured under
all of the aforementioned policies, and loss payees on all such policies except
those pertaining to general and excess liability coverage. Prime will, so long
as Prime or an Affiliate of Prime is the Manager, cause Manager to deposit
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original certificates, certified copies of the policies or original policies
with Senior Lender with respect to all required insurance. Such policies shall
not be cancelable without thirty (30) days prior written notice to JTD and
Senior Lender. Replacement certificates or policies extending the term of the
insurance shall be delivered to Senior Lender prior to the scheduled expiration
thereof, in default of which Senior Lender may, but shall not be obligated to,
acquire such insurance at Prime's cost, payable on demand. Any cost so incurred
by Senior Lender shall be an Administrative Cost.
13. Reporting.
So long as the Manager is an Affiliate of Prime, Prime will cause the
Manager to furnish Senior Lender the Financial Reports required by the Mortgage.
14. Management.
The Property will be managed at all times by a property manager
approved by Senior Lender pursuant to a management agreement approved by Senior
Lender. Senior Lender approves Prime Group Realty Services, Inc. as the initial
Manager under the Management Agreement previously submitted to and approved by
Senior Lender (the "Management Agreement"). A change in the Manager or the
Management Agreement without the consent of Senior Lender shall be an Event of
Default hereunder. Any transaction which results in Manager no longer being an
Affiliate of Prime shall constitute a change in the Manager.
15. Release of Parcels.
Prime intends to cause to be developed vacant sites currently included
in the Property for one or two office towers and/or one hotel generally at the
locations indicated on the site plan attached hereto as Exhibit 15 and otherwise
pursuant to a development plan to be submitted to Senior Lender for its approval
(the "Release Parcels"). Senior Lender will release the Release Parcels from the
lien of the Senior Loan Documents, provided (a) the developer is not
Beneficiary, (b) Beneficiary does not undertake any substantive role in any such
development or incur any indebtedness or other obligation in respect thereof,
(c) the development plan may include the construction of one or two parking
structures generally as indicated on Exhibit 15, (d) Senior Lender will not
unreasonably withhold or delay its approval of the development plan except that,
insofar as the development plan has a material impact on the remaining Property,
Senior Lender may withhold its approval in its absolute discretion, (e) prior to
the release of such parcels, Senior Lender is given reasonable assurances as to
the completion of all shared facilities shown on the development plan and
payment of the costs thereof, (f) easements, covenants and restrictions
("Easements") relating to use, operation, maintenance, repair and replacement of
shared facilities and sharing of and payment for the cost of such operation,
maintenance, repair and replacement of the shared facilities are executed and
recorded in form and substance reasonably acceptable to Senior Lender, (g) the
released parcels will become separate tax parcels apart from the remaining
Property, (h) Senior
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Lender and Fee Owners receive contemporaneous endorsements to their respective
title policies reaffirming zoning compliance and insuring such Easements, such
endorsements to be in form and substance reasonably acceptable to Senior Lender
and Beneficiary, and (i) Prime pays or causes to be paid all of Senior Lender's
expenses, including reasonable attorneys' fees and survey and title costs,
incurred in connection therewith.
16. Capital Loans and Capital Improvements.
Prime will fund as Capital Loans to Borrower under the Junior Loan
Documents all amounts necessary to pay Re-Leasing Costs and Capital Costs so
that Mortgagor may perform its obligations in respect thereof under the Senior
Mortgage.
17. Events of Default.
Each of the following shall constitute an Event of Default under this
Intercreditor Agreement:
(a) The occurrence of any Senior Event of Default, provided:
(i) in the case of a Senior Event of Default which arises from
a Senior Default in the making of any payment or deposit required under the
Senior Loan Documents, such Senior Default has continued unremedied for
five (5) days following Prime's receipt of written notice of such Senior
Default (whether or not notice or the elapsing of any grace period is
required under the Senior Loan Documents prior to such Senior Default
becoming a Senior Event of Default); or
(ii) in the case of a Senior Event of Default which arises from
a Senior Default other than failure to make any payment or deposit required
under the Senior Loan Documents, such Senior Default has continued
unremedied for thirty (30) days following Prime's receipt of written notice
of such Senior Default (whether or not notice or the elapsing of a longer
or shorter grace period is required under the Senior Loan Documents) unless
(A) such default is reasonably susceptible of cure but such cure cannot be
accomplished within such thirty (30) period using reasonable commercial
efforts and (B) within such thirty (30) day period (1) Prime undertakes in
a written notice (the "Cure Notice") to cure the default within a
reasonable period of time by taking such action as is described therein,
(2) Prime posts such security as is reasonably required by Senior Lender to
assure that such default will be cured within such period of time, (3)
Prime continuously and diligently pursues such cure in compliance with the
Cure Notice and such other reasonable requirements reasonably requested by
Senior Lender, (4) the value of the Property or Senior Lender's interest
therein is not jeopardized during the cure period and (5) Prime pays any
reasonable
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costs (including reasonable attorneys' fees) incurred by Senior Lender
in preparing and sending notices of the default, evaluating the
default and the proposed cure and monitoring the cure.
(b) The occurrence of an Event of Default under and as defined in any
of the Prime Documents.
(c) The failure of Prime to pay or make any payment, deposit, Default
Charge, Administrative Cost or Protective Advance due under this Agreement
or any other Prime Document within five (5) days following Senior Lender's
written request to Prime for the payment thereof.
(d) The failure of Prime to pay off the Senior Indebtedness on the
Reset/Payoff Date if so required by Section 7 or, if not so required, on
the Final Payoff Date.
(e) Any action by Prime in violation of Section 21 or 22 hereof.
(f) The failure of Prime to perform any other obligation under this
Agreement or any of the other Prime Documents and such failure continues
for thirty (30) days following receipt by Prime of written notice thereof.
(g) The untruth in any material respect of any warranty or
representation made by Prime in any of the Prime Documents.
(h) (i) The filing by or against any of either Fee Owner,
Beneficiary, General Partner, or Prime of a petition under the United
States Bankruptcy Code, which in the case of an involuntary petition is not
dismissed within ninety (90) days; (ii) an assignment by any party for the
benefit of creditors; or (iii) the appointment of a trustee, receiver or
liquidator for any such party.
(i) The transfer or encumbrance of any direct or indirect interest in
the Property, General Partner, Beneficiary, the beneficial interest, either
Fee Owner or Prime's interest as holder of the Junior Loan Documents by
either Fee Owner, Member, General Partner, Beneficiary or Prime, provided
that the foregoing shall not restrict the transfer of (i) limited
partnership interests in Beneficiary, (ii) title to the Property from
either Fee Owner to Beneficiary, (iii) the membership interest in General
Partner to an Affiliate of Prime or an employee of Prime or of an Affiliate
of Prime and the spouse of any such person, or (iv) limited partnership
interests in Prime or units of beneficial interest in Prime Group Realty
Trust, a Maryland real estate investment trust.
(j) Any modification of the Junior Loan Documents without the prior
written consent of Senior Lender, which consent shall not be unreasonably
withheld.
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(k) The occurrence of a Management Event of Default (as defined in
the Management Agreement) at any time when any Affiliate of Prime is the
Manager.
18. Remedies.
Upon the occurrence of an Event of Default under this Intercreditor
Agreement, Senior Lender may exercise some or all of the following rights and
remedies in any order and in any combination it may choose:
(a) Exercise any right or remedy available under this Agreement or
any of the Prime Documents.
(b) Take any action permitted under Section 5.2(a) above or, if a
Senior Acceleration has occurred, under Section 5.2(b) above.
(c) Designate a new Manager, replace the Manager and/or modify or
replace the Management Agreement.
19. Default Interest; Administrative Costs; Protective Advances; Collection
Costs.
(a) All payments or deposits due under this Agreement or any of the
other Prime Documents shall bear interest at the Default Rate from the date
due until paid ("Default Interest"). In addition, if any payment due to
Senior Lender under this Agreement or any of the other Prime Documents is
not paid within five (5) days following the due date thereof, Senior Lender
may impose, with or without notice to Prime, a late payment fee (each, a
"Late Charge") equal to four percent (4%) of the amount due to cover Senior
Lender's administrative expenses.
(b) Prime will reimburse Senior Lender within five (5) days after
demand for all reasonable expenses, including fees of attorneys,
architects, engineers and other consultants, incurred in connection with
any consent or approval sought by Prime, any Fee Owner or Beneficiary
pursuant to or in connection with this Agreement, the other Prime
Documents, the Senior Loan Documents or the Property (collectively
"Administrative Costs"). Senior Lender may require payment of
Administrative Costs as a condition precedent to giving any such consent or
approval sought by Prime.
(c) Prime shall appear in and defend any action or proceeding
purporting to affect the Senior Loan Documents, Property, or the Security
or the rights or powers of the Senior Lender. Prime shall pay all
reasonable costs and expenses, including without limitation cost of
evidence of title and reasonable attorneys' fees, in any such action or
proceeding in which Senior Lender may appear. If Prime fails to perform any
of the material covenants or
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agreements contained in this Agreement, or if any action or proceeding is
commenced which may have a materially adverse effect on the Senior Loan
Documents, Property or the Security or any part thereof, including, but not
limited to, eminent domain, code enforcement, or proceedings of any nature
whatsoever under any federal or state law, whether now existing or
hereafter enacted or amended, relating to bankruptcy, insolvency,
arrangement, reorganization or other form of debtor relief, or to a
decedent, then Senior Lender may, but without obligation to do so and
without notice to or demand upon Prime and without releasing Prime from any
obligation hereunder, make such appearances, disburse such sums and take
such action as Senior Lender deems necessary or appropriate to protect
Senior Lender's interests, including, but not limited to, disbursement of
reasonable attorneys' fees, entry upon the Property to make repairs or take
other action to protect the Property or other Security, making of Necessary
Capital Expenditures, and payment, purchase, contest or compromise of any
mechanics lien and any other encumbrance, charge or lien which other
encumbrance in the judgment of Senior Lender appears to be prior or equal
in priority to the lien of the Loan Documents. Prime further agrees to pay
or reimburse Senior Lender for the payment of all reasonable expenses of
Senior Lender (including without limitation attorneys fees and expenses)
incident to the actions of Senior Lender pursuant to this Section 19(c).
Any amounts disbursed by Senior Lender pursuant to this Section 19(c) or
otherwise reimbursable by Prime ("Protective Advances") shall be payable by
Prime within ten (10) days after demand. Nothing contained in this Section
shall be construed to require Senior Lender to incur any expense, make any
appearance, or take any other action.
(d) Prime will pay within ten (10) days after demand the reasonable
costs, including fees of attorneys and other consultants, incurred by
Senior Lender in preparation for the exercise of and in exercising any of
its remedies under or in respect of this Agreement, the Senior Loan
Documents or the Property arising by reason of the occurrence of any
default or Event of Default under this Agreement, any of the other Prime
Documents or the Senior Loan Documents (collectively, "Collection Costs").
20. Performance by Prime; Waiver of Subrogation.
Senior Lender shall accept performance by Prime of any of the
obligations of Borrower or Beneficiary under the Senior Loan Documents,
including any cure effected during any cure period provided for therein or
herein. Notwithstanding any such performance by Prime of any obligations of
Borrower or Beneficiary, Prime hereby absolutely and irrevocably waives, to the
fullest extend permitted by applicable law, any rights it may have, by contract,
at law or in equity, to be subrogated to Senior Lender's rights against Borrower
or Beneficiary under the Senior Loan Documents or to Senior Lender's security
interests in any of the Collateral until three hundred sixty-six (366) days
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following the satisfaction in full of the Senior Indebtedness. Provided Senior
Lender has complied with the terms of this Agreement, Prime shall not contest
any foreclosure of Senior Lender's security interests against the Collateral.
Notwithstanding any provision of this Agreement, Prime agrees and acknowledges
that it is not, in its capacity as creditor of Borrower and Beneficiary, a third
party beneficiary of any obligations of Senior Lender under the Senior Loan
Documents.
21. Standstill.
Prime shall not under any circumstance take any action to foreclose or
otherwise enforce any of the security interests or rights under the Junior Loan
Documents by reason of a default thereunder unless and until the Senior
Indebtedness is paid in full, Prime acknowledging that it is fully able to
protect its rights under the Junior Loan Documents by exercising its right to
pay off the Senior Indebtedness (including Prepayment Premium) at any time after
the Closed Period. Without limitation of the foregoing, until the Senior
Indebtedness is paid in full, (i) Prime will take no action which would or may
have the effect of terminating any lease of the Property by reason of such lease
being subordinate to the Junior Loan Documents or otherwise, (ii) Prime will not
seek the appointment of a receiver, trustee or conservator of the Property,
Borrower or Beneficiary in any proceeding or otherwise and (iii) Prime will not
exercise any assignment of rents contained in the Junior Loan Documents.
22. Enforcement Interference by Prime.
(a) Until at least three hundred sixty-six (366) days following the
satisfaction in full of the Senior Indebtedness, Prime hereby covenants and
agrees that it will not acquiesce, petition or otherwise invoke or cause
any other Person to invoke the process of the United States of America, any
state or other political subdivision thereof or any other jurisdiction, any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government for the purpose of
commencing or sustaining any Insolvency Proceeding against Borrower or
Beneficiary. Prime hereby irrevocably appoints Senior Lender as Prime's
agent and attorney-in-fact to vote the full amount of the Junior
Indebtedness and to file any claims as the holder thereof in any Insolvency
Proceeding. The Junior Loan Documents are hereby pledged to Senior Lender
as security for Prime's obligations under this Agreement and the other
Prime Documents. Accordingly, such irrevocable appointment of Senior Lender
as agent and attorney-in-fact is a power coupled with an interest. In so
voting, Senior Lender shall be entitled to vote in its own self-interest
without regard to the interest of Prime. Without limitation of the
foregoing, Prime shall not in any Insolvency Proceeding propose, join in,
or vote in favor of, any plan of reorganization (or any provision in any
such plan) that would impair (within the meaning of 11 U.S.C. (S) 1124) any
claim of Senior Lender under the Senior Loan Documents or any security or
collateral
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for the Senior Loan, including without limitation any plan (or any
provision in any such plan) that would (i) extend the term of the Senior
Loan, (ii) cause any reduction in the debt service or the amount of the
debt owed by Borrower or Beneficiary to Senior Lender under the Senior Loan
Documents or any of them, or (iii) amend or modify in any way the
agreements between Prime and Senior Lender as set forth in this Agreement
and the other Prime Documents.
(b) Prime shall not institute any judicial or administrative
proceeding against Senior Lender with the intent of interfering with or
delaying the exercise by Senior Lender of its rights and remedies in
respect of the Collateral or any part thereof or under the Senior Loan
Documents or this Agreement or the other Prime Documents. Without limiting
the generality of the foregoing, in the event of an Insolvency Proceeding
under the United States Bankruptcy Code, Prime agrees that it will not
object to or oppose any efforts by Senior Lender to obtain relief from the
automatic stay under Section 362 of the United States Bankruptcy Code or to
seek to cause such entity's bankruptcy estate to abandon the Property (or
any portion thereof). Prime agrees that if Prime or any of its Affiliates
purchases any claims of other creditors of Borrower in any Insolvency
Proceeding, such claims and all security therefor will for all purposes be
subject to the terms of this Agreement as if such claims were included in
the Junior Loan and as if such security were included in the Junior Loan
Documents.
23. Consent by Prime.
Prime hereby consents and agrees that, subject to the provisions of
this Agreement and the other Prime Documents, any lawful action taken by or on
behalf of Senior Lender in the exercise of Senior Lender's rights and/or
remedies under the Senior Loan Documents (including, without limitation, any
foreclosure or acquisition of title to the Property or any part thereof by deed
in lieu of foreclosure or otherwise) are hereby deemed to be consented to and
approved by Junior Lenders in all respects.
24. Waivers.
Prime hereby waives and agrees not to assert or take advantage of, to
the fullest extent permitted by law:
(a) Any right to require Senior Lender to proceed against Borrower or
any other Person or to proceed against or exhaust any of the Collateral
held by it at any time, or to proceed with any other remedy in Senior
Lender's power before exercising any other right, or remedy under the
Senior Loan Documents;
(b) Until the Senior Indebtedness has been paid in full, any defense
that may arise by reason of the incapacity, lack of authority, death or
disability of, or revocation hereof by any Person or the failure of Senior
Lender to file
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prior to any disallowance date or to enforce a claim against the estate
(either in administration, bankruptcy or any other proceedings), of any
Person;
(c) Until the Senior Indebtedness has been paid in full, demand,
protest and notice of any kind, except for any notice expressly required
under the Prime Documents or the Senior Loan Documents, including without
limiting the generality of the foregoing, notice of the evidence, creation
or incurring of any new indebtedness or obligation or of any action or non-
action on the part of Borrower or Senior Lender in connection with any
obligation or evidence of indebtedness held by Senior Lender as collateral
or in connection with any indebtedness evidenced by the Senior Loan
Documents;
(d) Any and all right to have the Property and estates comprising the
Property or any other Collateral marshalled upon any foreclosure of the
security interests of Senior Lender and Prime further agrees that any court
having jurisdiction to foreclose such security interests may order the
Collateral sold as an entirety or in any parcels or combinations thereof
elected by Senior Lender.
25. Priority of Payments, Distributions.
In the event of any Insolvency Proceeding, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of Borrower, the Senior Indebtedness (which term as used throughout
this Agreement shall include, without any limitation, any Interest accruing
after the occurrence of a Senior Event of Default whether or not such Interest
is allowed as a claim in any Insolvency Proceeding) due or to become due shall
first be paid in cash in full before any payment on account of principal,
interest or otherwise is made upon the Junior Indebtedness, and in any such
proceeding, any payment or distribution of any kind or character which may be
payable or deliverable with respect to the Junior Indebtedness shall be paid or
delivered directly to Senior Lender for application in payment of the Senior
Indebtedness, unless and until the Senior Indebtedness shall have been paid and
satisfied in full in cash. Further, Prime specifically agrees as follows:
(a) In the event that, notwithstanding the foregoing, upon any
proceeding or event described above, any payment or distribution of assets
of Borrower or Beneficiary of any kind or character, whether in cash or
property, shall be received by Prime before the Senior Indebtedness is paid
in full in cash, such payment or distribution shall be held in trust for
the benefit of Senior Lender and, unless prohibited by law or court order,
shall be immediately paid over to Senior Lender for application to the
payment of the Senior Indebtedness remaining unpaid until the Senior
Indebtedness shall have been paid in full in cash, after giving effect to
any concurrent payment or distribution with respect to the Senior
Indebtedness. The provisions of this Agreement shall apply
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among Senior Lender and Prime, regardless of whether any of the security
interests of any party hereto are held to be invalid or the priority
thereof changed.
(b) Prime shall not take or support any action to contest (i) the
validity of any liens or security interests granted to Senior Lender under
the Senior Loan Documents or with respect to the Collateral, (ii) the
relative rights of Senior Lender and Prime with respect to such liens and
security interests or (iii) the enforceability of this Agreement or any of
the Senior Loan Documents.
(c) The subordination provisions contained herein shall continue to be
effective or be reinstated, as the case may be, until such time as the
Senior Indebtedness shall be paid in full in cash; provided that if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by Senior Lender upon the insolvency, bankruptcy or
reorganization of Borrower or Beneficiary or otherwise, the provisions of
this Agreement shall again be operative until the Senior Indebtedness shall
again be paid in full in cash, all as though such payment had not been
made.
26. Additional Covenants of Prime.
Prime covenants and agrees for the benefit of Senior Lender or any
subsequent holder of the Senior Loan Documents, regardless of the provisions of
the Junior Loan Documents, as follows:
(a) Without limiting the generality of any other provisions of this
Agreement, except as provided in this Section 26, Senior Lender may at any
time and from time to time without the consent of, or notice to Prime, and
without incurring responsibility to Prime, upon or without any terms or
conditions and in whole or in part:
(1) with the written consent of Prime, change the manner or place
and/or change or extend the time of payment or performance of, renew
or alter, any portion of the Senior Indebtedness or any other
obligations of any Person evidenced or secured by the Senior Loan
Documents;
(2) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any Collateral;
(3) exercise or refrain from exercising any rights against
Borrower or Beneficiary or others or otherwise act or refrain from
acting;
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<PAGE>
(4) settle or compromise any portion of the Senior Indebtedness
or any other obligations of any Person evidenced or secured by the
Senior Loan Documents, any security therefor or any liability incurred
directly or indirectly in respect thereto;
(5) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of Borrower or Beneficiary to Senior
Lender regardless of what liability or liabilities of Borrower or
Beneficiary remain unpaid or unperformed; and/or
(6) consent to or waive any breach of, or any act, omission or
default under, any of the Senior Loan Documents, or otherwise amend,
modify or supplement any of the Senior Loan Documents or any other
instruments or agreements executed and delivered in connection
therewith or otherwise relating thereto.
(b) The benefits and burdens of this Agreement are transferable to any
person to whom Senior Lender may transfer the Senior Loan Documents.
(c) Until the Senior Indebtedness is repaid in full, Prime hereby
releases any claim to rents, extraordinary payments with respect to any
lease, insurance proceeds and/or condemnation awards and all other Funds
and Special Service Payments (each of which if received shall be held and
delivered in accordance with Section 4). Insurance proceeds or condemnation
awards shall be applied as provided in the Senior Mortgage and, to the
extent applicable, the Lock Box Agreement. Prime further agrees that, in
the event of a casualty to the Property or a condemnation or taking under a
power of eminent domain, all adjustments of insurance claims, condemnation
claims and settlements of insurance claims, condemnation claims and
settlements in anticipation of such condemnation or taking shall be
prosecuted, at Senior Lender's election, by Senior Lender and all payments
and settlements of insurance claims or condemnation awards or payments in
anticipation of condemnation or a taking shall be paid to Senior Lender, to
the extent provided for in the Senior Loan Documents, Prime hereby agreeing
that its interest in any such proceeds is junior to the rights of Senior
Lender therein and that Prime shall have no right to participate in any
such adjustment process, payment or settlement unless and until the Senior
Indebtedness is paid in full.
(d) Prime will not permit any amendment of the Junior Loan Documents
without the prior written consent of Senior Lender.
(e) Prime will not transfer or assign, either outright or as security
for any obligation, any of its powers, rights or interests in the Junior
Loan Documents, without the prior written consent of Senior Lender.
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<PAGE>
27. Representations of Prime.
Prime hereby makes the following representations and warranties to
Senior Lender as of the date hereof (but only with respect to itself):
(a) Prime has the power, authority and legal right to execute, deliver
and perform this Agreement. This Agreement has been duly authorized by all
necessary action of Prime, duly executed and delivered by Prime and
constitutes valid and binding obligations of Prime enforceable against
Prime in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting rights of creditors generally, and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
(b) Neither the execution, delivery or performance by Prime of this
Agreement nor compliance by it with the terms and provisions hereof, (i)
will contravene any provision of any applicable law, statute, rule or
regulation or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any lien upon any of
the property or assets of Prime pursuant to the terms of any material
indenture, mortgage, deed of trust, credit agreement, loan agreement,
partnership agreement or any other material agreement, contact or
instrument to which Prime is a party or by which it or any of its property
or assets is bound or to which it may be subject or (iii) will violate any
provision of the organizational documents of Prime.
(c) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with (except as have been obtained
or made prior to the date hereof), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (i) the execution, delivery
and performance by Prime of this Agreement or (ii) the legality, validity,
binding effect or enforceability of this Agreement with respect to Prime.
(d) Prime entered into the transactions contemplated by the Junior
Loan Documents and this Agreement without reliance upon any information or
advice from Senior Lender. Prime made its own underwriting analysis in
connection with the Junior Indebtedness, its own credit review of Borrower
and Beneficiary and investigated all matters pertinent, in Prime's
judgment, to its determination to make the Junior Indebtedness to Borrower
and to execute and deliver the Junior Loan Documents.
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<PAGE>
(e) Neither Prime nor any of Prime's Affiliates (i) is or will become
an "employee benefit plan" (as defined in Section 3(3) of and governed by
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
or (ii) is or will be engaging in this transaction directly on behalf of an
"employee benefit plan" as defined therein; unless, if Prime or Prime's
affiliates or principals are such a plan governed by ERISA, this Agreement
and the performance of Prime's obligations hereunder will not result in, a
"prohibited transaction" (as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended).
It shall not be a breach of any of the representations and warranties made in
this Section 27 if the breach or inaccuracy thereof will not materially or
adversely affect the obligations of the warranting party under this Agreement or
its ability to perform such obligations.
28. Senior Lender Representations.
Senior Lender hereby makes the following representations and
warranties to Prime as of the date hereof:
(a) Senior Lender has the power, authority and legal right to execute,
deliver and perform this Agreement. This Agreement has been duly authorized
by all necessary action of Senior Lender, duly executed and delivered by
Senior Lender and constitutes valid and binding obligations of Senior
Lender enforceable against Senior Lender in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
rights of creditors generally, and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law).
(b) Neither the execution, delivery or performance by Senior Lender of
this Agreement nor compliance by it with the terms and provisions hereof,
(i) will contravene any provision of any law, statute, rule or regulation
or any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in
any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any lien upon any of the property or
assets of Senior Lender pursuant to the terms of any indenture, mortgage,
deed of trust, credit agreement, loan agreement, partnership agreement or
any other agreement, contact or instrument to which Senior Lender is a
party or by which it or any of its property or assets is bound or to which
it may be subject or (iii) will violate any provision of the organizational
documents of Senior Lender.
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<PAGE>
(c) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with (except as have been obtained
or made prior to the date hereof), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to
authorize, or is required in connection with, (i) the execution, delivery
and performance by Senior Lender of this Agreement or (ii) the legality,
validity, binding effect or enforceability of this Agreement with respect
to Senior Lender.
29. Nature of Relationship
Senior Lender and Prime intend that the relationship between them
created by the Prime Documents is of senior lender and junior lender and not
that of lender and borrower, joint venturers or tenants in common. Senior Lender
and Prime shall file all future federal and state income tax returns in a manner
consistent with the foregoing.
30. Governing Law.
This Agreement will be construed in accordance with the internal laws
of the State of Illinois without regard to principles of conflicts of laws.
31. Notice.
Any notice, demand, request, statement or consent made hereunder shall
be in writing, signed by the party giving such notice, request, demand,
statement, or consent, and shall be (a) delivered personally, (b) delivered to a
reputable overnight delivery service providing a receipt (c) deposited in the
United States mail, postage prepaid and registered or certified mail, return
receipt requested, or (d) sent by facsimile, provided a copy of such facsimile
is also delivered in accordance with (a), (b) or (c) above, at the address or
facsimile number set forth below or to such other address or facsimile number
within the continental United States of America as may have theretofore been
designated in writing. The effective date of any notice given as provided in
this Section shall be the date of personal service, one (1) business day after
delivery to such overnight delivery service, or three (3) business days after
being deposited in the United States mail, whichever is applicable. For purposes
hereof, the addresses and phone numbers are as follows:
If to Senior Lender:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Investment Services, S-319
Fax: (860) 726-6328
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<PAGE>
with a copy to:
CIGNA Corporation
Investment Law Department
Mortgage and Real Estate Group
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attn: Real Estate Division, S-215A
Fax: (860) 726-8446
with a copy to:
Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Stephen B. Bell
Fax: (312) 332-2196
If to Prime:
Prime Group Realty, L.P.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attn: Jeffrey Patterson
Fax: (312) 917-4230
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg, Esq.
Fax.: (312) 558-5700
32. Waiver.
Any term, condition or provision of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof.
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33. Binding Agreement.
This Agreement shall be binding upon the heirs, executors,
administrators, personal representatives, successors and assigns of the parties
hereto; provided, however, the foregoing shall not be deemed or construed to (a)
permit the assignment of either party's rights or obligations hereunder except
as provided in Section 36 hereof or (b) confer any right, title, benefit, cause
of action or remedy upon any person or entity not a party hereto.
34. Construction.
Whenever the context hereof so requires, reference to the singular
shall include the plural and the plural shall include the singular; words
denoting gender shall be construed to mean the masculine, feminine or neuter, as
appropriate; and specific enumeration shall not exclude the general, but shall
be construed as cumulative of the general recitation. The headings contained in
this Agreement are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or any provision hereof.
35. Severability.
If any clause or provision of this Agreement is held to be illegal,
invalid or unenforceable under any law applicable to the terms hereof, then the
remainder of this Agreement shall not be affected thereby, and in lieu of each
such clause or provision of this Agreement that is illegal, invalid or
unenforceable, such clause or provision shall be judicially construed and
interpreted to be as similar in substance and content to such illegal, invalid
or unenforceable clause or provision, as the context thereof would reasonably
suggest, so as to thereafter be legal, valid and enforceable.
36. Counterparts.
To facilitate execution, this Agreement may be executed in as many
counterparts as may be convenient or required. It shall not be necessary that
the signature and acknowledgment of, or on behalf of, each party, or that the
signature and acknowledgment of all persons required to bind any party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Agreement to
produce or account for more than a single counterpart containing the respective
signatures and acknowledgments of each of the parties hereto.
37. No Other Agreements.
Other than as set forth in the Prime Documents and in the documents
delivered pursuant to this Agreement, and the other Prime Documents, this
agreement represents the final agreement between the parties with respect to the
transaction
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contemplated herein, supersedes any and all prior discussions and agreements
(written or oral) between Prime and Senior Lender with respect to the
transaction contemplated herein, the Property and the Junior Loan Documents and
may not be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties.
38. Time of the Essence.
Time is of the essence in the execution and performance of this
Agreement and of each provision hereof.
39. Rule of Construction.
The parties acknowledge that each party and its counsel has reviewed
this Agreement, and the parties hereby agree that normal rules of construct to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments
or exhibits hereto.
40. Saturday, Sunday or Legal Holiday.
If any date set forth in this Agreement for the performance of any
obligation by Prime or Senior Lender or for the delivery of any document or
notice should be on other than a Business Day, the compliance with such
obligation or delivery shall be deemed acceptable on the next following Business
Day. For purposes of this Agreement, the term "Business Day" shall mean any day
on which banks and federal savings associations in Illinois are generally open.
41. Amendments.
This Agreement shall not be amended except by a writing signed on
behalf of all of the parties to this Agreement.
42. No Third Party Beneficiaries; No Relationship.
No person or entity not a party to this Agreement shall have any third
party beneficiary claim or other right hereunder or with respect thereto. This
Agreement shall not establish any fiduciary, joint venture, partnership or
similar relationship between Prime and Senior Lender.
43. Exhibits.
Each exhibit referred to in this Agreement is attached hereto and each
such exhibit is hereby incorporated by reference and made a part hereof as if
fully set forth herein.
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44. Jury Waiver; Venue.
PRIME AND SENIOR LENDER DO HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THEIR RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ANY
ACTION OF ANY PARTY ARISING OUT OF OR RELATED IN ANY MANNER TO THIS AGREEMENT,
THE SENIOR LOAN, THE JUNIOR LOAN, THE SENIOR LOAN DOCUMENTS, THE JUNIOR LOAN
DOCUMENTS, OR THE PROPERTY (INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND
OR CANCEL THIS AGREEMENT AND ANY CLAIMS OR DEFENSES ASSERTING THAT THIS
AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE)
(COLLECTIVELY, AN "ACTION"). THIS WAIVER IS A MATERIAL INDUCEMENT FOR PRIME AND
SENIOR LENDER TO ENTER INTO THIS AGREEMENT AND SHALL SURVIVE THE CLOSING OR ANY
TERMINATION OF THIS AGREEMENT. PRIME AND SENIOR LENDER HEREBY IRREVOCABLY SUBMIT
TO THE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT LOCATED
IN COOK COUNTY, ILLINOIS IN ANY ACTION AND EACH PARTY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION MAY BE HEARD AND DETERMINED BY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH ACTION BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM.
45. Assignment.
Prime may not assign this Agreement or any right, liability, or
obligation hereunder without the prior written consent of Senior Lender, which
may be withheld in Senior Lender's absolute discretion. Senior Lender may
transfer, by assignment, participation or otherwise, the Senior Loan Documents,
or any interest therein and any or all of its right, liabilities, or obligations
under the Prime Documents to any one or more of its Affiliates, separate
accounts, nominees and subsidiaries or to any other person or entity.
46. Attorneys' Fees.
References to attorneys' fees or the like in this Agreement and in any
of the other Prime Documents shall include (a) the reasonable fees charged by
attorneys who are employees of Senior Lender or any of its Affiliates and (b)
reasonable attorneys' fees incurred in any trial and appellate proceedings.
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47. Prime Exculpation.
Notwithstanding any provision contained in this Intercreditor
Agreement, Prime shall have no personal liability for the performance of its
obligations hereunder (including without limitation the obligation to pay off
the Senior Interest under Section 6 hereof). In the event of a default by Prime,
Senior Lender shall nonetheless be entitled to exercise all remedies available
under the Prime Documents against the Property, the Gross Revenues and other
security as are set forth therein or as may otherwise be available under law.
The foregoing shall not be construed to limit the personal liability of Prime
under the Recourse Indemnity Agreement, the Environmental Indemnification
Agreement, the Blocked Accounts Agreement and any other document now or
hereafter delivered by Prime which does not expressly exculpate Prime from such
liability.
48. Senior Lender Exculpation.
Notwithstanding any provision contained in this Agreement or the other
Prime Documents to the contrary, the obligations of Senior Lender under this
Intercreditor Agreement and the Prime Documents shall be enforceable only
against the interest of Senior Lender in the Senior Loan Documents as such
interest may exist from time to time.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
PRIME GROUP REALTY, L.P., a Delaware limited
partnership
By PRIME GROUP REALTY TRUST, a
Maryland real estate investment trust, its
managing general partner
By /s/ Jeffrey A. Patterson
--------------------------------------
Its Exec. VP
--------------------------------------
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation
By CIGNA INVESTMENTS, INC., a Delaware
corporation, its authorized agent
By /s/ Patrick H. [illegible]
--------------------------------------
Its Vice President
--------------------------------------
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SCHEDULE 1
DEFINED TERMS
-------------
1. "Accrued Obligations" shall mean all accrued and unpaid Monthly Secondary
Payments, Default Interest, all outstanding Late Charges, Collection Costs,
Administrative Charges and all accrued obligations under the Recourse
Indemnity Agreement and the Environmental Indemnification Agreement.
2. "Administrative Costs" shall have the meaning set forth in Section 19(b) of
this Agreement.
3. "Affiliate" shall mean with respect to any person: any individual related
by blood or marriage to such person or any person controlling, controlled
by or under common control with such person ("control" and forms of the
word mean (i) the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise; and
(ii) the ownership or beneficial ownership of equity interests, directly or
indirectly, representing fifty percent or more ownership (on a fully
diluted basis) in a person or rights, warrants, or options to purchase such
ownership (whether or not currently exercisable)).
4. "Applied Amount" shall have the meaning set forth in the Lock Box
Agreement.
5. "Beneficial Interest" shall mean the beneficial interest in the Fee Owner.
6. "Beneficiary" shall mean Continental Towers Associates-I, L.P. an Illinois
limited partnership, and any successor beneficiary of either Fee Owner.
7. "Blocked Accounts" means collectively the Re-Leasing Account and the
Capital Improvement Account created and maintained pursuant to the Blocked
Accounts Agreement.
8. "Blocked Accounts Agreement" means that certain Subordinate Lender's
Blocked Accounts Agreement of even date herewith among Lock Box Bank,
Senior Lender, Prime and JTD.
9. "Borrower" means collectively the Fee Owners.
10. "Capital Costs" shall have the meaning set forth in the Senior Mortgage.
11. "Capital Loans" shall have the meaning set forth in the 1998 Agreement.
12. "Closing" shall mean the date of disbursement of the Senior Loan.
<PAGE>
13. "Closed Period" shall mean the period commencing on the date hereof and
ending on April 30, 2000.
14. "Collateral" means all present and future assets of Borrower and
Beneficiary, including all of Borrower's and Beneficiary's personal
property and real estate, including, to the extent any Borrower has
interest therein, the Lock Box Accounts.
15. "Collection Costs" shall have the meaning set forth in Section 19(d) of
this Agreement.
16. "Cure Notice" shall have the meaning set forth in Section 17(a)(ii) of this
Agreement.
17. "Deed in Lieu Notice" shall have the meaning set forth in Section 26 of
this Agreement.
18. "Default Charges" shall mean collectively all Prime Interest, Default
Interest, Late Charges, Protective Advances and Collection Costs payable
under this Agreement or any of the other Prime Documents.
19. "Default Interest" shall have the meaning set forth in Section 19 of this
Agreement.
20. "Default Rate" shall mean an annual rate of 11.22% calculated on the basis
of a 360 day year.
21. "Default Sale Notice" shall have the meaning set forth in Section 9 of this
Agreement.
22. "Deferred Interest" shall have the meaning set forth in the Senior Note.
23. "Deferred Payments" shall have the meaning set forth in the Senior Note.
24. "Easements" shall have the meaning set forth in Section 15 of this
Agreement.
25. "Enforcement Action" means the commencement of the exercise of any default
or other contract remedies against Borrower, Beneficiary or both,
including, without limitation, the commencement of any litigation or
proceeding, including the commencement of any foreclosure proceeding, the
exercise of any power of sale, the sale by advertisement, the taking of a
deed or assignment in lieu of foreclosure, the obtaining of a receiver or
the taking of any other enforcement action against, or the taking of
possession or control of, any of the Property, but specifically excludes
Borrower, Beneficiary or both, the assertion or enforcement of any right of
Prime to receive payment from proceeds of a foreclosure sale of the
Property incident to foreclosure of the liens or security interests of the
Senior Loan Documents which may remain after payment of costs and expenses
of such foreclosure and payment and satisfaction in full of the Senior
Indebtedness, and the filing of claims in any Insolvency Proceeding as may
be required to protect and preserve the right of Prime or Senior Lender to
participate in such Insolvency Proceeding as creditor and to
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participate in distributions of assets of Borrower in said Insolvency
Proceeding with respect to the Junior Indebtedness or the Senior
Indebtedness, as applicable, but subject in all respects to the rights of
Senior Lender under and as provided in this Agreement and without in any
way impairing or affecting the right of Senior Lender to require Prime to
perform and observe their respective covenants, undertakings and agreements
of Prime under and as provided in this Agreement.
26. "Environmental Indemnification Agreement" shall mean the Environmental
Indemnification Agreement of even date herewith executed by Prime in
respect of the Property.
27. "Escrow Deposits" shall mean all deposits required under the Blocked
Accounts Agreement.
28. "Event of Default" shall have the meaning set forth in Section 17 of this
Agreement.
29. "Excess Amount" shall have the meaning set forth in Section 9 of this
Agreement.
30. "Extraordinary Payment" shall have the meaning set forth in the Management
Agreement.
31. "Fee Owners" shall mean the two land trusts identified as Trust 40935 and
Trust 5602 in Exhibit 43 or any successor owner of any interest in the fee
title to the Property.
32. "Final Payoff Date" shall have the meaning set forth in Section 6 of this
Agreement.
33. "Funds" shall mean all Gross Revenues, and all other revenues relating to
the Property including lease termination payments, advance rental payments,
Net Proceeds and Special Service Payments.
34. "General Partner" shall mean CTA Partner, L.L.C., a Delaware limited
liability company, or other holder of a general partnership interest or
other managing interest in Beneficiary.
35. "Gross Revenues" shall have the meaning set forth in the Senior Note.
36. "Insolvency Proceeding" means any proceeding under Title 11 of the United
States Code (11 U.S.C. Sec. 101 et. seq.) or any other insolvency,
liquidation, reorganization or other similar proceeding concerning
Borrower, any action for the dissolution of Borrower, any proceeding
(judicial or otherwise) concerning the application of the assets of
Borrower, for the benefit of its creditors, the appointment of or any
proceeding seeking the appointment of a trustee, receiver or other similar
custodian for all or any substantial part of the assets of Borrower or any
other action concerning the adjustment of the debts of Borrower.
37. "Interest" shall have the meaning set forth in the Senior Note.
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<PAGE>
38. "Interest Rate" shall have the meaning set forth in the Senior Note.
39. "JTD" means Julian, Toft & Downey, Incorporated or such other entity
designated by Senior Lender to perform the functions of JTD in connection
with the Loan Documents, this Intercreditor Agreement and the other Prime
Documents.
40. "Junior Indebtedness" means all principal, interest, default interest,
prepayment premium, collection costs and other amounts outstanding from
time to time under the Junior Loan Documents.
41. "Junior Loan" means the loan evidenced and secured by the Junior Loan
Documents.
42. "Junior Loan Agreement" shall have the meaning set forth in Exhibit 1-43.
43. "Junior Loan Documents" means the documents listed on Exhibit 1-43, as
amended from time to time subject to the limitations set forth in this
Agreement.
44. "Junior Security" shall mean all real and personal property at any times
pledged to Senior Holder to secure the performance by Prime of its
obligations under the Prime Security Documents.
45. "Late Charge" shall have the meaning set forth in Section 19(a) of this
Agreement.
46. "Lock Box Account" means the deposit account in the name of Senior Lender
established pursuant to the Lock Box Agreement at Lock Box Bank into which
all rent and other revenues of the Property will be deposited.
47. "Lock Box Accounts" means collectively the Lock Box Account, Real Estate
Tax Escrow Account and the Working Capital Account created and maintained
under the Lock Box Agreement.
48. "Lock Box Agreement" means the Lock Box Agreement of even date herewith
among Lock Box Bank, Senior Lender, Borrower, Beneficiary, Manager and JTD.
49. "Lock Box Bank" means LaSalle National Bank or any successor thereto or
assignee thereof under the Lock Box Agreement or Blocked Accounts Agreement
and any bank serving similar functions under any replacement of either or
both such agreements.
50. "Management Agreement" shall mean the Management Agreement dated December
12, 1997 among Beneficiary and Manager, together with the Agreement
Pertaining to Management Agreement of even date herewith among Manager,
Beneficiary, and Senior Lender.
51. "Manager" shall mean Prime Group Realty Services, Inc., a Delaware
corporation, or the manager approved by Senior Lender.
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<PAGE>
52. "Member" shall mean Richard S. Curto and his spouse or other holder of an
equity interest in General Partner.
53. "Minimum Payment" shall have the meaning set forth in the Senior Note.
54. "Monthly Operating Report" shall have the meaning set forth in the
Management Agreement.
55. "Monthly Secondary Payment" shall have the meaning set forth in Section 5
of this Agreement.
56. "Necessary Capital Expenditures" shall mean such capital expenditures as
are reasonably determined by Senior Lender to be necessary to maintain the
Property in first class condition, including without limitation Re-Leasing
Costs and Capital Costs.
57. "Net Proceeds" shall mean all insurance proceeds and eminent domain
compensation and awards attributable to the Property which are not used to
repair or restore the Property pursuant to the Senior Loan Documents.
58. "Outstanding Balance" shall have the meaning set forth in the Senior Note.
59. "Partner Loans" shall mean any "Partner Loans" as referred to in the Junior
Loan Agreement.
60. "Payoff Amount" shall mean the aggregate of the Outstanding Balance and
Accrued Obligations.
61. "Person" means any natural person, corporation, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
62. "Plaza Repairs" shall have the meaning set forth in the Senior Mortgage.
63. "Prepayment Premium" shall have the meaning set forth in the Senior Note.
64. "Prime" means Prime and any subsequent holder of any interest in the Junior
Loan or the Junior Loan Documents.
65. "Prime Documents" shall mean this Agreement; the Blocked Accounts
Agreement; the Recourse Indemnity Agreement; the Environmental
Indemnification Agreement; the Collateral Assignment of Loan Documents of
even date herewith executed by Prime in favor of Senior Lender; and such
all other documents executed by Prime or its Affiliates and delivered to
Senior Lender in connection herewith and therewith, including all documents
securing or perfecting security for Prime's obligations hereunder and
thereunder.
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<PAGE>
66. "Prime Interest" shall mean all interest, including Default Interest,
imposed under any of the Prime Documents.
67. "Property" means the real estate commonly known as Continental Towers,
Rolling Meadows, Illinois which is legally described on Exhibit 1-67 and
all improvements now or hereafter located thereon and all appurtenances
thereto.
68. "Protective Advances" shall have the meaning set forth in Section 19(c) of
this Agreement.
69. "Recourse Indemnity Agreement" shall mean that certain Recourse Indemnity
Agreement of even date herewith delivered by Prime to Senior Lender.
70. "Release Actions" shall mean (i) execution of instruments of release or
terminations, as appropriate, of the Senior Loan Documents and Prime
Documents and (ii) release or transfer of all cash security for the Senior
Loan Documents and Prime Documents, except the Environmental
Indemnification Agreement shall not be released or terminated but shall
instead survive the performance of the Release Actions.
71. "Re-Leasing Costs" shall have the meaning set forth in the Senior Mortgage.
72. "Rent Roll" shall mean a rent roll on the form previously submitted to and
approved by Senior Lender.
73. "Required Capital Improvements" shall have the meaning set forth in the
Senior Mortgage.
73A. "Reset Amendment" shall have the meaning set forth in Section 7 of this
Agreement.
74. "Reset Amortization Schedule" shall have the meaning set forth in Section 7
of this Agreement.
75. "Reset Notice" shall have the meaning set forth in Section 7 of this
Agreement.
76. "Reset Period" shall have the meaning set forth in Section 7 of this
Agreement.
77. "Reset/Payoff Date" shall mean May 1, 2005.
78. "Reset Response" shall have the meaning set forth in Section 7 of this
Agreement.
79. "Reset Scheduled Payment" shall mean the fixed level payment required to
amortize the Outstanding Balance in accordance with the Reset Amortization
Schedule at the Reset Interest Rate.
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<PAGE>
80. "Reset Secondary Payment Amount" shall mean the excess of Reset Scheduled
Payment over Minimum Payments due during the Reset Term.
81. "Reset Terms" shall have the meaning set forth in Section 7 of this
Agreement.
82. "Scheduled Payment" shall mean $540,656.41 per month (being the sum of the
Minimum Payment and the Monthly Secondary Payment) which is an amount
sufficient to amortize the Senior Loan over a period of 25 years at the
Interest Rate.
83. "Security" shall mean all real and personal property, tangible and
intangible, in which security interests have been granted as security for
the Senior Loan or Prime's obligations under this Intercreditor Agreement.
84. "Senior Acceleration" shall mean the acceleration of the Senior
Indebtedness following a Senior Event of Default.
85. "Senior Default" means the failure by Borrower to pay Senior Lender any
amount when due under the Senior Loan Documents or the occurrence or
existence of any other event or circumstance which, with the passage of
time or the giving of notice, or both, would constitute a Senior Event of
Default.
86. "Senior Default Charges" shall mean all late charges and default in
interest, collection charges, administrative charges or the like arising
under the Senior Loan Documents, including Default Interest as defined in
the Senior Note.
87. "Senior Event of Default" means an "Event of Default" as defined in any of
the Senior Loan Documents.
88. "Senior Indebtedness" means all principal, interest, default interest,
prepayment premium, collection costs and other amounts outstanding from
time to time under the Senior Loan Documents.
89. "Senior Loan" shall have the meaning set forth in the Senior Note.
90. "Senior Loan Documents" means the documents listed on Exhibit 1-90, as
amended from time to time subject to the limitations set forth in the
Agreement.
91. "Senior Mortgage" shall have the meaning set forth in Exhibit 1-90.
92. "Senior Note" shall have the meaning set forth in Exhibit 1-90.
93. "Special Service Payments" shall have the meaning set forth in the
Management Agreement.
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<PAGE>
94. "SNDAs" shall mean Subordination, Non-Disturbance and Attornment Agreements
with tenants of the Property on a form previously approved by Senior Lender
with such changes as are reasonably acceptable to Senior Lender.
95. "Tax Indemnity Agreement" shall mean that certain Tax Indemnity Agreement
dated November 17, 1997 among Prime, Roland E. Casati and Richard A. Heise.
96. "Tenant Estoppels" shall mean Tenant Estoppel Certificates from tenants of
the Property on a form previously approved by Senior Lender with such
changes as are reasonably acceptable to Senior Lender.
97. "Term" shall mean the period from the date hereof through and including the
Final Payoff Date.
98. "TIA Periodic Payments" shall mean the payments to be made after the date
hereof by Roland E. Casati and Richard A. Heise pursuant to Sections 11 and
12 of the Tax Indemnity Agreement.
99. "Transfer Actions" shall mean (i) execution of instruments of transfer and
endorsements, as appropriate, of the Senior Loan Documents and the Senior
Lender's title policy, in all cases without recourse, (ii) transfer to
Prime of all balances in the Blocked Accounts, and (iii) execution of
instruments of termination of this Agreement and the other Prime Documents,
except the Environmental Indemnification Agreement shall not be terminated
but shall instead survive the performance of the Transfer Actions. In
connection with the performance of the Transfer Actions, Senior Lender will
be obligated to warrant only that it has not encumbered or transferred the
Senior Loan Documents.
100. "Wire Transfer" shall mean transfer of immediately available funds by
federal wire to an account designated by the recipient in a written notice
to the transferor.
101. "1998 Agreement" shall have the meaning set forth in Exhibit 1-43.
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<PAGE>
EXHIBIT 7
---------
RESET RECOURSE LIABILITY
------------------------
In the event that the Reset Terms are accepted pursuant to Section 7,
the Recourse Indemnity Agreement will be modified as follows and re-executed by
Prime:
(i) The "Control Period" will commence on the Reset/Payoff Date.
(ii) The starting balance of the "Remaining Deficiency Amount" shall
equal the product of the number of months in the Reset Period times the
Monthly Secondary Payment due during the Reset Period.
(iii) The dollar amount set forth in Section 2(n) of the Recourse
Indemnity Agreement shall be the Reset Scheduled Payment minus $466,667.
The original Recourse Indemnity Agreement will remain in effect with respect to
any event or occurrence which occurred prior to the Reset/Purchase Date.
<PAGE>
EXHIBIT 15
PRELIMINARY SITE PLAN
---------------------
[DIAGRAM OF FUTURE OFFICE TOWERS APPEARS HERE]
MASTER PLAN
================================================================================
PRIME GROUP REALTY TRUST CONTINENTAL TOWERS DES
FEBRUARY 18, 1998 ASK-1 ROLLING MEADOWS, ILLINOIS
<PAGE>
EXHIBIT 1-43
JUNIOR LOAN DOCUMENTS
---------------------
1. Loan Modification and Amended and Restated Loan Agreement dated as
of June 1, 1995 (as amended, the "Junior Loan Agreement"), by and among American
National Bank and Trust Company of Chicago, not personally, but as Trustee of
Trust No. 40935 ("Trust 40935"), Continental Towers Associates - I ("CTA"),
Roland E. Casati ("Casati"), Richard E. Heise ("Heise"), Casati-Heise
Partnership ("C/H") and General Electric Capital Corporation ("GECC"), which was
recorded in the office of the Recorder of Deeds, Cook County, Illinois
("Recorder's Office") on August 17, 1995 as Doc. No. 95545031.
2. First Amendment to Loan Modification and Amended and Restated Loan
Agreement by and among Trust 40935, CTA, Casati, Heise, C/H and GECC, which was
recorded in the Recorder's Office on December 17, 1997 as Document No. 97947240.
3. Amended and Restated First Mortgage dated as of December 1, 1991
from Trust 40935 and joined in by C/H to GECC and recorded in the Recorder's
Office as Document No. 92001888, as amended by the First Amendment and the
Second Amendment (together with the Supplemental Mortgage and as either has been
amended, the "Junior Mortgage").
4. Assignment of Leases and Rents dated as of December 1, 1991, from
Trust 40935 and joined in by C/H to GECC and recorded in the Recorder's Office
as Document 92001889, as amended by the First Amendment and the Second
Amendment.
5. First Amendatory Agreement dated as of April 30, 1993 (the "First
Amendment") executed and delivered by and among the Parties, which First
Amendment was duly filed for record and recorded in the Recorder's Office as
Document No. 93-434372 on June 9, 1993.
6. Second Amendatory Agreement dated as of November 1, 1994 (the
"Second Amendment") executed and delivered by and among the Parties, which
Second Amendment was duly filed for record and recorded in the Recorder's Office
as Document No. 94084292, on December 30, 1994.
7. Supplemental First Mortgage and Security Agreement dated June 1,
1995, from First Bank, N.A. as successor trustee to National Boulevard Bank of
Chicago, not personally, but solely as Trustee of Trust No. 5602 ("Trust 5602"),
with joinder by CTA, in favor of GECC, which was recorded in the Recorder's
Office on August 17, 1995 as Doc. No. 95545032 (the "Supplemental Mortgage").
<PAGE>
8. 1997 Promissory Note ("1997 Promissory Note") dated October 1, 1991
Amended and Restated as of the Effective Date December 12, 1997 in the amount of
$163,103,099.24 made by Trust 40935 in favor of GECC.
9. Hazardous Substances Indemnity Agreement dated as of October 1,
1991, as amended by the Loan Agreement.
10. All UCC financing statements executed in connection with any of
the foregoing.
11. 1998 Agreement of even date herewith among Mortgagor, Beneficiary
and Prime (the "1998 Agreement").
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<PAGE>
EXHIBIT 1-67
------------
LEGAL DESCRIPTION
-----------------
Parcel 1
Lots 1 and 2 in Casati-Heise Subdivision, being a subdivision of part of the
Northeast 1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in
Township 41 North, Range 11 East of the Third Principal Meridian, in Cook
County, Illinois according to the plat thereof recorded December 27, 1988 as
Document Number 88-592766, in Cook County, Illinois.
Parcel 2
Easements appurtenant to and for the benefit of Parcel 1 as created and granted
and set forth in Easement Agreement dated as of September 23, 1977 recorded
October 10, 1978 as Document Number 24662689 and as amended by Amendment to
Easement Agreement dated as of May 15, 1980 recorded June 10, 1980 as Document
Number 25482426 upon, over and under Parcels 1, 2 and 3 and over, upon and under
portions of Lots 1 to 6, inclusive, in Heise's Subdivision, a subdivision of
part of the Northwest 1/4 of Section 16, Township 41 North, Range 11, East of
the Third Principal Meridian in Cook County, Illinois, according to the plat
thereof recorded December 23, 1977 as Document 24119807 and also over, upon and
under portions of that part of the Northeast 1/4 of Section 17 and part of the
Northwest 1/4 of Section 16, Township 41 North, Range 11, East of the Third
Principal Meridian, in Cook County, Illinois described as follows:
Commencing at the Northeast corner of the Northeast 1/4 of said Section 17;
thence Southerly along the East line of said Northeast 1/4 of Section 17, 80.0
feet to the Southerly right-of-way of Golf Road (State Route 58), as dedicated
and recorded September 24, 1929 as Document Numbers 10488005 and 10488006;
thence South 89 degrees 08 minutes West along said Southerly right-of-way of
Golf Road (State Route 58), 691.05 feet for a point of beginning; thence South 0
degrees 52 minutes East, 265.0 feet; thence South 89 degrees 08 minutes West
parallel with said Southerly right-of-way Golf Road (State Route 58), 196.11
feet; thence North 0 degrees 27 minutes 20 seconds East parallel with the West
line of Schwake's Subdivision, recorded August 11, 1970 as Document 21235091,
now vacated 265.07 feet to said Southerly right-of-way of Golf Road (State Route
58); thence North 89 degrees 08 minutes East, along said Southerly right-of-way
of Golf Road (State Route 58), 190.0 feet to the point of beginning, all in Cook
County, Illinois, for the operation, maintenance, repairs, replacement,
relocation and removal of a water supply line, sewer and other utilities, in
Cook County, Illinois.
Parcel 3
Easements appurtenant to and for the benefit of Parcel 1 as created and granted
and set forth in Reciprocal Easement and Common Wall Agreement dated as of
September 23,
<PAGE>
1977 and recorded October 10, 1978 as Document Number 24662688, and as amended
by Amendment thereto dated as of November 21, 1979 and recorded December 17,
1979 as Document Number 25284791 upon, over and under Parcels 1, 2 and 3 and
over, and upon and under portions of that part of the Northeast 1/4 of Section
17 and part of the Northwest 1/4 of Section 16, Township 41 North, Range 11,
East of the Third Principal Meridian, in Cook County, Illinois described as
follows:
Commencing at the Northeast corner of the Northeast 1/4 of said Section 17;
thence Southerly along the East line of said Northeast 1/4 of Section 17, 80.0
feet to the Southerly right of way of Golf Road (State Route 58) as dedicated
and recorded September 24, 1929, as Document 10488005 and 10488006; thence South
89 degrees 08 minutes West along said Southerly right of way of Golf Road (State
Route 58), 691.05 feet for a point of beginning; thence South 0 degrees 52
minutes East, 265.0 feet; thence South 89 degrees 08 minutes West, parallel with
said Southerly right of way of Golf Road (State Route 58) 196.11 feet; thence
North 0 degrees 27 minutes 20 seconds East, parallel with the West line of
Schwake's Subdivision recorded August 11, 1970 as Document 21235091, now
vacated, 265.07 feet to said Southerly right of way of Golf Road (State Route
58) thence North 89 degrees 08 minutes East, along said Southerly right of way
of Golf Road (State Route 58) 109.0 feet to the point of beginning, all in Cook
County, Illinois, for operation, maintenance, repair, replacement, relocation
and removal of a water supply line, sewers and other utilities, and for use of
parking areas, roadways and walkways to provide ingress and egress for
pedestrians, vehicles, and for water supply, sewers and common walls.
Parcel 4
Lot 3 in Casati-Heise Subdivision, being a subdivision of part of the Northeast
1/4 of Section 17 and part of the Northwest 1/4 of Section 16, both in Township
41 North, Range 11, East of the Third Principal Meridian, according to the plat
thereof recorded December 27, 1988 as Document 88592766, in Cook County,
Illinois.
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<PAGE>
EXHIBIT 1-90
------------
SENIOR LOAN DOCUMENTS
---------------------
1. Promissory Note of even date herewith from Fee Holder to the Mortgagee in
the amount of $75,000,000.
2. 1998 Lock Box and Block Accounts Agreement of even date herewith, executed
by Lock Box Bank, Fee Holder, Beneficiary, Manager, and Julian, Toft &
Downey.
3. Agreement Pertaining to Management Agreement of even date herewith,
executed by Beneficiary, Manager, and the Mortgagee.
4. First Mortgage of even date herewith, from the Mortgagor to the Mortgagee.
5. Assignment of Rents and Leases of even date herewith, executed by the
Mortgagor and the Mortgagee.
6. UCC Financing Statements executed by Beneficiary.
7. UCC Financing Statements executed by Mortgagor.
8. Borrower Parties Estoppel Certificate of even date herewith, executed by
Fee Holder, Beneficiary, Casati, Heise, C/H Partnership, and Mortgagee.
9. Hazardous Substances Indemnity Agreement of even date herewith, executed by
Beneficiary.
10. Certificate of Casati-Heise of even date herewith, executed by C/H
Partnership and Junior Holder.
11. All other documents, agreements and instruments evidencing, securing or in
any way relating to the Loan, together with all amendments thereto which
may hereafter exist.
<PAGE>
Exhibit 10.45
PROMISSORY NOTE
$75,000,000.00 Dated: May 14, 1998
FOR VALUE RECEIVED, AMERICAN NATIONAL BANK AND TRUST COMPANY OF
CHICAGO, a national banking association, not personally but solely as trustee
under trust agreement dated July 26, 1977 and known as Trust No. 40935 and
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking
association, as successor trustee to First Bank, N.A., as successor trustee to
National Boulevard Bank of Chicago, not personally, but solely as trustee under
trust agreement dated September 27, 1976 and known as Trust No. 5602
(collectively, "Borrower"), promise to pay to the order of CONNECTICUT GENERAL
LIFE INSURANCE COMPANY, a Connecticut corporation, having an address at c/o
CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford, Connecticut 06152-
2319, Attention: Investment Services, S-319 ("Holder"), or any subsequent holder
of this Note, the principal sum of Seventy-Five Million and 00/100 Dollars
($75,000,000.00), with interest on the unpaid balance of such amount from the
date hereof at the rates of interest specified herein.
1. Certain Defined Terms. In addition to the terms defined elsewhere
in this Note, as used herein, the following terms shall have the following
meanings:
"Adjusted Net Operating Income" shall mean for any period the Net
Operating Income for such period less Basic Payments made during such
period.
"Affiliated Entities" and "Affiliated Entity" shall mean,
collectively, Beneficiary, or any of the partners or shareholders of any
partnership or corporation which directly or indirectly through
corporations or partnerships controlled by them is a limited or general
partner of the Beneficiary, or any entity of which any of such parties or
shareholders alone or in any combination is a general partner or a
controlling director, managing officer or majority shareholder or has or
have more than a ten percent (10%) beneficial interest therein; provided
that (a) any one of the foregoing Affiliated Entities is individually
called an "Affiliated Entity"; and (b) the term Affiliated Entity shall
specifically include Casati, Heise, and their respective spouses, blood and
adoptive relatives, ancestors and descendants.
"Assignment" shall mean the Assignment of Rents and Leases of even
date herewith, made by Borrower in favor of Holder pertaining to the
Property.
"Basic Payment" shall mean the sum of the Minimum Payment plus the Tax
Reserve Payment.
"Beneficiary" shall mean Continental Towers Associates-I, L.P., an
Illinois limited partnership, which is the owner of the beneficial interest
of Borrower, or such successor as shall have been approved by Holder.
<PAGE>
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in Chicago, Illinois.
"Capital Loans" shall have the meaning set forth in the Intercreditor
Agreement.
"Casati" shall mean ROLAND E. CASATI.
"C/H Partnership" shall mean Casati-Heise Partnership, an Illinois general
partnership.
"Closed Period" shall mean the period beginning on the date hereof and
ending on April 30, 2000.
"Commercium" shall mean that portion of the Property used as a restaurant,
health club, spa and related facilities.
"Collateral" shall mean all real and personal property encumbered by the
Loan Documents including proceeds thereof.
"Default Rate" shall mean an annual rate of 11.22% calculated on the basis
of a 360-day year.
"Default Rate Interest" shall mean Interest calculated at the Default Rate.
"Deferred Amount" shall mean the amount by which $540,656.41 exceeds the
Required Monthly Payment. Deferred Payments shall bear interest at the Default
Rate from the due date of the applicable Required Monthly Payment until the
Deferred Amount is fully paid ("Deferred Amount Interest").
"Event of Default" shall mean (i) a Payment Default under this Note, (ii)
an Event of Default under and as defined in any of the other Loan Documents or
the Subordinated Loan Documents, or (iii) the failure by Borrower to accept the
Reset Amendment within ten (10) Business Days following the tendering thereof to
Borrower by Lender.
"Gross Revenues" for any period shall mean the sum of the gross rental
receipts and all other receipts and revenues generated during such period by and
from the use and operation of the Property or any part thereof, including base
rental income, percentage rental income, items of expense (including real estate
taxes) passed through and charged to, and/or collected from, tenants, membership
fees, dues, net concession income and other net revenues from the Commercium,
vending machine income, any non-refundable security deposits, charges for space
occupancy, parking revenues, lease termination payments and the proceeds of any
insurance proceeds specifically paid to reimburse Borrower for loss of business
or rental income and not applied by Holder in
2
<PAGE>
reduction of the unpaid principal balance of the Loan; and in connection with
the calculation and determination of Gross Revenues:
(a) Gross Revenues shall be determined in accordance with the cash
basis method of accounting;
(b) Any lease termination payments shall, at the option of Holder, be
included in Gross Revenues for purposes of calculating Net Operating
Income, and available for distribution, in the calendar months to which
they relate (i.e. the termination payment shall be applied in equal amounts
to each month remaining in the term of the lease had there been no
termination) and any advance rental payments shall, at the option of
Holder, be held in the Lock Box Account to be included in Gross Revenues
for purposes of calculating Net Operating Income and distributed in the
calendar month or months to which they relate, and such lease termination
payments and advance rental payments shall be held in the Lock Box Account
pending such inclusion; and
(c) There shall be excluded from the determination of Gross Revenues
(i) proceeds of casualty insurance or condemnation and eminent domain
proceedings and (ii) proceeds of any other indebtedness encumbering the
Property or encumbering other Collateral including Capital Loans.
"Heise" shall mean RICHARD A. HEISE.
"Intercreditor Agreement" shall mean that certain Subordination and
Intercreditor Agreement of even date herewith between Holder and Junior Holder.
"Interest" shall mean interest accruing hereunder at the Interest Rate or
the Default Rate, as applicable.
"Interest Rate" shall mean an annual rate of interest of 7.22% calculated
on the basis of a 360-day year.
"Junior Holder" shall mean the holder of the Subordinated Loan Documents.
"Loan" shall mean the loan evidenced by this Note.
"Loan Documents" shall mean this Note, the Mortgage, the Assignment, and
all other documents, agreements and instruments evidencing, securing or in any
way relating to the Loan, together with all amendments thereto which may
hereafter exist.
"Lock Box Account" shall have the meaning set forth in the Lock Box
Agreement.
3
<PAGE>
"Lock Box Agreement" shall mean that certain 1998 Lock Box and Blocked
Accounts Agreement of even date herewith among LaSalle National Bank, Borrower,
Beneficiary, Holder and Julian, Toft & Downey, Inc.
"Management Agreement" shall mean the Management Agreement dated December
12, 1997 among Beneficiary and Manager, together with the Agreement Pertaining
to Management Agreement of even date herewith among Manager, Beneficiary, and
Holder.
"Manager" shall mean Prime Realty Services, Inc. or other Manager approved
by or designated by Senior Lender pursuant to the Management Agreement.
"Maturity Date" shall mean January 5, 2013.
"Minimum Payment" in respect of a calendar month shall mean the sum of Four
Hundred Sixty-Six Thousand Six Hundred Sixty-Seven Dollars ($466,667).
"Mortgage" shall mean the First Mortgage of even date herewith, made by
Borrower in favor of Holder pertaining to the Property.
"Net Operating Income" shall mean for any period the amount, if any, by
which Gross Revenues for such period exceed Operating Costs for such period.
"Note" shall mean this Promissory Note, together with all amendments hereto
from time to time.
"Operating Costs" for any period shall mean the normal and customary
operating costs of the Property paid during such period by or for the account of
Borrower, all as determined in accordance with the cash basis method of
accounting; provided that:
(a) If the charges are not usual and customary then, to constitute an
allowable Operating Cost, such items must be approved by Holder as being
permitted Operating Costs for purposes of calculating Net Operating Income;
(b) Operating Costs shall include, among other things, bona fide
management fees under the Management Agreement and deposits into the Tax
Reserve Account;
(c) If the period for which Operating Costs is being determined is
other than a full year, annual costs, such as insurance premiums and like
costs shall be allocated ratably to such period;
(d) Operating Costs shall not include:
4
<PAGE>
(i) Any principal, interest or other amounts paid under any
notes secured by liens encumbering the Property or other Collateral,
or any other loan, including the Loan, the Subordinated Loan and any
Capital Loans;
(ii) Leasing commissions, cost of tenant improvements and other
nonrecurring capital items;
(iii) Income taxes;
(iv) Non-cash items, such as depreciation or amortization;
(v) Real estate taxes upon the Property except to the extent
paid with funds of the Borrower in the event that funds accumulated in
the Tax Reserve Account shall be insufficient to pay the same; or
(vi) Costs paid directly by tenants, except to the extent the
amount thereof is included in Gross Revenues;
(e) For the purposes of computing Operating Costs, no fees,
commissions, charges, expenses or other amounts paid to any Affiliated
Entity shall constitute an Operating Cost unless such fees, commissions or
other amounts are bona fide costs and are approved by Holder as a permitted
Operating Cost; and specifically, but without limitation, the term
Operating Costs shall not include without the express written approval of
Holder (i) salaries or other compensation directly or indirectly paid to
Affiliated Entities other than as expressly provided herein, (ii) any
allocation of expenses of employees, agents or independent contractors that
render services or with respect to properties other than the Property, nor
(iii) any expense that is paid from proceeds of the Loan or out of reserves
established out of Gross Revenues or otherwise, the amount of which were
deducted as Operating Costs;
"Outstanding Balance" shall mean, as of the date of calculation, the
outstanding principal balance of this Note, all accrued interest thereon,
whether or not capitalized, and all other amounts due hereunder.
"Outstanding Principal" shall mean the outstanding principal amount hereof.
"Parties" shall mean Borrower, Beneficiary and Holder.
"Payment Default" shall meaning set forth in Section 10 of this Note.
"Prepayment Premium" shall have the meaning set forth in Section 6 of this
Note.
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<PAGE>
"Property" shall have the meaning assigned in the Mortgage to the term
"Mortgaged Property."
"Remaining Adjusted Net Operating Income" shall mean Adjusted Net Operating
Income for a calendar month minus the Required Monthly Payment due in the next
succeeding calendar month.
"Required Deferred Payment" shall mean the lesser of (i) the aggregate of
all unpaid Deferred Amounts plus accrued and unpaid Deferred Amount Interest or
(ii) Remaining Adjusted Net Operating Income.
"Required Monthly Payment" shall mean the sum of (i) the Minimum Payment
plus (ii) the lesser of (a) Seventy-Three Thousand Nine Hundred Eighty-Nine and
41/100 Dollars ($73,989.41), or (b) the Adjusted Net Operating Income for the
preceding month.
"Reset Amendment" shall have the meaning set forth in the Intercreditor
Agreement.
"Reset Date" shall mean April 30, 2005.
"Subordinated Loan" shall mean the loan evidenced by the Subordinated Loan
Documents.
"Subordinated Loan Documents" shall mean the loan documents listed in
SCHEDULE A attached hereto.
"Tax Reserve Account" shall mean the Real Estate Tax Escrow Account created
and maintained pursuant to the Lock Box Agreement.
"Tax Reserve Payment" for any calendar month shall mean the payment made to
the Tax Reserve Account pursuant to the Lock Box Agreement in such month.
2. Terms of Payment.
(a) Borrower shall pay to Holder on May 20, 1998, interest only on the
Outstanding Principal, at the Interest Rate, for the number of days elapsed
from and including the date of advancement of the Loan to and including May
19, 1998; and
(b) Commencing June 20, 1998 and on the twentieth (20th) day of each
calendar month thereafter until the Maturity Date (as defined herein),
Maker shall pay to Holder (i) an installment of principal and interest
accrued on the Outstanding Principal from time to time equal to the
Required Monthly Payment, plus (ii) the Required Deferred Payment; and
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<PAGE>
(c) On the Maturity Date, Borrower shall pay to Holder the entire
Outstanding Principal, together with accrued and unpaid interest thereon at
the Interest Rate chargeable hereunder and any other charges due under this
Note, the Mortgage and the other Loan Documents, and any other amounts due
under or secured by the Mortgage or due under or secured by any of the
other Loan Documents.
Notwithstanding the foregoing, in the event that the due date of any
payment required in this Note is not a Business Day, such payment shall be due
on the next succeeding Business Day, following such due date. Each payment
shall be applied first to accrued interest then to principal. Notwithstanding
the foregoing, any monthly payment or any other payment received by Holder at a
time when an Event of Default exists shall be applied by Holder to the
indebtedness evidenced hereby in such order and manner as Holder may elect. Net
Operating Income and all components thereof shall be subject to audit and review
by Holder and its auditors, at Borrower's expense, and in any such audit and
review, Holder's auditors may adjust and reallocate items of income and expense,
and the timing thereof, as they may deem necessary to accurately present Net
Operating Income and the components thereof on a basis consistent from year to
year or period to period.
3. Maturity. The entire Outstanding Balance hereof and other obligations
payable pursuant to the Mortgage or other Loan Documents shall be due and
payable to Holder on the Maturity Date.
4. Survival of Payment of Obligations. The obligations of Borrower
hereunder shall be secured by the Mortgage and the other Loan Documents and
Collateral and Holder shall be under no obligation to satisfy or otherwise
release the Mortgage and the other recorded Loan Documents until the payment in
full of all amounts payable to Holder under this Note and all other Loan
Documents.
5. Payments. All payments on account of the Loan or this Note shall be
made not later than noon (Chicago time) on the day when due in lawful money of
the United States in same day or other immediately available funds and are
payable at Holder's office as set forth above, or at such other place as Holder
shall notify the Borrower in writing.
6. Prepayment. No portion of the principal of the Loan may be prepaid
prior to the end of the Closed Period. Thereafter, the Loan may be prepaid in
full but not in part upon no less than thirty (30) days prior written notice to
Holder and payment to Holder in immediately available funds of all amounts due
hereunder and under the Loan Documents plus the Prepayment Premium calculated in
accordance with SCHEDULE B attached hereto (the "Prepayment Premium"). Except as
may be otherwise provided by the terms of the Loan Documents, Prepayment Premium
shall be payable upon any unscheduled payment of principal which occurs prior to
thirty (30) days prior to the Maturity Date, whether before or after an Event of
Default, whether or not the indebtedness evidenced hereby shall have been
accelerated, whether such unscheduled payment of the principal is made before or
after the
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<PAGE>
commencement of foreclosure proceedings or for any other reason, which
Prepayment Premium shall be paid in addition to the principal and interest then
due and payable and all other amounts owing to Holder under the Loan Documents
and secured by the Mortgage. In the event of an acceleration of the
indebtedness under this Note during the Closed Period, the Prepayment Premium
then due shall be the amount calculated pursuant to SCHEDULE B plus two percent
(2%) of the Outstanding Principal. Notwithstanding the foregoing provisions of
this Section 6, prepayment of the Loan shall be permitted without Prepayment
Penalty to the extent insurance proceeds or eminent domain awards and
compensation are to be or may (at the option of Senior Lender) be applied to the
Loan pursuant to the Mortgage.
7. Reset. Pursuant to the Intercreditor Agreement, the payment and other
terms of this Note will be reset effective on the Reset Date upon the execution
and delivery to Borrower by Junior Holder and Holder of a Reset Amendment
setting forth the terms of this Note for the period on and following the Reset
Date. Borrower irrevocably agrees to countersign and accept such Reset Amendment
provided that in no event shall the Minimum Payment be increased nor shall the
Interest Rate exceed the greater of (i) twenty-five percent (25%) per annum, or
(ii) that annual rate which when multiplied by the Outstanding Principal would
yield a smaller product than an annual rate of twelve and one-half percent (12-
1/2%) multiplied by the outstanding balance (including principal, capitalized
interest and accrued and unpaid interest) of the Subordinated Loan.
8. Application of Payments.
(a) All payments received by Holder under the Loan shall be applied
first to interest and the balance to principal; and
(b) Notwithstanding anything to the contrary herein contained, in the
event that there shall have occurred an Event of Default under the
Mortgage, Holder, in its discretion, may apply any payment under this Note
to such amounts due hereunder and under the Loan Documents and in such
order as Holder may determine.
9. Late Payment. In the event Borrower fails to make any payment due
under this Note, within five (5) days after the same shall become due, whether
by acceleration of payment or otherwise, Holder, in addition to its rights set
forth in Section 10 hereof, may at its option impose a late charge on Borrower,
payable upon demand, equal to the greater of:
(a) The amount resulting from applying the rate of Default Rate
Interest, computed from the date such payment was due and payable to the
date of receipt of such payment by Holder in good and immediately available
funds, or
(b) An amount equal to four percent (4%) of the amount of such past
due payment notwithstanding the date on which such payment is actually paid
to Holder.
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<PAGE>
10. Acceleration of Indebtedness. If the Required Monthly Payment is not
made when due in any month, the Holder may give written notice to the Borrower
stating the deficiency for such month and stating that Borrower will be in
default if the delinquent amount is not paid within ten (10) Business Days. If
Borrower does not pay the delinquent amount before the expiration of the stated
period, it shall be deemed in default under this Note (a "Payment Default").
Upon the occurrence of an Event of Default, then and in any such event, the
Outstanding Principal and all interest accrued thereon and all charges and fees
which are part of the Loan and any other sums advanced by Holder under this Note
and the other Loan Documents shall, at the option of Holder, and without notice,
demand or presentment for payment to Borrower or any other person or entity, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity, anything herein or in the other Loan Documents to
the contrary notwithstanding, all without any relief whatever from any valuation
or appraisement laws and payment thereof may be enforced and recovered in whole
or in part at any time by one or more of the remedies provided to Holder in this
Note, the Mortgage, in any of the other Loan Documents, or by such other rights
and remedies which Holder may have at law, equity or otherwise. Default Rate
Interest shall accrue on the Outstanding Principal from the date of any default
hereunder (so long as such default shall continue), regardless of whether or not
there shall have been an acceleration of the payment of principal as set forth
herein.
11. Security. Payment hereof and all obligations of Borrower and other
parties (other than Holder) to the Loan Documents are secured by the Mortgage
and the other Loan Documents.
12. Expenses and Costs of Collection. Borrower shall pay all costs and
expenses of collection incurred by Holder, in addition to principal, interest
and late or delinquency charges (including, without limitation, court costs and
reasonable attorneys' fees and disbursements through and including any appellate
proceedings and any special proceedings) and including all costs and expenses
incurred in connection with the pursuit by Holder of any of its rights or
remedies referred to herein or the protection of or realization of collateral or
in connection with any of Holder's collection efforts, whether or not suit on
this Note, on any of the other Loan Documents or any foreclosure proceeding is
filed, and all such costs and expenses shall be payable on demand and also shall
be secured by the Mortgage and all other collateral at any time held by Holder
as security for Borrower's obligations to Holder.
13. No Waiver or Oral Modification. It is agreed that:
(a) No failure on the part of Holder to exercise any right or remedy
hereunder, whether before or after the happening of a default, shall
constitute a waiver of such default, any future default or of any other
default;
(b) No failure to accelerate the debt evidenced hereby by reason of
default hereunder, or acceptance of a past due installment, or indulgence
granted from time to time shall be construed to be a waiver of the right to
insist
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<PAGE>
upon prompt payment or to impose late or delinquency charges thereafter or
to impose such charges retroactively, nor shall it be deemed to be a
novation by Holder of this Note or as a reinstatement by Holder of the debt
evidenced hereby or as a waiver of such right of acceleration or any other
right, nor be construed so as to preclude the exercise of any right which
Holder may have, whether by the laws of the state governing this Note, by
agreement or otherwise, and Borrower and each endorser hereby expressly
waives the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing; and
(c) This Note may not be changed orally, but only by an agreement in
writing signed by the party against whom such agreement is sought to be
enforced.
14. Waiver of Certain Notices. To the fullest extent permitted under
applicable law, Borrower, for itself and its successors and assigns, and each
endorser, if any, of this Note, for its heirs, successors and assigns, hereby
waives presentment, protest, notice of protest, demand, diligence, notice of
dishonor and of nonpayment, and waives and renounces all rights to the benefits
of any statute of limitations and any moratorium, appraisement, exemption and
homestead now provided or which may hereafter be provided by any federal or
state statute, including, but not limited to, exemptions provided by or allowed
under any federal or state bankruptcy or insolvency laws, both as to itself and
as to all of its property, whether real or personal, against the enforcement and
collection of the obligations evidenced by this Note and any and all extensions,
renewals and modifications hereof, provided the foregoing waiver shall not apply
to any notice required under any express provision of the Senior Loan Documents.
15. Interest Not To Exceed Maximum Permitted By Law. It is the intention
of the parties to conform strictly to the usury and other laws relating to
interest from time to time in force, and all agreements between Borrower and
Holder, whether now existing or hereafter arising and whether oral or written,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by acceleration of maturity hereof or otherwise, shall the amount paid
or agreed to be paid to Holder, or collected by Holder or for the use,
forbearance or detention of the money to be loaned hereunder or otherwise, or
for the payment or performance of any covenant or obligation contained herein,
in the Mortgage or in the Assignment, any other Loan Documents or in any other
security agreement given to secure the indebtedness of Borrower to Holder, or in
any other document heretofore, now or hereafter evidencing, securing or
pertaining to the indebtedness evidenced hereby, exceed the maximum amount
permissible under applicable usury or such other laws (the "Maximum Amount");
and without limiting the foregoing:
(a) If under any circumstances whatsoever fulfillment of any provision
hereof or of the Mortgage, or any of the other Loan Documents, at the time
performance of such provision shall be due, shall involve transcending
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<PAGE>
the Maximum Amount, then ipso facto, the obligation to be fulfilled shall
be reduced to the Maximum Amount;
(b) For the purposes of calculating the actual amount of interest paid
and/or payable hereunder, in respect of laws pertaining to usury or such
other laws, all sums paid or agreed to be paid to the holder hereof for the
use, forbearance or detention of the indebtedness of Borrower evidenced
hereby, outstanding from time to time shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread from the date
of disbursement of the proceeds of this Note until payment in full of all
of such indebtedness, so that the actual rate of interest on account of
such indebtedness is uniform through the term hereof; and
(c) The terms and provisions of this Section 15 and Section 16 hereof
shall control and supersede every other provision of all agreements between
Borrower or any endorser and Holder.
16. Payment in Excess of Maximum Amount. If under any circumstances
Holder shall ever receive an amount deemed interest by applicable law, which
would exceed the Maximum Amount, such amount that would be excessive interest
under applicable usury laws or such other laws shall be deemed a payment in
reduction of the Outstanding Principal and shall be so applied or shall be
applied to the principal amount of other indebtedness secured by the Mortgage
and not the payment of interest, or if such excessive interest exceeds the
Outstanding Principal, and any other indebtedness of Borrower in favor of
Holder, the excess shall be deemed to have been a payment made by mistake and
shall be refunded to Borrower or to any other person making such payment on
Borrower's behalf.
17. Governing Law and Consent to Jurisdiction. Borrower and Holder
agree that, in all respects, including all matters of construction and
performance, the obligations arising under this Note shall be governed by and
construed in accordance with the laws of the State of Illinois. Borrower does
hereby irrevocably and unconditionally submit to the personal jurisdiction of
the courts of the State of Illinois and does further irrevocably and
unconditionally stipulate and agree that the Federal Courts in the State of
Illinois shall (in addition to any jurisdiction of courts of which Holder may
elect to avail itself) have jurisdiction to hear and finally determine any
dispute, claim, controversy or action arising out of or connected (directly or
indirectly) with the Loan and the Loan Documents. Borrower does hereby agree
that final judgments in any action or proceedings shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by law. Nothing in this Note shall affect the right of Holder to
bring an action or proceeding against the undersigned or its property in the
courts of any other jurisdiction. To the extent that Borrower has or hereafter
may acquire any immunity from jurisdiction of any court from legal process
(whether through service or notice, attachment prior to judgment, attachment and
aid of execution, execution or otherwise), with respect to the Borrower's
property, Borrower hereby unconditionally and irrevocably waives such immunity
in respect
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<PAGE>
of its obligations under the Loan and the Loan Documents. The foregoing consent,
in advance, to the jurisdiction of the above-mentioned courts is a material
inducement for Holder to make the Loan.
18. No Joint Venture; Indemnity. Borrower and Holder intend that the
relationship created under this Note, the Mortgage, and all other Loan Documents
be solely that of debtor and creditor or mortgagor and mortgagee, as the case
may be. Nothing herein or in the Mortgage is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship among Borrower
and/or Beneficiary and Holder, nor to grant Holder any interest in the Property
other than that of creditor or mortgagee, it being the intent of the parties
hereto that Holder shall have no liability whatsoever for any losses generated
by or incurred with respect to the Property nor shall Holder have any control
over the day to day management for operations of the Property. The terms and
provisions of this Section shall control and supersede over every other
provision and all other agreements among Borrower, Beneficiary and Holder.
Borrower hereby agrees to indemnify and hold Holder harmless and defend Holder
against any loss or liability, cost or expense (including, without limitation,
reasonable attorneys' fees and disbursements) and all claims, actions,
procedures and suits arising out of or in connection with any construction of
the relationship of Borrower and Holder as that of joint ventures, partners,
tenants in common, joint tenants or any relationship other than that of debtor
and creditor, or any assertion that such a construction should be made, and
arising out of a claim, assertion or litigation directly or indirectly brought
by, or on behalf of Borrower or Beneficiary, its partners or their partners.
The foregoing indemnity shall survive the repayment of this Note and the
satisfaction of the Mortgage and shall continue so long as any liability for
which the indemnity is given may exist or arise.
19. Time of Essence. Time is of the essence of this Note and of each
provision in which time is an element.
20. Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF EITHER PARTY: THIS WAIVER BEING A MATERIAL INDUCEMENT FOR HOLDER TO
ACCEPT THIS NOTE.
21. Date of Performance. If the date for the performance of any term,
provision or condition (monetary or otherwise) under this Note shall happen to
fall on a Saturday, Sunday or non-Business Day, the date for the performance of
such term, provision or condition shall, at the option of Borrower or Holder, be
extended to the next succeeding Business Day immediately thereafter occurring,
with interest on the Outstanding Principal at
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<PAGE>
the Interest Rate provided in this Note to such next succeeding Business Day if
such term, provision or condition shall result in the extension of any monetary
payment due to Holder.
22. Receipt of Payment. Any payment which is made by wire transfer or
other immediately available funds and which is actually received by Holder prior
to 2:00 p.m. shall be deemed to have been received and cleared by Holder on the
date of receipt.
23. Binding upon Successors and Assigns. The provisions of this Note
shall bind Borrower and its successors and assigns; provided, however, that
nothing herein shall be construed as permitting Borrower to take any action in
violation of the Mortgage.
24. Disclaimer. The Loan Documents are intended solely for the benefit of
Borrower and Holder and their successors and assigns; no third party shall have
any rights or interest in any provisions of the Loan Documents or as a result of
any action or inaction of Holder in connection therewith. Any actions taken by
Holder or any representative of Holder (to review plans and specifications, to
inspect the Property or otherwise) are solely for Holder's protection and
neither the Borrower nor any other person shall be entitled to rely upon any
such action.
25. Prior Agreements. The Loan Documents supersede and cancel all prior
loan applications, commitments, agreements and understandings, whether oral or
written, with respect to the Loan, and all prior agreements and understandings
are merged into the Loan Documents.
26. Severability. Wherever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
27. Consent to Extensions and Releases of Collateral. The Borrower and
any endorsers, sureties, guarantors and all others who are or may become liable
for the payment hereof (a) expressly consent to all extensions of time,
renewals, postponements of time of payment of this Note or other modifications
hereof from time to time (other than modifications which increase the amount of
the Loan or cause Borrower to incur expenditures) prior to or after the Maturity
Date without notice, consent or consideration to any of the foregoing, (b)
expressly agree to any substitution, exchange, addition or release of any party
or person primarily or secondarily liable hereon, and (c) expressly agree that
Holder shall not be required first to institute any suit, or to exhaust its
remedies against the undersigned or any other person or party to become liable
hereunder or against the other Loan Documents in order to enforce the payment of
this Note.
28. Notices. All notices and other communications required or permitted
to be made or given pursuant hereto by one party to another shall in each case
be in writing (except where oral or telephone notice is specifically permitted
pursuant to the provisions
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<PAGE>
hereof or of any other Loan Document) and shall be deemed effectively made or
given when personally delivered, when transmitted by telecopier (with written
confirmation by certified mail, postage prepaid, return receipt requested on the
date the telecopy is sent) on the Business Day next following prepaid delivery
to an overnight messenger service (such as, by way of example, Federal Express
Company, or equivalent) or three (3) days after having been deposited in the
United States Mail, postage prepaid, certified mail, return, receipt requested,
address as follows, or at such other address as the parties may from time to
time by notice direct.
If to Borrower: c/o Continental Towers Associates-I, L.P.
c/o CTA Partner, L.L.C.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Richard S. Curto
Fax: (312) 917-4230
with copy to: Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
Fax: (312) 558-5700
if to Holder: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Investment Services, S-319
Fax: (860) 726-6328
with a copy to: Goldberg, Kohn, Bell, Black,
Rosenbloom & Moritz, Ltd.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Stephen B. Bell
Fax: (312) 332-2196
29. Limitation of Liability. The undersigned has executed this instrument
solely in its capacity as trustee, and not personally. No personal liability
shall be asserted against the trustee, personally, arising out of this
instrument, it being understood and agreed that all such liability shall be
limited to Holder's rights against (i) the Beneficiary to the extent herein
provided, (ii) the Property, including the Assignment, and/or (iii) any other
security given for repayment of the Loan. Neither Beneficiary nor any of the
general partners of
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Beneficiary (collectively called the "Obligated Parties") shall under any
circumstances be personally liable for the repayment of any of the principal of,
interest on, or prepayment fees or late charges, or other charges or fees,
including, without limitation, attorneys' fees, due in connection with, the Loan
or for any deficiency judgment which Holder may obtain after foreclosure of the
Mortgage after default by Borrower; provided, however, that the Obligated
Parties shall be personally liable to the extent more fully provided in the
Mortgage. Nothing herein shall be deemed to be a waiver of any right which
Holder may have under Sections 506(a), 506(b), 1111(b) or any other provision of
the Bankruptcy Reform Act of 1978 or any successor thereto or similar provisions
under applicable state law to file a claim for the full amount of the debt owing
to Holder by Borrower or to require that all collateral shall continue to secure
all of the indebtedness owing to Holder in accordance with the Loan Documents.
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IN WITNESS WHEREOF, Borrower has executed this instrument by its duly
authorized signatories on the date first above written.
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, a national banking
association, not personally, but
solely as trustee under trust
agreement dated July 26, 1977 and
known as Trust No. 40935
By [illegible]
------------------------------
Its TRUST OFFICER
------------------------------
ATTEST:
Attestation not required by American
National Bank and Trust Company of
Chicago Bylaws
- ------------------------------------
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, a national banking
association, as successor trustee to
First Bank, N.A., as successor trustee
to National Boulevard Bank of Chicago,
not personally, but solely as trustee
under trust agreement dated September
27, 1976 and known as Trust No. 5602
By [illegible]
------------------------------
Its TRUST OFFICER
------------------------------
ATTEST:
Attestation not required by American
National Bank and Trust Company of
Chicago Bylaws
- ------------------------------------
This instrument is executed by the undersigned
Land Trustee, not personally but solely as Trustee
in the exercise of the power and authority
conferred upon and vested xxxxxxxxxx Trustee it is
expressly understood and xxxxxxxxxx warranties,
indemnities, representations, xxxxxxxxxxxxx takings
and agreements herein made on the xxxxxxxxxx
Trustee are undertaken by it solely in its capacity
xxxxxxxxx and not personally. No personal liability
or xxxxxxxxxx responsibility is assumed by or shall
at any time be xxxxxxxxx enforceable against the
Trustee on account of any warranty, indemnity,
representation, covenant, undertaking or agreement
of the Trustee in this instrument.
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SCHEDULE A
SUBORDINATED LOAN DOCUMENTS
1. Loan Modification and Amended and Restated Loan Agreement dated as of
June 1, 1995 (as amended, the "JUNIOR LOAN AGREEMENT"), by and among American
National Bank and Trust Company of Chicago, not personally, but as Trustee of
Trust No. 40935 ("TRUST 40935"), Continental Towers Associates - I ("CTA"),
Roland E. Casati ("CASATI"), Richard E. Heise ("HEISE"), Casati-Heise
Partnership ("C/H") and General Electric Capital Corporation ("GECC"), which was
recorded in the office of the Recorder of Deeds, Cook County, Illinois
("RECORDER'S OFFICE") on August 17, 1995 as Doc. No. 95545031.
2. First Amendment to Loan Modification and Amended and Restated Loan
Agreement by and among Trust 40935, CTA, Casati, Heise, C/H and GECC, which was
recorded in the Recorder's Office on December 17, 1997 as Document No. 97947240.
3. Amended and Restated First Mortgage dated as of October 1, 1991 from
Trust 40935 and joined in by C/H to GECC and recorded in the Recorder's Office
as Document No. 92001888, as amended by the First Amendment and the Second
Amendment (together with the Supplemental Mortgage and as either has been
amended, the "JUNIOR MORTGAGE").
4. Assignment of Leases and Rents dated as of October 1, 1991, from Trust
40935 and joined in by C/H to GECC and recorded in the Recorder's Office as
Document 92001889, as amended by the First Amendment and the Second Amendment.
5. First Amendatory Agreement dated as of April 30, 1993 (the "FIRST
AMENDMENT") executed and delivered by and among the Parties, which First
Amendment was duly filed for record and recorded in the Recorder's Office as
Document No. 93-434372 on June 9, 1993.
6. Second Amendatory Agreement dated as of November 1, 1994 (the "SECOND
AMENDMENT") executed and delivered by and among the Parties, which Second
Amendment was duly filed for record and recorded in the Recorder's Office as
Document No. 94084292, on December 30, 1994.
7. Supplemental First Mortgage and Security Agreement dated June 1, 1995,
from First Bank, N.A. as successor trustee to National Boulevard Bank of
Chicago, not personally, but solely as Trustee of Trust No. 5602 ("TRUST 5602"),
with joinder by CTA, in favor of GECC, which was recorded in the Recorder's
Office on August 17, 1995 as Doc. No. 95545032 (the "SUPPLEMENTAL MORTGAGE").
<PAGE>
8. 1997 Promissory Note ("1997 PROMISSORY NOTE") dated October 1, 1991
Amended and Restated as of the Effective Date December 12, 1997 in the amount of
$163,103,099.24 made by Trust 40935 in favor of GECC.
9. Hazardous Substances Indemnity Agreement dated as of October 1, 1991,
as amended by the Loan Agreement.
10. All UCC financing statements executed in connection with any of the
foregoing.
11. 1998 Agreement of even date herewith among Mortgagor, Beneficiary and
Prime.
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SCHEDULE B
PREPAYMENT PREMIUM
Prepayment Premium is defined as the greater of (A) 1% of the Outstanding
Principal or (B) the sum of the Present Values (defined below) on the date of
repayment of each Monthly Interest Shortfall (defined below) for the period
commencing on the date of repayment of the Outstanding Principal and ending on
the Seventh Anniversary (or, if the Reset Terms have been accepted, ending on
the Maturity Date) (as applicable, the "TERM") discounted at the monthly
Treasury Yield plus 50 basis points.
The Monthly Interest Shortfall is calculated for each monthly scheduled payment
date and is the product of (i) the positive difference, if any, of the Semi-
Annual Equivalent Rate less the Treasury Yield plus 50 basis points, divided by
12 times (ii) the Outstanding Principal on the first day of the month for which
the calculation is made for each full and partial month remaining in the Term.
The Present Value is then determined by discounting each Monthly Interest
Shortfall at the Treasury Yield plus 50 basis points divided by twelve.
FOR EXAMPLE: If an investment with an Interest Rate of 9% were prepaid with 24
months remaining in the Term, at a time when Federal Reserve Statistical Release
H.15(519) reported a two-year Treasury Yield of 6.5%, and the outstanding loan
balance was $10,000,000 then:
<TABLE>
<S> <C>
Semi-Annual Equivalent Rate .0917
Less the Treasury Yield plus 50 basis points (.0700)
-----
Equals the positive rate difference divided by 12 .0217
Equals the monthly rate difference .001808
Times the Outstanding Principal x $10,000,000
-----------
Equals the monthly interest shortfall $18,080.00
</TABLE>
The sum of the Present Values of each Monthly Interest Shortfall ($18,080)
discounted at the monthly Treasury Yield plus 50 basis points (7% divided by 12
or .58333%) equals $403,818.60.
The "SEMI-ANNUAL EQUIVALENT RATE" in respect of the Interest Rate of 7.22% is
7.329%.
The "TREASURY YIELD" will be determined by reference to Federal Reserve
Statistical Release H.15(519) of Selected Interest Rates (or any similar
successor publication of the Federal Reserve) for the first week ending not less
than two full weeks prior to the prepayment date. If the remaining Term is less
than one year, the Treasury Yield will equal the yield for 1-Year Treasury
Constant Maturities. If the remaining Term is equal to one of the maturities of
the Treasury Constant Maturities (e.g., 1 year, 2-year, etc.), then the Treasury
Yield will equal the yield for the Treasury Constant Maturity with a maturity
equaling the remaining Term. If the remaining Term is longer than one year but
does not equal one of the maturities of the Treasury Constant Maturities,
<PAGE>
then the Treasury Yield will equal the yield for the Treasury Constant Maturity
closest to but not exceeding the remaining Term.
Notwithstanding the foregoing, if the event giving rise to the payment of
Prepayment Premium occurs during the Closed Period, the Prepayment Premium
calculated pursuant to the foregoing provisions of this Schedule B shall be
increased by an amount equal to 2% of the Outstanding Principal.
-2-
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
The Company has direct or indirect interests in the following entities:
Domestic
NAME Jurisdiction
- ---- ------------
- -------------------------------------------------------------------
Prime Group Realty, L.P. Delaware
- -------------------------------------------------------------------
Prime Group Realty Services, Inc. Maryland
- -------------------------------------------------------------------
77 West Wacker Limited Partnership Illinois
- -------------------------------------------------------------------
Nashville Office Building I, Ltd. Tennessee
- -------------------------------------------------------------------
Professional Plaza, Ltd. Tennessee
- -------------------------------------------------------------------
Old Kingston Properties, Ltd. Tennessee
- -------------------------------------------------------------------
Centre Square II, Ltd. Tennessee
- -------------------------------------------------------------------
Triad Parking Company, Ltd. Tennessee
- -------------------------------------------------------------------
Hammond Enterprise Center Limited Partnership Illinois
- -------------------------------------------------------------------
East Chicago Enterprise Center Limited Partnership Illinois
- -------------------------------------------------------------------
Enterprise Center I, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center II, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center III, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center IV, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center V, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center VI, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center VII, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center VIII, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center IX, L.P. Illinois
- -------------------------------------------------------------------
Enterprise Center X, L.P. Illinois
- -------------------------------------------------------------------
Arlington Heights I, L.P. Illinois
- -------------------------------------------------------------------
Arlington Heights II, L.P. Illinois
- -------------------------------------------------------------------
<PAGE>
Domestic
NAME Jurisdiction
- ---- ------------
- -------------------------------------------------------------------
Arlington Heights III, L.P. Illinois
- -------------------------------------------------------------------
77 Fitness Center, Ltd. Illinois
- -------------------------------------------------------------------
1990 Algonquin Road, L.L.C. Delaware
- -------------------------------------------------------------------
2010 Algonquin Road, L.L.C. Delaware
- -------------------------------------------------------------------
555 Huehl Road, L.L.C. Delaware
- -------------------------------------------------------------------
1699 E. Woodfield Road, L.L.C. Delaware
- -------------------------------------------------------------------
475 Superior Avenue, L.L.C. Delaware
- -------------------------------------------------------------------
Enterprise Drive, L.L.C. Delaware
- -------------------------------------------------------------------
280 Shuman Blvd., L.L.C. Delaware
- -------------------------------------------------------------------
2675 N. Mayfair Road, L.L.C. Delaware
- -------------------------------------------------------------------
Prime Columbus Industrial, L.L.C. Delaware
- -------------------------------------------------------------------
Libertyville Tech Way, L.L.C. Delaware
- -------------------------------------------------------------------
801 Technology Way, L.L.C. Delaware
- -------------------------------------------------------------------
3818 Grandville, L.L.C. Delaware
- -------------------------------------------------------------------
306 Era Drive, L.L.C. Delaware
- -------------------------------------------------------------------
1301 Ridgeview Drive, L.L.C. Delaware
- -------------------------------------------------------------------
515 Huehl Road, L.L.C. Delaware
- -------------------------------------------------------------------
455 Academy Drive, L.L.C. Delaware
- -------------------------------------------------------------------
1051 N. Kirk Road, L.L.C. Delaware
- -------------------------------------------------------------------
4211 Madison Street, L.L.C. Delaware
- -------------------------------------------------------------------
200 E. Fullerton, L.L.C. Delaware
- -------------------------------------------------------------------
350 Randy Road, L.L.C. Delaware
- -------------------------------------------------------------------
4300 Madison Street, L.L.C. Delaware
- -------------------------------------------------------------------
370 Carol Lane, L.L.C. Delaware
- -------------------------------------------------------------------
388 Carol Lane, L.L.C. Delaware
- -------------------------------------------------------------------
941 Weigel Drive, L.L.C. Delaware
- -------------------------------------------------------------------
<PAGE>
Domestic
NAME Jurisdiction
- ---- ------------
- -------------------------------------------------------------------
342 Carol Lane, L.L.C. Delaware
- -------------------------------------------------------------------
343 Carol Lane, L.L.C. Delaware
- -------------------------------------------------------------------
371 N. Gary Avenue, L.L.C. Delaware
- -------------------------------------------------------------------
350 N. Mannheim Road, L.L.C. Delaware
- -------------------------------------------------------------------
1600 167th Street, L.L.C. Delaware
- -------------------------------------------------------------------
1301 E. Tower Road, L.L.C. Delaware
- -------------------------------------------------------------------
4343 Commerce Court, L.L.C. Delaware
- -------------------------------------------------------------------
11039 Gage Avenue, L.L.C. Delaware
- -------------------------------------------------------------------
11045 Gage Avenue, L.L.C. Delaware
- -------------------------------------------------------------------
1401 S. Jefferson, L.L.C. Delaware
- -------------------------------------------------------------------
4100 Madison Street, L.L.C. Delaware
- -------------------------------------------------------------------
4160 Madison Street, L.L.C. Delaware
- -------------------------------------------------------------------
550 Kehoe Blvd., L.L.C. Delaware
- -------------------------------------------------------------------
Prime/Beilter Development Company, L.L.C. Delaware
- -------------------------------------------------------------------
Michigan - Adams, L.L.C. Delaware
- -------------------------------------------------------------------
Phoenix Office, L.L.C. Delaware
- -------------------------------------------------------------------
2100 Swift Drive, L.L.C. Delaware
- -------------------------------------------------------------------
LaSalle - Adams, L.L.C. Delaware
- -------------------------------------------------------------------
Wilke - Ventura, L.L.C. Delaware
- -------------------------------------------------------------------
33 N. Dearborn, L.L.C. Delaware
- -------------------------------------------------------------------
33 N. Dearborn SPC, Inc. Delaware
- -------------------------------------------------------------------
6400 Shafer Court, L.L.C. Delaware
- -------------------------------------------------------------------
PGR Finance I, Inc. Delaware
- -------------------------------------------------------------------
PGR Finance II, Inc. Delaware
- -------------------------------------------------------------------
PGR Finance III, Inc. Delaware
- -------------------------------------------------------------------
PGR Finance IV, Inc. Delaware
- -------------------------------------------------------------------
<PAGE>
Domestic
NAME Jurisdiction
- ---- ------------
- -------------------------------------------------------------------
PGR Finance V, Inc. Delaware
- -------------------------------------------------------------------
PGR Finance VI, Inc. Delaware
- -------------------------------------------------------------------
PGR Finance VII, Inc. Delaware
- -------------------------------------------------------------------
<PAGE>
EXHIBIT 23.4
CONSENT OF ROSEN CONSULTING GROUP
To Prime Group Realty Trust:
In connection with Prime Group Realty Trust's public offering of
5,750,000 cumulative redeemable preferred shares of beneficial interest, we
hereby consent (i) to the use of our report, "Economic, Office and Industrial
Market Trends in Chicago, Nashville, Knoxville, Milwaukee and Columbus", dated
May 26, 1998, in the Company's Registration Statement on Form S-11 initially
filed with the Securities and Exchange Commission (the "SEC") on May 1, 1998, as
amended by Amendment No. 1 thereto filed with the SEC on May 14, 1998, Amendment
No. 2 thereto filed with the SEC on May 20, 1998 and Amendment No. 3 thereto
filed with the SEC on May 29, 1998 (as so amended, the "Registration
Statement"), (ii) to all references to our firm included in or made a part of
the Registration Statement and (iii) to the reference to our firm as experts in
the Section under the caption "Experts" in the Registration Statement.
Sincerely,
ROSEN CONSULTING GROUP
/s/ KENNETH T. ROSEN
------------------------------
By: Kenneth T. Rosen
Its: President
Berkeley, California
May 29, 1998
<PAGE>
EXHIBIT 99.1
________________________________________________________________________________
ECONOMIC, OFFICE AND
INDUSTRIAL MARKET TRENDS IN
CHICAGO, COLUMBUS, KNOXVILLE,
MILWAUKEE AND NASHVILLE
May 26, 1998
Prepared for
PRIME GROUP REALTY TRUST
by
Rosen Consulting Group
1995 University Avenue, Suite 550
Berkeley, CA 94704
(510) 549-4510
(C) 1998 Rosen Consulting Group
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
CHICAGO METROPOLITAN ECONOMY............................................ 1
Economic Overview.................................................. 1
Forecasted Employment.............................................. 8
CHICAGO OFFICE MARKET................................................... 10
Overview........................................................... 10
Metropolitan Office Market Trends.................................. 10
The Downtown Office Market....................................... 12
Central Loop Submarket........................................... 15
East Loop Submarket.............................................. 17
Other Downtown Submarkets........................................ 18
Suburban Office Market............................................. 19
East-West Tollway Submarket...................................... 22
Northwest Suburbs Submarket...................................... 25
O'Hare Submarket................................................. 28
CHICAGO INDUSTRIAL MARKET............................................... 30
Overview........................................................... 30
Demand Factors..................................................... 30
Historical Trends.................................................. 30
Warehouse/Distribution Submarket................................. 32
Manufacturing Submarket.......................................... 33
Overhead Crane Submarket......................................... 34
COLUMBUS METROPOLITAN ECONOMY........................................... 35
Economic Overview.................................................. 35
Forecasted Employment.............................................. 39
COLUMBUS INDUSTRIAL MARKET.............................................. 40
</TABLE>
Rosen Consulting Group i
<PAGE>
<TABLE>
<S> <C>
KNOXVILLE METROPOLITAN ECONOMY.......................................... 42
Economic Overview.................................................. 42
Forecasted Employment.............................................. 45
KNOXVILLE OFFICE MARKET................................................. 46
MILWAUKEE METROPOLITAN ECONOMY.......................................... 47
Economic Overview.................................................. 47
Forecasted Employment.............................................. 51
MILWAUKEE OFFICE MARKET................................................. 52
NASHVILLE METROPOLITAN ECONOMY.......................................... 54
Economic Overview.................................................. 54
Forecasted Employment.............................................. 58
NASHVILLE OFFICE MARKET................................................. 59
</TABLE>
ii
Rosen Consulting Group
<PAGE>
Chicago Metropolitan Economy
Economic Overview
Chicago's employment base is the largest in the nation with more than 4.1
million jobs (see Exhibit 1.1). Chicago was one of the fastest-growing
metropolitan areas over the last five years, second only to Atlanta in terms of
the number of jobs added to its employment base (see Exhibit 1.2). Growth has
remained strong during the last year. The metropolitan area added 67,000 jobs
during 1997 for a 1.7% growth rate (see Exhibit 1.3). Growth accelerated to 2.1%
between February of 1997 and 1998. As a result, Chicago ranked fifth, behind
only Los Angeles, Dallas, Houston, and Atlanta in terms of jobs added during the
past twelve months. In addition, the Chicago metropolitan area has a relatively
high median household income, registering $65,648 in 1997, 35.3% above the
national average.
EXHIBITS 1.1 AND 1.2
[BAR CHART APPEARS HERE]
Total Employment as of December 1997
Top Five MSAs
Jobs (000)s
-----------
Chicago 4,114.0
New York 4,006.5
LA 3,958.9
Washington 2,524.9
Philadelphia 2,303.1
Source: Bureau of Labor Statistics
[BAR CHART APPEARS HERE]
Fastest Growing MSAs 1992 to 1997
in Absolute Terms (000 jobs)
Jobs (000)s
-----------
Atlanta 425.4
Chicago 409.2
Phoenix 397.7
Dallas 365.6
Houston 283.1
Source: Bureau of Labor Statistics
Rosen Consulting Group 1
<PAGE>
Exhibit 1.3
Nonagricultural Payroll Employment by Sector
Chicago, IL MSA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural Employment 3,648.6 3,724.9 3,810.2 3,908.5 3,969.8 4,037.1 4,012.9
% Change -0.1% 2.1% 2.3% 2.6% 1.6% 1.7% 2.1%
Construction 134.9 138.3 139.4 147.6 153.5 158.8 142.5
% Change -6.9% 2.5% 0.8% 5.9% 4.0% 3.5% 5.2%
Manufacturing 628.2 637.5 649.4 653.6 654.2 657.5 659.0
% Change -1.9% 1.5% 1.9% 0.6% 0.1% 0.5% 1.1%
Durable Goods 348.1 354.9 366.6 372.5 375.0 378.5 379.5
% Change 17.8% 2.0% 3.3% 1.6% 0.7% 0.9% 1.2%
Fabricated Metal Products 69.4 71.1 73.6 75.3 75.3 76.1 76.7
% Change 14.7% 2.4% 3.5% 2.3% 0.0% 1.1% 1.5%
Industrial Machinery & Equipment 72.6 76.1 79.1 82.8 87.0 88.6 88.5
% Change 28.0% 4.8% 3.9% 4.7% 5.1% 1.8% 0.5%
Metal Working Machinery 21.5 22.3 22.6 22.3 22.3 22.4 22.6
% Change 4.4% 3.7% 1.3% -1.3% 0.0% 0.4% 0.0%
Electrical & Other Elec. Equipment 84.0 86.2 92.9 97.3 95.5 96.4 97.1
% Change 11.7% 2.6% 7.8% 4.7% -1.8% 0.9% 2.0%
Electrical Components & Accessories 20.5 22.0 23.4 24.8 24.5 24.4 24.6
% Change 21.3% 7.3% 6.4% 6.0% -1.2% -0.4% 2.1%
Nondurable Goods 280.1 282.6 282.7 281.1 279.3 278.9 279.5
% Change 21.2% 0.9% 0.0% -0.6% -0.6% -0.1% 0.9%
Paper & Allied Products 24.7 24.5 25.8 27.4 27.2 27.1 27.2
% Change 17.1% -0.8% 5.3% 6.2% -0.7% -0.4% 0.4%
Paperboard Containers 14.1 14.1 15.4 16.8 16.0 15.8 15.9
% Change 11.0% 0.0% 9.2% 9.1% -4.8% -1.2% 1.3%
Printing and Publishing 78.9 79.9 79.2 77.0 76.3 75.9 75.8
% Change 7.9% 1.3% -0.9% -2.8% -0.9% -0.5% 0.3%
Commercial Printing 28.0 28.5 28.3 28.0 28.1 28.1 27.9
% Change 8.5% 1.8% -0.7% -1.1% 0.4% 0.0% 0.0%
Chemical & Allied Products 54.1 53.3 51.4 50.9 50.8 50.2 50.1
% Change 63.0% -1.5% -3.6% -1.0% -0.2% -1.2% 1.2%
Rubber & Misc. Plastic Products 40.7 42.3 44.0 44.2 43.2 43.2 43.2
% Change 33.9% 3.9% 4.0% 0.5% -2.3% 0.0% -0.5%
Misc. Plastic Products 32.8 34.5 36.2 36.2 35.3 35.3 35.3
% Change 43.2% 5.2% 4.9% 0.0% -2.5% 0.0% -0.8%
Transportation, Communications, & P.U 221.8 226.0 233.6 236.5 245.1 247.9 250.3
% Change -0.5% 1.9% 3.4% 1.2% 3.6% 1.1% 2.0%
Railroad Transportation 12.5 12.5 12.5 12.9 13.7 13.7 13.7
% Change 2.5% 0.0% 0.0% 3.2% 6.2% 0.0% 0.0%
Trucking & Warehousing(*) 54.3 58.3 64.8 68.2 52.0 53.7 54.5
% Change 9.0% 7.4% 11.1% 5.2% -23.8% 3.3% 4.4%
Transportation by Air(*) 42.5 43.8 43.9 42.8 63.2 62.5 62.4
% Change -4.5% 3.1% 0.2% -2.5% 47.7% -1.1% -1.4%
Transportation Services 21.0 21.8 23.8 24.4 26.3 27.3 28.3
% Change 13.5% 3.8% 9.2% 2.5% 7.8% 3.8% 6.0%
</TABLE>
(*) Note: Approximately 15,000 to 20,000 UPS and Fedex jobs were redefined as
transportation by air jobs, resulting in a large increase in that category at
the expense of trucking and warehousing.
The difference in total employment levels between Exhibit 1.1 and 1.3 are due to
seasonal adjustments. Source: Bureau of Labor Statistics
Rosen Consulting Group 2
<PAGE>
Exhibit 1.3 (Cont'd)
Nonagricultural Payroll Employment by Sector
Chicago, IL MSA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Trade 858.8 873.4 892.4 913.5 907.1 917.5 908.7
% Change -2.1% 1.7% 2.2% 2.4% -0.7% 1.1% 1.6%
Wholesale Trade 264.2 262.9 263.8 267.8 263.3 267.5 267.2
% Change -4.0% -0.5% 0.3% 1.5% -1.7% 1.6% 1.8%
Retail Trade 594.6 610.5 628.6 645.7 643.7 650.0 641.5
% Change -1.3% 2.7% 3.0% 2.7% -0.3% 1.0% 1.5%
Finance, Insurance, & Real Estate 294.8 300.9 303.8 300.7 302.7 311.2 314.6
% Change -0.1% 2.1% 1.0% -1.0% 0.7% 2.8% 2.9%
Depository Institutions 82.5 83.5 83.0 81.3 79.3 81.2 82.3
% Change 9.6% 1.2% -0.6% -2.0% -2.5% 2.4% 2.4%
Commercial Banks 57.1 57.9 57.7 57.2 56.3 57.5 58.4
% Change 11.3% 1.4% -0.3% -0.9% -1.6% 2.1% 2.3%
Nondepository Institutions 19.9 22.8 24.5 23.9 25.5 27.5 28.4
% Change 40.1% 14.6% 7.5% -2.4% 6.7% 7.8% 4.8%
Security & Commodity Brokers 32.6 33.6 35.2 36.2 36.7 38.4 38.8
% Change 5.8% 3.1% 4.8% 2.8% 1.4% 4.6% 2.9%
Security Brokers & Dealers 15.2 16.0 16.9 17.5 17.5 18.4 18.7
% Change 7.0% 5.3% 5.6% 3.6% 0.0% 5.1% 3.9%
Insurance Carriers 76.8 76.9 76.4 75.3 77.7 78.5 79.4
% Change 14.8% 0.1% -0.7% -1.4% 3.2% 1.0% 2.6%
Fire, Marine, and Casualty Insurance 32.2 31.6 31.2 31.7 32.7 32.8 33.0
% Change 15.0% -1.9% -1.3% 1.6% 3.2% 0.3% 1.9%
Real Estate 44.7 45.7 46.4 45.3 45.2 46.6 46.1
% Change 8.8% 2.2% 1.5% -2.4% -0.2% 3.1% 2.7%
Services 1,045.6 1,081.4 1,117.0 1,169.8 1,216.5 1,254.1 1,248.9
% Change 3.6% 3.4% 3.3% 4.7% 4.0% 3.1% 3.4%
Business Services 228.1 248.1 265.1 286.9 306.3 325.7 329.7
% Change 15.8% 8.8% 6.9% 8.2% 6.8% 6.3% 7.1%
Legal Services 38.6 38.5 38.9 39.1 39.2 39.7 39.4
% Change 7.5% -0.3% 1.0% 0.5% 0.3% 1.3% 0.8%
Educational Services 70.0 69.9 69.1 73.9 77.9 78.6 80.6
% Change 14.2% -0.1% -1.1% 6.9% 5.4% 0.9% 1.1%
Engineering & Management Services 115.7 118.1 121.7 132.7 138.8 142.9 146.0
% Change 15.7% 2.1% 3.0% 9.0% 4.6% 3.0% 5.4%
Total Government 462.3 465.4 472.7 485.1 489.0 488.5 487.5
% Change 0.9% 0.7% 1.6% 2.6% 0.8% -0.1% -0.4%
Goods Producing 765.2 777.9 790.7 803.0 809.3 817.9 802.9
% Change 18.5% 1.7% 1.6% 1.6% 0.8% 1.1% 1.8%
Service Producing 2,883.4 2,947.0 3,019.5 3,105.5 3,160.4 3,219.2 3,210.0
% Change 16.3% 2.2% 2.5% 2.8% 1.8% 1.9% 2.1%
Private Employment 3,186.3 3,259.5 3,337.5 3,423.4 3,480.8 3,548.6 3,525.4
% Change -0.2% 2.3% 2.4% 2.6% 1.7% 1.9% 2.4%
</TABLE>
Source: Bureau of Labor Statistics
Rosen Consulting Group 3
<PAGE>
Chicago's services sector has grown rapidly to its present employment base of
1.3 million jobs, increasing the diversity of the Chicago metropolitan economy.
The services sector has grown from 25.1% of the total employment base in 1987 to
31.1% of the employment base in 1997 (see Exhibit 1.4). This sector added about
42,000 jobs during the year ended in February of 1998, for a 3.4% growth rate.
Growth has accelerated in 1998 from a slower 3.1% rate in 1997, although it is
below the 4% to 5% rates experienced in 1995 and 1996.
Business services make an important contribution to the increase in services
sector employment. During 1997, business services employment was up 6.3%. Many
companies are outsourcing functions that were previously performed within the
corporation. Likewise, demand for health care is increasing as the nation's
population ages, driving growth in health services. In addition, the $675
million expansion of Chicago's McCormick Place convention center, involving the
new South Building with 840,000 square feet of exhibit space, a Grand Concourse,
and an outdoor plaza, has been completed. These facilities are boosting the
convention trade and serving as a new base for all kinds of visitor services.
Hotel occupancy rates in Chicago are well above national averages. During 1997,
occupancy was steady at 71.7%, compared to the national average of 64.5%.
Between January of 1997 and 1998, occupancy increased 1.9 percentage points to
54.7%, a level that is modestly higher than the national average of 53.9%.
Average daily room rates rose 8.7% during 1997 and 7.8% between January of 1997
and 1998. Several large hotels are under construction in Chicago. A 230-room
Hampton Inn & Suites was slated to open in the River North District in the first
quarter of 1998. Hyatt Hotels is building the 67-story Park Tower that will
house a hotel at 800 North Michigan Avenue. The project will also include 140
luxury condominiums and 20,000 feet of retail space. Hyatt is also building the
800-room Hyatt Regency McCormick Place, that will be completed in the second
quarter of 1998. This is the first full-service hotel being built in downtown
Chicago in four years. Several other projects are under construction, and more
are proposed.
- --------------------------------------------------------------------------------
Exhibit 1.4
- --------------------------------------------------------------------------------
Chicago's Changing Economic Base
---------------------------------------
1987 1997
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
4% 4%
25% 23%
19% 16%
6% 6%
8% 8%
25% 31%
13% 12%
Construction
Trade
Manufacturing
TCPU
FIRE
Services
Government
Source: Bureau of Labor Statistics, RCG
Rosen Consulting Group 4
<PAGE>
Employment in the finance, insurance and real estate (FIRE) sector grew 2.8% in
1997, with growth accelerating to 2.9% between February of 1997 and 1998. The
continuing strong investment in the stock market has fueled job growth in the
securities and brokerage industries, an industry which is twice as concentrated
in the Chicago economy as it is in the national economy (see Exhibit 1.5).
Chicago is the home of the Chicago Board of Trade, the Chicago Mercantile
Exchange and the Chicago Board of Options Exchange (CBOE), earning it the
reputation of the world center of options, futures and commodity trading. As of
the year ended December 31, 1997, the CBOE's options trades accounted for 42.5%
of equity options trading, 92.0% of index options trading and 55.3% of all
options trading nationwide. The Chicago Board of Trade completed a 250,000
square-foot, $175 million expansion of its 95,000 square-foot futures exchange
building. Offsetting some of the gains in the securities industry, Chicago has
been affected by weakness in the banking and insurance industries. Banks are
downsizing as a result of competitive pressures and mergers. Most recently,
Columbus, Ohio-based Banc One announced a takeover of First Chicago NBD Bank.
The merged bank will be headquartered in Chicago, but the merger will likely
result in layoffs as duplicate operations are purged, especially through the
closure of branches. Aon Corporation, a major Chicago-based insurance broker,
expects to lay off about 2,600 employees by the end of 1998 as a result of its
$1.23 billion acquisition of Alexander & Alexander Services, the world's fourth
largest insurance broker.
Chicago's importance as a transportation center has fueled growth in the
transportation, communications and public utilities (TCPU) sector. Employment in
the sector grew by 1.1% in 1997 and gained 2.0% between February of 1997 and
1998. Chicago's location midway between the East and West coasts and Canada and
Mexico makes it an important transportation center. Chicago's O'Hare
International Airport is the busiest airport in the world, handling more
passengers and aircraft operations than any airport in the world, a position it
has held for the past 30 years. As a result, employment growth in transport-
related industries has been robust. At O'Hare Airport, UAL (the parent of United
Airlines) and American Airlines, two of Chicago's largest private-sector
employers, have been expanding. In addition, a number of smaller, regional
airlines have begun serving Midway Airport in recent years. Dallas-based
Southwest Airlines has also endorsed a $722 million expansion project at Midway
that will include the construction of a new terminal.
Chicago is considered the rail hub of the country. Canadian National Railways
and Illinois Central Rail Road Company are building an intermodal rail terminal
in the South suburbs of Chicago, adjacent to Illinois Central's Moyers
intermodal terminal. The site is part of a Tax Increment Financing (TIF)
District established by the Community Development Commission to spur industrial
development in a 295-acre area surrounding the Stockyards on the city's south
side.
In the communications industry, Ameritech and AT&T are major employers. After
cutbacks in recent years, AT&T is now poised for growth which will positively
affect employment growth in the communications industry. However, in April of
1998, Ameritech Corporation announced that it will cut 5,000 jobs, or about 7%
of its work force, during 1998. Ameritech is the parent of phone companies in
several midwestern states, and it is unknown how many of the jobs will be cut in
Chicago. In the public utilities sector, electric utilities such as Commonwealth
Edison are facing increased competition from non-regulated generation sources
and from the ability to distribute wholesale power across the national grid.
This increased competition has resulted in employment losses in the sector.
Rosen Consulting Group 5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Exhibit 1.5
Chicago Location Quotients
Sector Location Quotient/*/ Sector Employment
- ------ -------------------- -----------------
<S> <C> <C>
Paperboard Containers And Boxes 2.200 15.8
Metal Forgings And Stampings 2.106 17.7
Security And Commodity Brokers 1.968 38.4
Metalworking Machinery 1.940 22.4
Transportation Services 1.897 27.3
Fire, Marine, And Casualty Insurance 1.868 32.8
Railroad Transportation 1.824 13.7
Electronic & Other Electric Equipment 1.763 96.4
Transportation By Air 1.601 62.5
Insurance Carriers 1.575 78.5
Fabricated Metal Products 1.565 76.1
Nondepository Institutions 1.526 27.5
Commercial Printing 1.499 28.1
Professional & Commercial Equipment 1.493 42.2
Printing And Publishing 1.489 75.9
Miscellaneous Plastics Products, Nec 1.482 35.3
Chemicals And Allied Products 1.481 50.2
Engineering & Management Services 1.442 142.9
Finance, Insurance, And Real Estate 1.336 311.2
Rubber And Misc. Plastics Products 1.321 43.2
Business Services 1.287 325.7
Legal Services 1.257 39.7
Security Brokers And Dealers 1.244 18.4
Industrial Machinery And Equipment 1.244 88.6
Wholesale Trade 1.217 267.5
Paper And Allied Products 1.215 27.1
Depository Institutions 1.202 81.2
U. S. Postal Service 1.202 34.1
Electronic Components And Accessories 1.174 24.4
Commercial Banks 1.169 57.5
Transportation And Public Utilities 1.168 247.9
Educational Services 1.144 78.6
/*/ A location quotient measures the regional concentration of employment in a
particular industry. If employment in an industry were evenly distributed
throughout the U.S., a region's location quotient would be 1.0. Mathematically,
it is defined as the ratio of the percentage of total employment in industry x
in a given region divided by the percentage of total employment in industry x
nationally.
Source: U.S. Bureau of Labor Statistics
- -------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 6
<PAGE>
As a national center for metalworking, Chicago has the largest metropolitan
manufacturing employment base in the nation. Employment in the sector grew by
only 0.5% during 1997 (compared to a national rate of 0.1%), but gained 1.1%
between February of 1997 and 1998. Over the last five years, Chicago's
manufacturing base has expanded at an average rate of 0.9% compared to national
growth of 0.4% over the same period. Acme Metals recently completed its $392
million thin-slab continuous caster/hot strip mill in Riverdale. Austeel Lemont
is spending $45 million to expand its Lemont mill.
Continental Window and Glass Corporation opened its new 82,000 square-foot
manufacturing plant at 4311 West Belmont. The city's third largest window
manufacturer plans to employ more than 150 people at the new factory, which will
triple the company's production capacity. Allied Products Corporation has
commenced on a $28 million expansion project which will create 125 jobs by 2000.
Chicago is also a large producer of nondurable goods, especially food products.
Chicago is headquarters of consumer goods companies such as Quaker Oats. Chicago
is also home to 53 mid-sized and large candy companies and 64 candy
manufacturing facilities, which represents the largest concentration of such
plants worldwide. The "candy capital's" national sales account for one-third of
total U.S. receipts in this industry and are faring well. In addition, Kraft
Foods has expanded into two facilities totaling 875,000 square feet.
High technology represents a growing proportion of new jobs in Chicago's
manufacturing sector. According to a recent survey by the American Electronics
Association (AEA), Illinois recently surpassed Massachusetts in terms of the
number of high technology employees, ranking the state fourth behind California,
Texas and New York. A number of companies have recently or are currently
expanding locally. Zenith completed a $100 million 325,000 square-foot large-
screen picture tube production plant in Woodridge late in 1997. 3M leased more
than 300,000 square feet in Aurora. Both Samsung Electronics and Sharp
Electronic have expanded facilities in Bolingbrook. Also, Ingram Micro has
expanded in Carol Stream. IBM's Integrated Systems Solutions and Ameritech are
together renovating the 100,000 square-foot former Sears computer center; the
companies will create 600 customer-service jobs through the joint venture.
Motorola completed a $40 million plant in Elgin in late 1997, Excel Logistic has
a new 550,000 square-foot facility, and Rockwell International has a new
facility of greater than 500,000 square feet in Western Cook County.
Employment in the trade sector, the second largest sector of the Chicago
economy, increased 1.1% during 1997 and gained 1.6% between February of 1997 and
1998. As a major midwestern metropolitan area, Chicago has a strong base of
retail trade, including very exclusive designer boutiques as well as discount
retailers. It is home to the world renowned Miracle Mile on North Michigan
Avenue. Retail expansion has been strong both in the city and the surrounding
suburbs. Among the national retailers based in Chicago, good national
performance at Sears has led to company to expand its local distribution
facilities. Following a recent $7.7 million addition to the Sears Roebuck
distribution center in Diversitech Industrial Park, Sears now occupies 1.3
million square feet in the park.
Because of its central location, Chicago is also a popular distribution point,
and numerous distributors have recently expanded or moved into the area. For
example, James River Corporation occupied an 574,000 square-foot distribution
facility in Bolingbrook in late 1997. Also in late 1997, retailer American Drug
Stores occupied a 440,000 square-foot distribution center in Northeastern DuPage
County, and JFC International, a Japanese firm that is the largest distributor
of Japanese Food in DuPage County, completed a food distribution center.
Rosen Consulting Group 7
<PAGE>
Employment in the government sector declined by a slight 0.1% during 1997,
although the rate of losses accelerated to 0.4% during the twelve months ended
in February of 1998. Cook County faces a projected $144 million budget deficit
for 1998, a figure which could grow to $500 million by 2000. As a result,
several hundred people have been cut from the county payroll and additional
cutbacks could be forthcoming, keeping government sector employment growth weak
for some time to come.
Forecasted Employment
The Chicago metropolitan economy is healthy, with a low unemployment rate of
4.5% compared to 4.9% nationally as of 1997, down from 7.4%, respectively, as of
1992. The outlook for the Chicago metropolitan economy is good, with growth
expected to accelerate during 1998. The manufacturing sector, which still
represents a healthy 16.3% of the total employment base, will continue to grow
through 1999, with multiplier effects for the rest of the economy. The large
services sector is also expected to accelerate during 1998 and 1999, with growth
ranging above 3%. Financial services, which is an important industry in Chicago,
will grow at a healthy rate of 2.5% in 1998, with growth slowing in 1999 and
thereafter. To sum, we expect total employment growth to grow at a moderately
strong rate of 2% in 1998, slowing thereafter in response to a slowdown in the
national economy (see Exhibits 1.6 and 1.7). Absolute employment growth will
average 64,800 net new jobs per year during the next three years compared to an
average of 77,700 new jobs per year over the last five years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.6
Nonagricultural Payroll Employment Forecast
Chicago, IL MSA
1993 1994 1995 1996 1997f 1998f 1999f 2000f
---- ---- ---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 3,724.9 3,810.2 3,908.5 3,969.8 4,037.1 4,117.4 4,177.5 4231.7
% Change 2.1% 2.3% 2.6% 1.6% 1.7% 2.0% 1.5% 1.3%
Construction 138.3 139.4 147.6 153.5 158.8 165.3 168.1 168.5
% Change 2.5% 0.8% 5.9% 4.0% 3.5% 4.1% 1.7% 0.2%
Manufacturing 637.5 649.4 653.6 654.1 657.4 663.3 664.6 661.3
% Change 1.5% 1.9% 0.6% 0.1% 0.5% 0.9% 0.2% -0.5%
T.C.P.U. 226.0 233.6 236.5 245.1 247.9 252.5 253.8 254.2
% Change 1.9% 3.4% 1.2% 3.6% 1.1% 1.9% 0.5% 0.2%
Trade 873.4 892.4 913.5 907.0 917.4 931.2 942.3 952.7
% Change 1.7% 2.2% 2.4% -0.7% 1.1% 1.5% 1.2% 1.1%
F.I.R.E. 300.9 303.8 300.7 302.7 311.1 318.9 323.7 327.5
% Change 2.1% 1.0% -1.0% 0.7% 2.8% 2.5% 1.5% 1.2%
Services 1,081.4 1,117.0 1,169.8 1,216.4 1,254.0 1,295.4 1,336.8 1376.9
% Change 3.4% 3.3% 4.7% 4.0% 3.1% 3.3% 3.2% 3.0%
Government 465.4 472.7 485.1 489.0 488.5 486.1 486.0 488.5
% Change 0.7% 1.6% 2.6% 0.8% -0.1% -0.5% -0.0% 0.5%
Sources: Bureau of Labor Statistics, RCG
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 8
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1.7
- --------------------------------------------------------------------------------
Chicago vs. U.S.
Total Non-Agricultural Employment
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
79 80 81 82 83 84 85 86 87 88
---- ---- ----- ----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chicago 2.37 0.20 -1.30 -3.09 -0.38 5.40 4.17 0.80 2.53 2.72
U.S. 3.81 0.65 0.83 -1.76 0.68 4.72 3.16 2.01 2.63 3.19
89 90 91 92 93 94 95 96 97 98f
---- ---- ----- ----- ---- ---- ---- ---- ---- ----
Chicago 2.63 1.03 -1.57 -2.06 2.09 2.29 2.58 1.57 1.70 2.00
U.S. 2.55 1.41 -1.06 1.00 2.10 3.10 2.7 2 2.3 2.2
Sources: Bureau of Labor Statistics, RCG
</TABLE>
Rosen Consulting Group 9
<PAGE>
- --------------------------------------------------------------------------------
Chicago Office Market
- --------------------------------------------------------------------------------
Overview
The Chicago metropolitan office market, which ranks third nationwide in terms of
its size as of year-end 1997 with 187.9 million square feet of inventory, has
improved significantly since 1992, with vacancy rates falling for the last five
consecutive years (see Exhibit 1.8). Overall office vacancy rates have
plummetted to 11.7% at year-end 1997 from a peak of 19.3% in 1992 (see Exhibit
1.9). As the largest financial and business center in the Midwest and the
international center of derivative finance, Chicago has a large and growing
office employment sector. During the last five years, from 1992 through 1997,
office employment (defined as FIRE and business services) grew by 114,000 jobs,
which represented nearly 30% of all of the jobs created in the Chicago economy
over that period and ranked the Chicago metropolitan area as first among all
metropolitan areas nationwide in terms of office employment growth over the last
five years. Phoenix was a distant second with 93,100 office employment jobs
created over the five-year period.
Metropolitan Office Market Trends
Office market conditions in Chicago improved notably during 1997, with the
overall office vacancy rate down to 11.7% at year-end 1997 from 14.0% in 1996.
The greatest gains have occurred in the Class A office market, where the vacancy
rate has fallen from a high of 20.5% in 1992 to 7.5% as of year-end 1997 (see
Exhibit 1.10). During 1997, because of the low availability of Class A space,
demand for Class B and C space accelerated, reaching nearly 2.6 million square
feet, its highest level in over five years. As a result, during 1997, pent-up
demand for Class A space developed. With several new Class A office buildings
slated for delivery in the downtown and suburban office markets during the next
three years, we expect Class A net absorption to increase, albeit at a slow
rate, reflecting the moderation of economic growth in the 1998 to 2000 period.
- --------------------------------------------------------------------------------
Exhibit 1.8
- --------------------------------------------------------------------------------
Largest U.S. Office Markets
Metro Total and Downtown
------------------------
[GRAPH APPEARS HERE]
Rank Place Total
1 New York 358,628
2 Washington 245,727
3 Chicago 186,200
4 Los Angeles 165,269
5 Houston 146,368
Rank Place Downtown
1 New York 358,628
2 Chicago 118,853
3 Washington 80,039
4 Newark 50,687
5 Boston 47,970
Source: CB Commercial and RCG
Rosen Consulting Group 10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.9
Chicago Metropolitan Class Area Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 189,054 189,259 189,215 188,624 187,574 187,864 189,139 191,511 194,801
New Construction 3,893 205 230 0 216 797 2,275 3,122 4,040
Conversion/Demolition 0 0 274 591 1,266 507 1,000 750 750
Net Absorption 1,257 3,490 2,709 1,303 4,611 4,150 3,400 2,850
Occupied Stock 152,567 153,824 157,314 160,022 161,325 165,937 170,087 173,487 176,337
Vacancy Rate 19.3% 18.7% 16.9% 15.2% 14.0% 11.7% 10.1% 9.4% 9.5%
--------
Sources: CB Commercial, RCG
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.10
Chicago Metropolitan Class Area Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 73,116 73,321 73,551 73,551 73,767 74,564 76,839 79,961 84,001
New Construction 3,893 205 230 0 216 797 2,275 3,122 4,040
Net Absorption 1,892 2,106 2,666 2,412 1,636 2,079 2,550 2,600 2,800
Occupied Stock 58,095 60,201 62,867 65,279 66,915 68,995 71,545 74,145 76,945
Vacancy Rate 20.5% 17.9% 14.5% 11.2% 9.3% 7.5% 6.9% 7.3% 8.4%
--------
Sources: CB Commercial, RCG
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.11
Chicago Metropolitan Class B Office Market (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 72,291 72,484 72,484 72,484 72,484 72,484 72,484 72,484 72,484
New Construction 0 193 0 0 0 0 0 0 0
Net Absorption (150) 56 453 711 1,042 2,016 650 400 200
Occupied Stock 59,875 59,931 60,384 61,095 62,137 64,153 64,803 65,203 65,403
Vacancy Rate 17.2% 17.3% 16.7% 15.7% 14.3% 11.5% 10.8% 10.0% 9.8%
Sources: CB Commercial, RCG
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Class B office market will also continue to fare well, with vacancy rates
trending down over the next three years. From a 1997 metropolitan vacancy rate
of 11.5%, we expect the Class B office market will tighten, with vacancy rates
falling to below 10% by the year 2000 (see Exhibit 1.11). Net absorption will be
strongest during 1998, as pent-up demand for Class A space spills over to the
Class B market. However, as a large amount of Class A space reaches the market
during the next two to three years, much of the net absorption will shift back
to the Class A market.
Rosen Consulting Group 11
<PAGE>
The Downtown Office Market
Downtown Chicago's office market, which ranks second only to New York's combined
midtown and downtown office markets in size with 107.6 million square feet as of
year-end 1997, has tightened considerably over the last five years. The total
downtown vacancy rate declined to 13.7% as of year-end 1997 from a peak of 19.6%
in 1993 (see Exhibit 1.12).
Similar to trends in the overall metropolitan market, the downtown Class A
market has tightened, with vacancy rates falling to 8.1% as of year-end 1997
compared to a peak of 23.1% in 1992. The lack of available Class A space has
constrained net absorption, causing Class A net absorption in the downtown to
fall to 971,000 square feet during 1997, its lowest level since 1992 (see
Exhibits 1.13 and 1.14).
The outlook for the downtown Class A office market is strong. Class A net
absorption in the downtown will continue to be constrained by the lack of
available space during the next two years, despite the delivery of two new
office buildings to the West Loop submarket (see Exhibit 1.15). As a result, we
expect Class A net absorption will accelerate in the year 2000, when a 1.6
million square foot office building is expected to be delivered. However,
downtown Class A vacancy rates will remain very low during the next three years,
ranging between 6% and 7%. These low vacancy rates will put significant upward
pressure on Class A rents.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.12
Chicago Total Downtown Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 110,244 110,244 109,970 109,379 108,113 107,606 106,721 106,291 107,141
New Construction 3,893 0 0 0 0 0 115 320 1,600
Conversion/Demolition 0 0 274 591 1,266 507 1,000 750 750
Net Absorption (331) 1,319 173 795 1,995 1,750 1,500 1,200
Occupied Stock 88,967 88,636 89,955 90,128 90,923 92,918 94,668 96,168 97,368
Vacancy Rate 19.3% 19.6% 18.2% 17.6% 15.9% 13.7% 11.3% 9.5% 9.1%
--------
Sources: CB Commercial, RCG
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Exhibit 1.13
Chicago Downtown Class A Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 43,915 43,915 43,915 43,915 43,915 43,915 44,030 44,350 45,950
New Construction 3,893 0 0 0 0 0 115 320 1,600
Net Absorption 759 1,230 1,669 1,493 1,230 971 800 600 1,000
Occupied Stock 33,771 35,000 36,669 38,162 39,392 40,362 41,162 41,762 42,762
Vacancy Rate 23.1% 20.3% 16.5% 13.1% 10.3% 8.1% 6.5% 5.8% 6.9%
--------
Sources: CB Commercial, RCG
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 12
<PAGE>
EXHIBIT 1.14
- --------------------------------------------------------------------------------
Downtown Office Vacancy Rate
Total vs Class A
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Label A B
Label Percent Total Class A
<S> <C> <C> <C>
1 1992 19.3 23.1
2 1993 19.6 20.3
3 1994 18.2 16.5
4 1995 17.6 13.1
5 1996 15.9 10.3
6 1997 13.7 8.1
7 1998f 11.3 6.5
8 1999f 9.5 5.8
9 2000f 9.1 6.9
Sources: Bureau of Labor Statistics, RCG
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Exhibit 1.15
Downtown Office Construction
1998 Through 2000 Deliveries
Square Feet
-------------------------------------
Project City Submarket 1998 1999 2000+ Delivery
- ------- ---- --------- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
North Bridge West Loop Downtown 115,000 --- --- 4Q98
Union Tower West Loop Downtown --- 320,000 --- 1999
1 North Wacker West Loop Downtown --- --- 1,600,000 ---
7 South Dearborn Central Loop Downtown --- --- 812,175 ---
320 North LaSalle River North Downtown --- --- 1,250,000 ---
301 South Wacker West Loop Downtown --- --- 1,300,000 ---
Kinzie & Dearborn River North Downtown --- --- 400,000 ---
River Bend --- Downtown --- --- 700,000 ---
1 North Halsted West Loop Downtown --- --- 400,000 ---
Submarket Subtotal --- Downtown 115,000 320,000 6,462,175 ---
Overall Total --- Total 2,274,500 3,957,734 10,830,361
Source: CB Commercial
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 13
<PAGE>
The tight conditions in the Class A market are spilling over to the Class B
office market, pushing Class B vacancy rates down at a rapid rate. As Class A
net absorption slowed in 1997 due to the lack of available supply, net
absorption of Class B and Class C space in the downtown soared to 1.0 million
square feet after three years of negative net absorption, its highest level
since 1993. Contributing to tightening in the Class B downtown office market is
the renovation and redevelopment of older Class B and Class C space. Many Class
B and C buildings in the downtown market have already been sold for single user
or non-office conversion. In total, since 1994, approximately 2.6 million square
feet of space have been removed from the downtown inventory due to conversions
and demolitions. Currently, the Marina City Office Building and the Silversmith
Building are being converted into the House of Blues and a 143-room Crowne
Plaza, respectively. Several office buildings have been or are being renovated
for hotel use and at least six downtown buildings have been or are in the
process of being converted to residential use. In addition, the enlargement of
the West Loop Tax Increment Financing District in February of 1997 made
available $300 million for redevelopment subsidies and infrastructure
improvements. We expect an additional 2.5 million square feet of Class B and
Class C space will be removed from the downtown office inventory over the next
three years, although as office vacancy rates fall, this process should slow. In
fact, several Class B office buildings have been or are in the process of being
upgraded to Class A, due to the scarcity of Class A space. For instance, the
former One Illinois Center just underwent a $12 million renovation.
<PAGE>
Central Loop Submarket
The Central Loop is the traditional heart of the downtown financial district
with 40% of the downtown office stock, the largest concentration of office space
in the downtown. The Central Loop's tenant base consists primarily of financial
institutions, business services companies, law firms, major corporations and
government buildings.
The submarket's total office vacancy rate fell from to 13.0% as of year-end
1997, its lowest level since it peaked at a high of 18.2% in 1993. The supply of
Class A space fell sharply during 1997, with the Class A vacancy rate falling to
a low 7.6% (see Exhibit 1.16). For the first time in over five years, net
absorption in the Class B market surpassed net absorption in the Class A market,
which by year-end 1997 was supply-constrained (see Exhibit 1.17). As a result
of strong Class B net absorption during 1997 of 1.0 million square feet, the
Class B vacancy rate plummetted to 8.0% as of year-end 1997, from 14.4% a year
earlier.
Several large tenants renewed or moved into new space in the submarket. Late in
the year, LaSalle National Bank renewed and expanded its lease at 200 West
Monroe to 380,000 square feet. Anderson Consulting also leased 200,000 square
feet in the Chicago Title and Trust Building, as well as 40,000 square feet at
161 North Clark. Also positively affecting the submarket vacancy rate during
1997 was the removal of several buildings like the 220,000 square-foot 201 North
Wells Street for redevelopment into condominiums.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.16
Central Loop Class A Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 18,999 18,999 18,999 18,999 18,999 18,999 18,999 18,999 18,999
New Construction 2,841 0 0 0 0 0 0 0 0
Net Absorption 3,901 114 931 665 323 458 300 200 50
Occupied Stock 15,066 15,180 16,111 16,776 17,099 17,557 17,857 18,057 18,107
Vacancy Rate 20.7% 20.1% 15.2% 11.7% 10.0% 7.6% 6.0% 5.0% 4.7%
--------
Sources: CB Commercial, RCG
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Exhibit 1.17
Central Loop Class B Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 15,645 15,645 15,645 15,645 15,645 15,645 15,645 15,645 15,645
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 2,894 (375) (47) (63) 166 1,003 300 50 25
Occupied Stock 13,705 13,330 13,283 13,220 13,386 14,389 14,689 14,739 14,764
Vacancy Rate 12.4% 14.8% 15.1% 15.5% 14.4% 8.0% 6.1% 5.8% 5.6%
--------
Sources: CB Commercial, RCG
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 15
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 1.18
- --------------------------------------------------------------------------------
CENTRAL LOOP OFFICE MARKET
Construction and Net Absorption Trends
[GRAPH OF CENTRAL LOOP OFFICE MARKET APPEARS HERE]
<TABLE>
<CAPTION>
Chicago Central Loop Office Market
92 93 94 95 96 97 98f 99f 00f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Construction 2,841 0 0 0 0 0 0 0 0
Net Absorption 3,901 114 931 665 323 458 300 200 50
Vacancy Rate 20.7% 20.1% 15.2% 11.7% 10.0% 7.6% 6.0% 5.0% 4.7%
</TABLE>
The outlook for the Central Loop submarket is strong, with vacancy rates
potentially falling below 5% by year-end 2000. The only office building proposed
for construction in this submarket is the 812,175 square-foot 7 South Dearborn,
which has not yet begun construction. It is unlikely that this building will be
delivered before the year 2001. As a result, even with Class A net absorption
falling to levels rarely seen during the last five or more years, Class A
vacancy rates will fall into the 5% range. Similarly, we expect Class B vacancy
rates to fall into the 6% range, despite a very low level of net absorption
forecasted (see Exhibit 1.18).
Based on the submarket's strong outlook, investors have been acquiring buildings
in the Central Loop. During 1997, Equity Office Properties Trust purchased the
926,000 square-foot 30 N. LaSalle Street building for $107 per square-foot.
Another notable sale was 200 West Adams, which also was purchased by Equity
Office Properties for $72.2 million, more than double the building's purchase
price in 1995. In other investment activity, the John Buck Company and Starwood
Capital purchased the 1,000,000 square-foot 35 West Wacker Drive building for
more than $200 per square foot.
Rosen Consulting Group 16
<PAGE>
EAST LOOP SUBMARKET
The East Loop submarket had a total stock of roughly 21.8 million square feet as
of year-end 1997. The submarket is dominated by the Illinois Center Complex,
Prudential Plaza, and the Amoco building. Class A space represents roughly a
quarter of the stock, a relatively low proportion by comparison to the Central
Loop, West Loop and North Michigan Avenue submarkets. While the East Loop Class
A market was tight with a year-end vacancy rate of 8.7%, the submarket's Class B
and Class C office stocks had relatively high year-end vacancy rates of 21.8%
and 25.4%, respectively (see Exhibit 1.19). The overall submarket vacancy rate
was down to 18.6% as of year-end 1997 from 19.1% a year earlier. Contributing to
the East Loop's weakness in the Class B market was the return of 895,000 square
feet of Blue Cross Blue Shield of Illinois space at Two Illinois Center in 1997.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EXHIBIT 1.18
EAST LOOP CLASS B OFFICE MARKET (000SF)
---------
1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Stock 9,356 9,356 9,356 9,356 9,356 9,356
New Construction 0 0 0 0 0 0
Net Absorption (26) (437) 300 240 150
Occupied Stock 7,776 7,750 7,313 7,613 7,853 8,003
Vacancy Rate 16.9% 17.2% 21.8% 18.6% 16.1% 14.5%
---------
Sources: CB Commercial, RCG
- --------------------------------------------------------------------------------
</TABLE>
Many major tenants are either expanding or moving into the East Loop submarket.
Helping the market late in the year were Andersen Consulting's 282,000 square-
foot lease at 225 North Michigan Avenue, KPMG's 230,000 square-foot lease at
Three Illinois Center, and D'Acona & Pflaum's 83,000 square-foot lease at One
Illinois Center.
The East Loop's Class B office stock represents one of the last remaining stocks
of available space in the downtown market. Of the total of nearly nine million
square feet of available Class A and Class B office space in the downtown, two
million square feet represent Class B space in the East Loop. Given the
increasing tightness in the stocks of Class A and B office space in all other
Class A and B submarkets in the downtown, we anticipate that the East Loop Class
B submarket will experience a substantial increase in absorption in the next
three years.
The East Loop is attracting an increased level of investor interest. In recent
sales activity, Hines Interests acquired the 803,000 square-foot Three Illinois
Center at 303 East Wacker from Metropolitan Life Insurance for an estimated $92
million.
17
<PAGE>
OTHER DOWNTOWN SUBMARKETS
Office market conditions in the West Loop tightened significantly during 1997.
The overall vacancy rate in the West Loop submarket fell to 10.6% in the fourth
quarter. Within the submarket, the Class A rate dropped to 7.4% and the Class B
rate declined to 13.6% at year-end 1997. The West Loop is one of the most
popular and active submarkets because of its proximity to suburban train links
and high proportion of new, Class A office buildings. It contains the Sears
Tower and the Chicago Mercantile Exchange, as well as smaller Class B properties
and renovated loft buildings in the western part of the submarket. Some of the
larger lease transactions during the second half of 1997 include Commonwealth
Edison (60,000 square feet), BancOne (60,000 square feet), Ernst & Young (60,000
square feet), Aon (54,000 square feet), and Oracle (50,000 square feet). Tight
market conditions and rising rents have caused developers to consider new
construction. A 115,000 square-foot building is due to be completed in 1998. In
addition, Development Resources of Chicago announced plans for a 320,000
square-foot Class A office building. Construction was slated to begin in the
first quarter of 1998, with completion expected in early 1999. Finally, Gerald
Kostelny has proposed a 50-story, 1.3 million square-foot tower at 301 South
Wacker. Construction could begin as early as mid-1998, but completion is not
realistically expected before 2001.
A number of major sales transactions have occurred recently in the West Loop.
Trizec Hahn paid $844 million for the 3.5 million square-foot landmark Sears
Tower, representing a sales price of $241 per square foot. Equity Office
Properties purchased the Chicago Mercantile Exchange office complex for $500
million. Another notable sale in the West Loop market was 333 W. Wacker Drive,
which was sold for $135 per square-foot. Equity Office Properties also acquired
the 1,000,000 square-foot 10 & 30 South Wacker twin towers for $250 million, or
$250 per square foot, as well as 20 North Wacker Drive for $59.8 million.
The North Michigan Avenue submarket, known as the "Magnificent Mile," is famous
for its upscale retail tenants. The office tenant base consists primarily of
advertising firms, media-related firms, and medical support groups for
Northwestern Memorial Hospital. The market is experiencing a significant amount
of conversion of office space to other uses. Wyndham Hotels is converting
300,000 square feet of 633 N. St. Clair Street into a 400-room hotel. In
addition, 520 North Michigan Avenue may either be torn down or simply
redeveloped into a Nordstrom store. Together, these transactions would remove
400,000 square feet of available office space from the market.
Prices for well-located office space in the North Michigan Avenue submarket are
among the highest in the nation. In addition, Zeller Management purchased 211
East Ontario Street for $7.161 million, or $42 per square foot and Koll/Bren
Realty Advisors is undertaking a $22 million redevelopment of the 30-story, one
million square-foot office building at 111 East Wacker Drive. Another sale was
the 52-story One IBM Plaza, which sold for $122 million.
River North is one of the more diverse submarkets downtown. The market is home
to many art galleries and showrooms that occupy the area's loft buildings.
River North is also home to one of the largest commercial buildings in the
country. The Merchandise Mart is situated along the Chicago River and spans an
entire city block. The River North is also the smallest of all the downtown
submarkets, with a total inventory of approximately 2.7 million square feet of
office space. The overall office vacancy rate
Rosen Consulting Group 18
<PAGE>
in the River North submarket was 7.8% as of year-end 1997, the lowest of any of
the downtown submarkets. The largest fourth quarter lease in the River North
submarket was Bank of America's 85,000 square-foot lease at the Apparel Center.
Ameritech also leased 36,000 square feet at the Merchandise Mart.
Suburban Office Market
Chicago's suburban office market has improved significantly, with the overall
vacancy rate declining to 9.0% as of year-end 1997 from a peak of 19.3% in 1992
(see Exhibit 1.20). The suburban Class A market is extremely tight, with a
year-end 1997 vacancy rate of 6.6% (see Exhibit 1.21). While Class A net
absorption was strong during 1997 at over 1.1 million square feet, it was
constrained by the scarcity of Class A space available for lease.
Responding to the low office vacancy rates and accelerating rent growth, office
construction activity is ramping up in the suburbs. A total of 11 new buildings
representing 1.54 million square feet were slated to be delivered during 1998
and another 14 buildings totaling 2.58 million square feet were scheduled for
delivery during 1999. Approximately 27 other office buildings are in the
proposal stages, but have not yet begun construction and are not scheduled to be
completed before 2000 and most likely will not be completed until 2001 or later.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1.20
CHICAGO SUBURBAN OFFICE MARKET
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 78,810 79,015 79,245 79,245 79,461 80,258 82,418 85,220 87,660
New Construction 0 205 230 0 216 797 2,160 2,802 2,440
Net Absorption 1,588 2,171 2,536 508 2,616 2,400 1,900 1,650
Occupied Stock 63,600 65,187 67,358 69,894 70,402 73,019 75,419 77,319 78,969
Vacancy Rate 19.3% 17.5% 15.0% 11.8% 11.4% 9.0% 8.5% 9.3% 9.9%
--------
Sources: CB Commercial, RCG
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.21
Chicago Suburban Class A Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 29,201 29,406 29,636 29,636 29,852 30,649 32,809 35,611 38,051
New Construction 0 205 230 0 216 797 2,160 2,802 2,440
Net Absorption 1,133 877 997 919 407 1,109 1,750 2,000 1,800
Occupied Stock 24,324 25,201 26,198 27,117 27,524 28,632 30,382 32,382 34,182
Vacancy Rate 16.7% 14.3% 11.6% 8.5% 7.8% 6.6% 7.4% 9.1% 10.2%
--------
Sources: CB Commercial, RCG
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group
19
<PAGE>
The healthy pipeline of Class A space scheduled for delivery during the next
three years will provide some relief to pent-up demand in the Class A suburban
office market. More than 40% of the Class A office buildings scheduled for
delivery during the next three years are pre-leased. Much of the remaining 60%
of the space will be leased during the next three years and the remainder will
allow the suburban Class A vacancy rate to slowly increase to a more healthy, or
optimal, vacancy rate. RCG expects suburban Class A vacancy rates will increase
slowly during the next three years, reaching close to 10% by the year 2000.
Total suburban vacancy will be following a similar trend (see Exhibit 1.22).
Strong suburban office market fundamentals have generated an acceleration in
investment activity. In 1997, REITs made ten purchases in the suburbs, outpacing
1996's total of seven. In some of the larger recent transactions, in Oak Brook,
Equity Office Properties purchased the Oak Brook Terrace Tower for $130 million,
and Duke Realty Investments purchased the 650,000 square-foot Executive Towers
I-III for $100 million. Beacon Properties purchased the 1.2 million square-foot
Westbrook Corporate Center for $182 million, or $151.67 per square foot, and
Prentiss Properties Trust acquired the 324,000 square-foot Corporetum Office
Park for $51.2 million, or about $158 per square foot. Prime Group Realty Trust
purchased the 916,000 square-foot Continental Towers complex in Schaumburg.
CarrAmerica Realty purchased the 212,000 square-foot Bannockburn Lakes I and II,
and the Amend Group of Dallas bought the 341,000 square-foot 200 Park Plaza in
Naperville. In addition, Great Lakes REIT purchased the 104,000 square-foot
Atrium II in Arlington Heights.
- --------------------------------------------------------------------------------
EXHIBIT 1.22
- --------------------------------------------------------------------------------
SUBURBAN OFFICE VACANCY RATE
TOTAL VS CLASS A
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Percent Total Class A
<S> <C> <C> <C>
1992 19.3 16.7
1993 17.5 14.3
1994 15 11.6
1995 11.8 8.5
1996 11.4 7.8
1997 9 6.6
1998f 8.5 7.4
1999f 9.3 9.1
2000f 9.9 10.2
Sources: Bureau of Labor Statistics, RCG
</TABLE>
Rosen Consulting Group 20
<PAGE>
The submarkets with the lowest overall vacancy rates as of year-end 1997 were
North Suburbs (5.1%), Northwest Suburbs (8.0%), East-West Tollway (9.0%), and
O'Hare (10.3%) (see Exhibit 1.22a). The following sections will examine trends
in each of these submarkets more closely.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Exhibit 1.22a
Suburban Office Submarkets: Recent Vacancy Rate Statistics
N.R.A. % Vacant Change
Submarket 1Q98 1Q98 4Q97 3Q97 3Q97-1Q98
- --------- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Lake Shore 4,156,145 13.6% 12.7% 13.4% 0.2%
North Suburbs 5,088,414 7.7% 5.1% 5.7% 2.0%
Northwest Suburbs 21,595,422 9.4% 8.0% 10.0% -0.6%
O'Hare 13,046,055 10.4% 10.3% 12.5% -2.1%
East-West Tollway 26,642,822 8.8% 9.0% 9.3% -0.5%
West Cook 1,276,779 17.2% 17.0% 14.1% 3.1%
South Suburbs 2,440,264 13.6% 13.6% 13.5% 0.1%
Lake County 6,242,503 6.8% 7.2% 8.0% -1.2%
Suburban Total 80,488,404 9.5% 9.0% 10.1% -0.6%
Sources: CB Commercial
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
EAST-WEST TOLLWAY SUBMARKET
The East-West tollway submarket is located immediately west of downtown Chicago
and has the highest concentration of office space in the suburban office market,
with 26.5 million square feet as of year-end 1997. The submarket is centered in
eastern DuPage County along I-88 between I-294 and I-355 in the cities of Oak
Brook, Lombard, Downers Grove and Elmhurst. East-West Tollway, particularly the
area around Oak Brook, was the first suburban office market developed outside of
downtown Chicago that attracted large firms and corporate headquarters in large
numbers. Some of the area's largest employers are WMX Technologies, McDonalds
and Spiegel. Naperville, which is the southwest portion of the submarket, has
several large companies and many corporate headquarters. The largest employer in
Naperville is AT&T, which has an electronic switching system and research and
development facility that employs 8,900. Of the 39 companies in Naperville that
have a minimum of 100 employees, 17 are corporate headquarters.
The East-West Tollway office submarket ended 1997 with a 9.0% overall vacancy
rate. The Class A and Class B markets in the East West Tollway submarket have
similar vacancy rates, with the Class B vacancy rate being slightly lower. The
Class A vacancy rate of 8.8% as of year-end 1997 was up slightly compared to
7.5% in 1996 (see Exhibit 1.23). The increase was the result of four buildings
totaling 476,000 square feet that were delivered during 1997, which was offset
by moderately strong net absorption of 305,000 square feet. Conversely, the
Class B vacancy rate fell during 1997 to 8.0% from 10.4% in 1996 (see Exhibit
1.24).
Leasing activity in 1997 in the East-West Tollway was moderate. Several large
leases were signed during the first half of 1997, including Ameritech (63,316
sf), Wausau Insurance (63,000 sf), Deutsche Financial (50,000 sf), Raytheon
Engineers and Constructors (36,024), Rockwell International (20,000) and R.R.
Donnelley (20,000 sf). The largest lease of the fourth quarter was Mexlink's
32,000 square-foot lease at 810 Jorie Boulevard. In the third quarter, Alliance
of America Insurers pre-leased 28,000 square feet at the Highland Landmark II.
Not yet recorded since occupation has not yet occurred is Lucent Technology's
lease of 40,000 square feet at Westwood of Lisle II, a 148,664 square-foot
building completed in 1997.
As the largest and one of the most popular of the suburban office markets, the
East-West Tollway submarket has experienced and continues to experience a high
volume of construction relative to other suburban submarkets (see Exhibit 1.25).
In recent construction activity, the 244,000 square-foot Highland Landmark in
Downers Grove was completed during the fourth quarter of 1997. Nine buildings
totaling 1.227 million square feet are due to be completed in 1998. Among the
1998 deliveries are two buildings in Lisle, including Corporate Lakes IV and
Arboretum West. The latter is a 200,000 square-foot building of which Mercedes
Credit has already taken 70,000 square feet. Two buildings in Downers Grove will
also be completed in 1998, including the 275,000 square-foot Highland Landmark
II and the 150,000 square-foot Corridors One. The 180,000 square-foot second
phase of Corridors is planned, but
Rosen Consulting Group 22
<PAGE>
is unlikely to be delivered before 2000 or 2001. In addition, the 150,000
square-foot Cantera in Warrenville and the 40,000 square-foot Oak Creek V in
Lombard are scheduled for completion during 1998. Six buildings totaling
slightly over one million square feet are due to be completed in 1999. Hamilton
Partners will deliver the 270,000 square-foot Esplanade at Locust Point IV in
Downer's Grove during the early 1999. The remaining five buildings are in
Oakbrook, Naperville and Lisle. Another thirteen office buildings totaling 1.88
million square feet are in the proposal stages, with no starting date announced,
and, thus, are unlikely to be completed before 2000 or 2001.
The outlook for the East-West Tollway office submarket is healthy, although the
vacancy rate trend will reverse. We anticipate that strong net absorption will
be more than offset by office building deliveries in 1998 and 1999, allowing the
vacancy rate to ease slightly. Of the buildings currently under construction and
due to be completed in 1998 or 1999, 30% has been leased so far. By 2000, the
Class A vacancy rate will be at a healthy level of 10% or slightly above. The
Class B market will also remain in good condition, although with the delivery of
a high volume of Class A space, some tenants may upgrade, contributing to slight
negative net absorption in the market. Because of the popularity of this
well-located submarket, it is likely that new tenants will move into both the
Class A and Class B submarkets, contributing to strong net absorption for the
overall market. Class B vacancy rates will very likely trend up, but remain in
the 10% range during the next three years (see Exhibit 1.26).
- -------------------------------------------------------------------------------
EXHIBIT 1.23
EAST-WEST TOLLWAY CLASS A OFFICE MARKET (000SF)
<TABLE>
<CAPTION>
-----------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 9,550 9,550 9,915 9,915 10,159 10,635 11,862 12,892 13,892
New Construction 247 0 365 0 244 476 1,227 1,030 1,000
Net Absorption 316 535 779 30 136 305 1,000 900 850
Occupied Stock 7,917 8,452 9,231 9,261 9,397 9,702 10,702 11,602 12,452
Vacancy Rate 17.1% 11.5% 6.9% 6.6% 7.5% 8.8% 9.8% 10.0% 10.4%
-----------
</TABLE>
Sources: CB Commercial, RCG
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
EXHIBIT 1.24
EAST-WEST TOLLWAY CLASS B OFFICE MARKET (000SF)
<TABLE>
<CAPTION>
-----------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,566 10,759 10,759 10,759 10,759 10,759 10,759 10,759 10,759
New Construction 0 193 0 0 0 0 0 0 0
Net Absorption (190) 235 430 43 215 255 (50) (50) (100)
Occupied Stock 8,717 8,951 9,382 9,425 9,640 9,895 9,845 9,795 9,695
Vacancy Rate 17.5% 16.8% 12.8% 12.4% 10.4% 8.0% 8.5% 9.0% 9.9%
-----------
</TABLE>
Sources: CB Commercial, RCG
- --------------------------------------------------------------------------------
Rosen Consulting Group 23
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1.25
East-West Tollway Office Construction
1998 through 2000 Deliveries
<TABLE>
<CAPTION>
Square Feet
----------------------------
Project City Submarket 1998 1999 2000+ Delivery
- ------- ---- --------- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Oak Creek V & VI Lombard East-West Tollway 80,000 --- --- 2Q98
Highland Landmark II Downers Grove East-West Tollway 275,000 --- --- 3Q98
Corporate Lakes IV Lisle East-West Tollway 155,000 --- --- 3Q98
Arboretum West Lisle East-West Tollway 200,000 --- --- 3Q98
Brookdale Gateway Naperville East-West Tollway 25,000 --- --- 3Q98
Cantera Warrenville East-West Tollway 150,000 --- --- 3Q98
Bolingbrook Corporate Center Bolingbrook East-West Tollway 60,000 --- --- 4Q98
Corridors One Downers Grove East-West Tollway 150,000 --- --- 4Q98
RNSA Oak Brook East-West Tollway 132,000 --- --- 4Q98
Esplanade II Downers Grove East-West Tollway --- 270,000 --- 1Q99
Washington Point Naperville East-West Tollway --- 180,000 --- 3Q99
Buck Oak Brook East-West Tollway --- 275,000 --- 3Q99
Myers Road & 22nd Street Oak Brook East-West Tollway --- 180,000 --- 4Q99
DynaCom Center Naperville East-West Tollway --- 58,000 --- 1999
Lisle Business Center Lisle East-West Tollway --- 66,734 --- 1999
Corridor II Downers Grove East-West Tollway --- --- 150,000 ---
Corporetum 8 Lisle East-West Tollway --- --- 100,000 ---
Corporetum 7 Lisle East-West Tollway --- --- 125,000 ---
Commerce Place III Lisle East-West Tollway --- --- 40,000 ---
Corporetum 9 Lisle East-West Tollway --- --- 90,000 ---
Corporetum Tower II Lisle East-West Tollway --- --- 365,000 ---
Corporetum Tower I Lisle East-West Tollway --- --- 189,000 ---
2 Imperial Place Lombard East-West Tollway --- --- 186,000 ---
Naperville Corporate Center 6 Naperville East-West Tollway --- --- 150,000 ---
840 Jocie Boulevard Oak Brook East-West Tollway --- --- 95,000 ---
Commerce Placa IV Oak Brook East-West Tollway --- --- 150,000 ---
Oakmont Circle II Westmont East-West Tollway --- --- 150,000 ---
Oakmont Circle III Westmont East-West Tollway --- --- 90,000 ---
Submarket Subtotal --- East-West Tollway 1,227,000 1,029,734 1,880,000
Total Suburban --- --- 2,159,500 3,637,734 4,368,186
Source: CB Commercial
</TABLE>
- --------------------------------------------------------------------------------
Rosen Consulting Group 24
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1.26
- --------------------------------------------------------------------------------
East-West Tollway Office Market
Construction and Net Absorption Trends
--------------------------------------
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
East-West Tollway Total Office Market
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
------ ------ ------ ------- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Construction 247 193 365 0 244 476 1,227 1,030 1,000
Net Absorption 354 592 1,289 310 531 540 950 850 750
Vacancy Rate 17.3% 15.6% 11.8% 10.6% 9.4% 9.0% 9.6% 9.9% 10.4%
</TABLE>
NORTHWEST SUBURBS SUBMARKET
The Northwest Suburbs office submarket encompasses northwest Cook County and has
the second highest concentration of office space in the suburban office market,
with a total of 21.6 million square feet as of year-end 1997. Located thirty
minutes west of the Chicago O'Hare International Airport and encompassing the
communities of Schaumburg, Hoffman Estates, Itasca, Mt. Prospect, Rolling
Meadows and Arlington Heights, the Northwest Suburban submarket has many large
and fast-growing tenants. For instance, Schaumburg is the headquarters for
Motorola and its 139,000 worldwide employees of which a total of 7,000 were
located at the headquarters in Schaumburg as of mid-year 1997. Hoffman Estates
is headquarters for Sears with 5,000 employees. In addition, several other major
office employers have large facilities in Hoffman Estates, including Ameritech
(3,000 employees) and Siemens (950 employees). Rolling Meadows largest employer
is Northrup, which employs approximately 2,000 employees.
During the 1980s, the Northwest Suburban submarket emerged as a popular business
corridor. Approximately 70% of the submarket's current inventory of 18.8
million square feet of Class A and B space was built during the 1980s. The
Northwest Suburban Class A office submarket improved dramatically, with vacancy
declining from a high of 20.1% in 1992 to 6.4% as of year-end 1997 (see Exhibit
1.27). Simultaneously, the submarket's overall office vacancy rate fell to 8.0%,
roughly a third of its 1992 vacancy rate of 23.9%. The tightness in the Class A
market has spilled over to the Class B market, where vacancy has fallen
precipitously to 8.6% as of year-end 1997 from 16.1% as of mid-1997 as a result
of a spike in Class B net absorption of nearly 800,000 square feet in 1997 (see
Exhibit 1.28).
Rosen Consulting Group 25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1.27
NORTHWEST SUBURBS CLASS A OFFICE MARKET (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 10,026 10,026 10,081 10,136 10,136 10,285 10,600 11,600 12,600
New Construction 0 55 55 0 0 149 315 1,000 1,000
Net Absorption (50) 261 529 433 203 188 300 750 700
Occupied Stock 8,011 8,271 8,801 9,234 9,437 9,625 9,925 10,675 11,375
Vacancy Rate 20.1% 17.5% 12.7% 8.9% 6.9% 6.4% 6.4% 8.0% 9.7%
Sources: CB Commercial, RCG
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1.28
NORTHWEST SUBURBS CLASS B OFFICE MARKET (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 8,624 8,624 8,624 8,624 8,624 8,624 8,624 8,624 8,624
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 60 276 207 405 (336) 794 75 (200) (400)
Occupied Stock 6,537 6,813 7,020 7,425 7,089 7,883 7,958 7,758 7,358
Vacancy Rate 24.2% 21.0% 18.6% 13.9% 17.8% 8.6% 7.7% 10.0% 14.7%
Sources: CB Commercial, RCG
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1996, the Northwest Suburban submarket recorded the largest amount of
leasing activity of any suburban submarket. Large leases included Ameritech and
U.S. Robotics (now 3Com). During 1997, several large leases were written,
including Prudential Insurance, Cincinnati Bell, 3 Com, Boise Cascade, American
Colloid, and Motors Insurance Corporation.
Offsetting these large leases were several tenants that vacated space in favor
of build-to-suit projects and purchases. Examples of this trend include GE
Capital, which is vacating 150,000 square feet of space on Hart Road in favor of
the former Recon Headquarters in Barrington, and Trans America Distribution
Finance, which is vacating another 150,000 square feet in favor of a build-to-
suit at Prairie Stone in Hoffman Estates. In addition, earlier in the year,
3Com's Rolling Meadow's facility was reclassified, also adding to the inventory
of available space.
Construction activity recovered during 1997, with four small office buildings
totaling 149,000 square feet delivered (see Exhibit 1.29). In Elgin, the 37,980
square-foot Randall Point I, the 20,000 square-foot Lisle Oaks XII and the
40,000 square-foot Lisle Oaks XIII were completed late in 1997. In addition, the
50,845 square-foot Spring Lake Executive Center in Itasca was completed in 1997.
The Lisle Oaks buildings are almost fully leased. Two buildings are scheduled to
be completed in 1998, including the 205,000 square-foot Transamerica project in
Hoffman Estates and the 110,000 square-foot Cedant project in Itasca, both of
which are totally preleased. During 1999, eight buildings totaling 1.556 million
square feet are slated to be completed, although few, if any, have started
construction. Some of the more likely projects to be completed in 1999 are
Randall Point II in Elgin and Continental Towers IV in Rolling Meadows.
Rosen Consulting Group 26
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Exhibit 1.29
Northwest Suburbs Office Construction
1998 through 2000 Deliveries
Square Feet
-----------------------------------
Project City Submarket 1998 1999 2000+ Delivery
- ------- ---- --------- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Transamerica Hoffman Estates Northwest Suburbs 205,000 --- --- 3Q98
Cedant Itasca Northwest Suburbs 110,000 --- --- 3Q98
NEC Wodfield & Nat. Parkway Schaumburg Northwest Suburbs --- 180,000 --- 1Q99
Windy Point I Schaumburg Northwest Suburbs --- 184,000 --- 2Q99
Randall Point II Elgin Northwest Suburbs --- 80,000 --- 2Q99
The Chancellory Itasca Northwest Suburbs --- 300,000 --- 3Q99
Northwest Point Elk Grove Village Northwest Suburbs --- 162,000 --- 3Q99
Prairie Stone Hoffman Estates Northwest Suburbs --- 200,000 --- 3Q99
The Preserve at Woodfield Schaumburg Northwest Suburbs --- 300,000 --- 4Q99
Continental Towers IV Rolling Meadows Northwest Suburbs --- 150,000 --- 4Q99
Popler Creek II Hoffman Estates Northwest Suburbs --- --- 134,000 ---
Greenspoint G Hoffman Estates Northwest Suburbs --- --- 21,648 ---
Thomdale & Rt. 53 Itasca Northwest Suburbs --- --- 140,000 ---
Continental Towers V Rolling Meadows Northwest Suburbs --- --- 331,000 ---
The Preserve at Woodfield II Schaumburg Northwest Suburbs --- --- 300,000 ---
American & National Schaumburg Northwest Suburbs --- --- 150,000 ---
Northwest Point II Schaumburg Northwest Suburbs --- --- 162,000 ---
Woodfield Corporate Center Schaumburg Northwest Suburbs --- --- 200,000 ---
Schaumburg Office Center Schaumburg Northwest Suburbs --- --- 150,000 ---
Windy Point II Schaumburg Northwest Suburbs --- --- 184,000 ---
Chatham Center II Schaumburg Northwest Suburbs --- --- 205,538 ---
Schaumburg Corp. Center III Schaumburg Northwest Suburbs --- --- 350,000 ---
Submarket Subtotal --- Northwest Suburbs 315,000 1,556,000 2,328,186
Total Suburban --- --- 2,159,500 3,637,734 4,368,186
Source: CB Commercial
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The outlook for the Northwest Suburban office submarket is strong, particularly
for the next year, although the uncertainty of how much office space will be
delivered to the market creates some risks in the medium-term. During 1998, with
just 315,000 square feet of Class A space scheduled for completion, all of which
has been preleased, the vacancy rate will be stable in the mid-6% range.
Starting in 1999, with the delivery of up to nine new office buildings totaling
1.23 million square feet, pent-up demand for Class A office space will be
unleashed, resulting in a spike in net absorption, similar to what ocurred in
the Northwest Suburban Class B market in 1997. These trends will persist through
the year 2000, coinciding with a gradual easing of tight market conditions. The
Class B market will lose some tenants to the Class A market during 1999 and
2000. The overall submarket vacancy rate will ease to the 10% to 11% range,
which is considered optimal for most suburban office markets (see Exhibit 1.30).
Rosen Consulting Group 27
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 1.30
- --------------------------------------------------------------------------------
Northwest Suburbs Office Market
Construction and Net Absorption Trends
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Construction 0 0 0 0 0 149 315 1,000 1,000
Net Absorption 515 858 944 129 1,096 450 600 400
Vacancy Rate 23.9% 21.5% 17.5% 13.1% 12.5% 8.0% 7.3% 8.7% 10.9%
</TABLE>
O'HARE SUBMARKET
The O'Hare office submarket is located northwest of downtown Chicago and
encompasses the communities around the Chicago O'Hare International Airport. The
submarket has a diverse array of company headquarters and regional offices. Some
of the large tenants in the submarket include AT&T, American National Can,
Comdisco, and Wilson Sporting Goods. As of year-end 1997, the O'Hare office
submarket comprised 12.9 million square feet.
The overall year-end vacancy rate of 10.3% reflects a Class A vacancy rate of
4.0%, Class B vacancy of 15.2% and Class C vacancy of 17.2%. The overall vacancy
rate understates the health of the O'Hare submarket because many large blocks
of available space in older, obsolete buildings have prevented improvement in
the vacancy rate. During 1997, the O'Hare office submarket registered relatively
strong net absorption, particularly in the Class B market where space was
available for lease. Nearly 200,000 square feet were absorbed during 1997, which
is the strongest demand growth registered in six years, although Class B net
absorption was also strong in 1993 (see Exhibit 1.31). An extremely low Class A
vacancy rate of 4.0% as of year-end 1997 contributed to the strong Class B net
absorption. Two of the larger leases in late 1997 were Galileo International's
24,000 square-foot lease at the Orchard Point Office Center and AT&T's 19,000
square-foot lease at President's Plaza II. The lack of space has resulted in a
Class A rental rate of $26.64, the highest of all the suburban markets.
Rosen Consulting Group
28
<PAGE>
The outlook for the O'Hare's Class B office market is strong. Only one building
totaling 280,000 square feet is proposed for delivery in this submarket and
completion is unlikely before 2000 or thereafter (see Exhibit 1.32). As a
result, the Class B submarket will continue to benefit from the scarcity of
Class A product during the next two to three years. Class B vacancy rates should
decline to the 6% to 8% range during the next three years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
EXHIBIT 1.31
O'HARE SUBMARKET CLASS B OFFICE MARKET (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 4,085 4,085 4,085 4,085 4,085 4,085 4,085 4,085 4,085
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 147 41 (212) 135 0 199 200 150 (50)
Occupied Stock 3,301 3,342 3,129 3,264 3,264 3,463 3,663 3,813 3,763
Vacancy Rate 19.2% 18.2% 23.4% 20.1% 20.1% 15.2% 10.3% 6.7% 7.9%
Sources: CB Commercial, RCG
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
EXHIBIT 1.32
O'HARE SUBMARKET OFFICE CONSTRUCTION
1998 THROUGH 2000 DELIVERIES
Square Feet
---------------------------------------
Project City Submarket 1998 1999 2000+ Delivery
- ------- ---- --------- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
River Road Schiller Park O'Hare --- --- 280,000 ---
Submarket Subtotal --- O'Hare 0 0 280,000
Total Suburban --- --- 2,159,500 3,637,734 4,368,186
Source: CB Commercial
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 29
<PAGE>
- --------------------------------------------------------------------------------
Chicago Industrial Market
- --------------------------------------------------------------------------------
Overview
Chicago has one of the nation's largest industrial markets, according to CB
Commercial. Chicago's industrial market ranks second to Los Angeles in terms of
the total square footage of its vacant and occupied stock of industrial space,
with nearly 910 million square feet. According to CB Commercial, Chicago's total
industrial vacancy rate as of year-end 1997 was 7.9% which was low by comparison
to the national average of 8.4%.
Demand Factors
The Chicago industrial market benefits both from strong manufacturing and trade-
related demand. Chicago is the nation's metal-working capital and one of the
nation's major manufacturing centers. Chicago's central location and highly
efficient, extensive, well-integrated transportation system contribute to the
high volume of trade which flows through the area's distribution system.
Strategically located mid-way between the East and West coasts and Canada and
Mexico, with the world's busiest airport, the hub of the nation's rail system
and the primary port connecting the Great Lakes with the Mississippi River and
the Gulf of Mexico, Chicago plays a preeminent role in U.S. trade,
transportation and manufacturing.
Historical Trends
Chicago's industrial market has benefited from strong demand growth over the
last three years, with net absorption averaging approximately 15 million square
feet a year (see Exhibit 1.33 and 1.34). Gross leasing activity, which is
another good measure of demand growth (with the exception that it may double-
count new leases) has also been robust (see Exhibit 1.35). During 1997, gross
leasing activity was slightly higher than 1996's level.
Following a spike in industrial net absorption of 26.3 million square feet in
1995, industrial construction activity accelerated. Construction activity in the
last few years has been heaviest in the big box warehouse/distribution category.
Thus, vacancy rates have risen the most quickly in this category. In fact, the
warehouse/distribution vacancy rate rose during 1997 to 15.2%. The manufacturing
vacancy rates also increased, reaching 11.9% as of year-end 1997.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Exhibit 1.33
Chicago Total Metropolitan Area Industrial Market (000SF)
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock -- -- 862,823 874,822 892,709 909,611 922,861 933,861 942,861
New Construction -- -- -- 11,999 17,887 16,902 13,250 11,000 9,000
Net Absorption -- -- -- 26,247 9,336 9,407 10,000 9,250 7,500
Occupied Stock -- -- 792,762 819,008 828,345 837,752 847,752 857,002 864,502
Vacancy Rate 8.5% 8.4% 8.1% 6.4% 7.2% 7.9% 8.1% 8.2% 8.3%
Sources: CB Commercial, RCG
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 30
<PAGE>
- --------------------------------------------------------------------------------
EXHIBITS 1.34 AND 1.35
- --------------------------------------------------------------------------------
Industrial Market
Chicago Metropolitan Area
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Vacancy Rate Additions Net Absorption
<S> <C> <C> <C>
1995 6.4% 11,999 26,247
1996 7.2% 17,887 9,336
1997 7.9% 16,902 9,407
1998f 8.1% 13,250 10,000
1999f 8.2% 11,000 9,250
2000f 8.3% 9,000 7,500
</TABLE>
Sources: CB Commercial, RCG
Industrial Market Gross Leasing Volume
Chicago Metropolitan Area
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Manufacturing Warehouse Total
<S> <C> <C> <C>
1992 7,330 13,745 21,075
1993 27,865 15,690 43,555
1994 11,609 18,478 30,087
1995 15,498 29,587 45,085
1996 10,529 13,164 23,693
1997 7,864 16,616 24,480
</TABLE>
Sources: CB Commercial
Rosen Consulting Group 31
<PAGE>
Warehouse/Distribution Submarket
The strength of trade-related activity in the industrial market is reflected in
the high concentration of transportation-related jobs in Chicago. Transportation
by air is the most highly concentrated employment sector in Chicago, with over
twice the share of total employment as nationally, reflecting the size and
volume of activity of the International Airport. Transportation services is also
highly concentrated in the local economy and is growing significantly, with
growth averaging 5.4% per year over the last five years. Chicago remains the
national railroad transportation center, with a high concentration of jobs in
this sector. Trucking and warehousing employment has also grown robustly during
the last few years, with growth ranging from 3.3% to 11% per year since 1992.
After four consecutive years of declining vacancy rates, new construction has
surpassed strong demand growth, pushing the year-end 1997 vacancy rate up to
15.2% (see Exhibit 1.36). Gross leasing activity is particularly strong,
averaging over 17.8 million square feet per year over the last six years. While
the outlook for demand growth in this market continues to be strong, new
construction will keep the vacancy rate from declining significantly in the
near-term.
- --------------------------------------------------------------------------------
EXHIBIT 1.36
- --------------------------------------------------------------------------------
Warehouse/Distribution Submarket
Chicago Metropolitan Area
[GRAPH APPEARS HERE]
Vacancy
Additions Rate
1992 1,496 13.9%
1993 1,329 11.3%
1994 4,124 11.4%
1995 5,099 8.8%
1996 6,193 10.1%
1997 13,975 15.2%
Source: CB Commercial
Rosen Consulting Group 32
<PAGE>
Manufacturing Submarket
Chicago's manufacturing sector is one of the healthiest of any metropolitan
areas nationally, both in terms of size and growth rate. Chicago has the second
largest manufacturing employment base, with 657,500 manufacturing employees in
1997. Manufacturing jobs have increased at an average rate of 0.9% per year over
the last five years compared to a national average growth rate of 0.5% over the
same period. Similarly, during 1997, manufacturing employment expanded 0.5%
compared to a national average rate of 0.4%.
As a major center of manufacturing activity in the nation, Chicago has a large
stock of manufacturing buildings. Gross leasing activity has averaged
approximately 13.5 million square feet between year-end 1991 and year-end 1997.
Construction of manufacturing space has remained relatively moderate. As of
year-end 1997, the manufacturing vacancy rate had risen to 11.9% (see Exhibit
1.37). The outlook for the manufacturing submarket is for continued moderate
growth in demand, which in conjunction with a slower rate of construction,
should result in stable vacancy rates over the forecast horizon.
- --------------------------------------------------------------------------------
EXHIBIT 1.37
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Manufacturing Submarket
Chicago Metropolitan Area
-------------------------
Vacancy Rate Additions
1992 7.3% 839
1993 8.5% 657
1994 8.1% 1,195
1995 6.0% 1,805
1996 7.9% 1,311
1997 11.9% 2,927
Sources: CB Commercial
Rosen Consulting Group 33
<PAGE>
Overhead Crane Submarket
[Note: The following section was written in October 1997. We believe market
conditions remain substantially the same, but written information is not
available to update this analysis.]
Chicago is the nation's largest overhead crane market, with 444 major overhead
crane facilities. Overhead crane buildings are a specialized niche within the
manufacturing submarket which typically house tenants involved in steel
processing or steel servicing. Of the 444 major overhead crane buildings in
Chicago, the majority are larger overhead crane facilities concentrated in the
south side of Chicago, East Chicago and northeastern Indiana, the traditional
center of steel processing in the Chicago area. The overhead crane facilities
which are found in other areas of Chicago are generally smaller facilities of
less than 100,000 square feet which are associated with a specific manufacturer
that relies on steel as an input in the manufacturing process.
The current condition and outlook for the overhead crane market is strong, with
a vacancy rate of less than 4% as of mid-1997, according to Thomas Brown of CB
Commercial and Carl Manofsky with Hiffman Schaeffer and Anderson. Indiana and
Illinois combined are the nation's largest steel processing market, with more
than 30% of the nation's steel output, based on raw steel production statistics
compiled by the American Iron and Steel Institute as of May 1997. Indiana alone
produces 23% of the nation's steel output. Much of the steel processing occurs
in northwest Indiana and northeastern Illinois, where the Chicago metropolitan
area borders Indiana.
Over the last ten to fifteen years, with the devaluation of the dollar against
the yen and more recently, during the last five years, the strengthening of the
U.S. manufacturing sector, the production of steel in the U.S. has increased,
contributing to an increased demand for overhead crane facilities. During the
last five years, strong industrial output, particularly of large durable,
steel-intensive products like automobiles, has increased the demand for steel
and, thus, overhead crane facilities to handle the processing and distribution
of steel. In addition, to cut costs, the major steel companies and major steel
end-users, including the automobile companies, have increased outsourcing of
certain steel processing operations, which has also increased the demand for
overhead crane buildings by small steel processing and steel servicing
companies.
While demand has grown for these facilities during the last ten to fifteen
years, few overhead crane buildings have been built during the last seven years.
With high land costs and the much greater structural reinforcing required for
crane facilities, the cost to erect a 100,000 square-foot building with 20-ton
cranes is approaching $60 per square foot and the rents required to justify new
construction are currently close to $8.00 per square foot compared to a market
rent of $3.25 to $4.50 per square foot. Within the overhead crane building
submarket, the quality of the space and the cranes vary widely, with some
facilities still lacking heat, insulation and concrete floors. Currently, demand
is greatest for larger overhead crane buildings of 100,000 square feet or more.
Rosen Consulting Group 34
<PAGE>
________________________________________________________________________________
Columbus Metropolitan Economy
________________________________________________________________________________
Economic Overview
The Columbus metropolitan economy has grown at above average rates of growth
during the last five years (see Exhibit 2.1). Between 1992 and 1997, the
Columbus employment base grew at an annual average rate of 2.7% compared to 2.4%
for the nation's employment base. Nonagricultural payroll employment in Columbus
grew 2.4% during 1997 compared to 2.3% for the nation. Columbus' economy has
accelerated during early 1998, with job growth of 3.2% between February of 1997
and 1998 (see Exhibit 2.2). In February of 1998, the unemployment rate stood at
a very low 2.6%. Fortune magazine rates Columbus among the top five cities in
the nation by the number of innovative firms and by the quality of its labor
force. The major companies headquartered in Columbus include CompuServe, Banc
One, Worthington Industries, and the Limited. Contributing to growth is the
fairly high concentration in fast-growing, leading edge industries in Columbus.
It is a favorite location for logistics companies that distribute merchandise
nationwide and, increasingly, worldwide. Information-based firms such as Lucent
Technologies and Sterling Commerce have also been attracted to the city.
Two sectors registering strong growth during the last five years are finance,
insurance and real estate (FIRE) and services, particularly business services.
The services sector leads the metropolitan area in terms of the number of jobs
added. This sector grew 3.5% in 1997 and added more than 12,000 jobs during the
twelve months ended in February of 1998 for a 5.3% growth rate. Several large
hotels, health centers
________________________________________________________________________________
EXHIBIT 2.1
________________________________________________________________________________
Columbus vs. U.S.
Total Non-Agricultural Employment
[GRAPH APPEARS HERE]
U.S. Columbus
3.61 2.8%
0.65 0.3%
0.83 -0.6%
- -1.76 -2.3%
0.68 0.8%
4.72 5.1%
3.16 4.7%
2.01 4.5%
2.63 4.3%
3.19 1.0%
2.55 3.2%
1.41 2.4%
- -1.06 -0.3%
1.00 1.8%
2.10 2.1%
3.10 3.8%
2.7 3.7%
2 1.6%
2.3 2.4%
2.2 2.8%
1.7 1.5%
Sources: Bureau of Labor Statistics, RCG
Rosen Consulting Group 35
<PAGE>
Exhibit 2.2
Nonagricultural Payroll Employment by Sector
Columbus, OH MSA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 712.8 728.0 755.9 783.5 796.0 814.9 820.1
% Change 1.8% 2.1% 3.8% 3.7% 1.6% 2.4% 3.2%
Construction 26.8 27.4 29.8 31.2 32.8 35.0 33.4
% Change 1.5% 2.2% 8.8% 4.7% 5.1% 6.7% 9.2%
Manufacturing 91.5 92.2 92.0 93.4 92.0 92.8 93.7
% Change -0.9% 0.8% -0.2% 1.5% -1.5% 0.9% 1.7%
Stone, Clay, And Glass Product 9.8 9.9 10.1 10.1 10.1 10.0 9.9
% Change 1.0% 1.0% 2.0% 0.0% 0.0% -1.0% -1.0%
Glass And Glassware, Pressed Or Blown 3.9 4.1 3.9 4.1 4.1 4.1 4.1
% Change 5.4% 5.1% -4.9% 5.1% 0.0% 0.0% 2.5%
Dairy Products 4.3 4.6 4.6 4.3 4.1 4.0 3.7
% Change 4.9% 7.0% 0.0% -6.5% -4.7% -2.4% -7.5%
Transportation, Communications & P.U. 30.4 30.8 32.8 34.5 35.7 36.2 35.9
% Change 1.0% 1.3% 6.5% 5.2% 3.5% 1.4% 0.3%
Trade 184.4 189.7 199.7 210.4 213.2 213.2 213.8
% Change 2.7% 2.9% 5.3% 5.4% 1.3% 0.0% 2.8%
Retail Trade 148.4 153.0 161.5 170.9 173.2 171.7 171.1
% Change 3.1% 3.1% 5.6% 5.8% 1.3% -0.9% 2.1%
Finance, Insurance, And Real Estate 59.2 60.9 63.2 64.7 67.0 71.2 71.8
% Change -0.7% 2.9% 3.8% 2.4% 3.6% 6.3% 2.4%
Commercial Banks 10.0 9.8 10.1 11.0 11.6 13.2 12.9
% Change -6.5% -2.0% 3.1% 8.9% 5.5% 13.8% -3.0%
Insurance Carriers 22.5 22.9 23.1 23.4 24.2 25.0 25.2
% Change -0.4% 1.8% 0.9% 1.3% 3.4% 3.3% 1.6%
Services 188.7 194.6 204.9 214.9 221.4 229.1 231.8
% Change 3.4% 3.1% 5.3% 4.9% 3.0% 3.5% 5.3%
Business Services 42.5 46.8 53.5 59.4 61.5 64.4 64.1
% Change 4.2% 10.1% 14.3% 11.0% 3.5% 4.7% 4.6%
Personnel Supply Services 15.3 18.1 22.2 25.1 23.7 25.1 23.8
% Change 4.8% 18.3% 22.7% 13.1% -5.6% 5.9% 3.5%
Total Government 131.1 131.7 132.8 133.6 133.3 136.7 139.0
% Change 1.5% 0.5% 0.8% 0.6% -0.2% 2.6% 1.4%
Total State Government 56.6 57.3 57.9 58.0 57.5 58.5 59.5
% Change -0.4% 1.2% 1.0% 0.2% -0.9% 1.7% 0.7%
State Government Education 23.2 23.2 23.2 23.0 22.9 23.8 24.6
% Change -1.7% 0.0% 0.0% -0.9% -0.4% 3.9% 0.0%
</TABLE>
Source: Bureau of Labor Statistics
and sport facilities have recently been completed or are planned, which should
result in continued strength in the sector throughout the forecast horizon. For
instance, plans have been announced for a $50 million, 300-room Hilton Hotel &
Towers at the 1,200-acre Easton development in Northeast Columbus. The hotel
will anchor the lodging portion of the planned Easton Town Center, which will
include the hotel, several restaurants, a 30,000 square-foot conference center
and a megaplex theater. Easton Town Center is expected to open in the second or
third quarter of 1999. In the health care part of the services sector,
Wendt-Bristol Health Services continues its rapid expansion with plans for at
least three new diagnostic
Rosen Consulting Group 36
<PAGE>
centers in Franklin County as well as an addition to an existing center on Kenny
Road. In addition, several hospitals, including Mount Carmel Medical Center,
Mount Carmel East Hospital, and St. Ann's are upgrading and improving
facilities.
The finance, insurance and real estate (FIRE) sector grew by a very strong 6.3%
in 1997, although growth slowed to 2.4% between February of 1997 and 1998.
Columbus is home to BankOne and Nationwide Insurance, as well as several other
finance and insurance companies. However, in April of 1998, BankOne announced
plans to acquire First Chicago NBD. The combined bank, which will be the fifth
largest in the nation, will be headquartered in Chicago. Some initial job losses
are predicted for Columbus, although bank executives have announced that within
a year, local employment will exceed levels at the takeover. In the real estate
sector, Galbreath and LaSalle merged in 1997, resulting in some job loss,
although the company's local presence, largely in property management, remains
significant. In positive news in the finance subsector, Chase Manhattan is
moving 600 jobs to Columbus from Tampa as a result of its merger with Chemical
Bank. The lender will relocate an additional 1,000 jobs from central Ohio. Chase
is building a new $35 million, 240,000 square-foot facility to house the new
workers, scheduled for occupancy in 1998.
The fastest growing part of the economy in percentage terms is the construction
sector, with a 6.7% growth rate in 1997 and a 9.2% growth rate between February
of 1997 and 1998. Infrastructure construction, as well as the commercial
projects mentioned above, is driving the increase in construction activity. Work
on two Interstate 270 projects was recently completed. Construction will begin
on a new $125 million, 20,000-seat sports arena in the spring of 1998. The arena
will be the home of a National Hockey League expansion team, which will begin
playing in the year 2000.
The government sector forms an important part of the Columbus economy, as it is
both the state capital and the home of Ohio State University. The sector
accounts for more than 16% of all the jobs in Columbus, and, thus, is
approximately 86% more concentrated than it is in the national economy (see
Exhibit 2.3). Government employment grew 2.6% in 1997 and 1.4% between February
of 1997 and 1998.
Employment in the transportation, communications and public utilities (TCPU)
sector grew 1.4% during 1997, but gained just 0.3% in the twelve months ended in
February of 1998. The transportation sector is experiencing growth, although the
communications sector has experienced some recent setbacks. In the
transportation sector, both passenger and freight volume have increased at the
airports. Activity at Port Columbus International Airport is increasing at a
steady rate, with positive effects on transportation employment. The airport
expects to open 200 acres on the North Airfield for commercial projects. America
West Airlines has increased its service from Columbus from 12 to 17
destinations. In addition, Executive Jet increased local employment to 800
during 1997. It is seeking extra space to house its expanding operations center
and maintenance facility, although it has delayed plans for a 60,000 square-
foot office building and 120,000 square-foot hanger as it considers other
options.
In the communications sector, both long-distance and wireless communications
companies are expanding in the metropolitan area, although Columbus received bad
news recently about cutbacks at Ameritech. Chicago-based Ameritech employs
11,200 in Ohio and owns the local telephone company. Ameritech announced that
5,000 jobs would be cut from its 73,000-person work force during 1998. In
positive news for this sector, Airtouch Cellular leased a new, four-story
building near Tuttle Crossing in which it originally expected to lease only one
floor. In addition, LCI International, the nation's sixth-largest long
Rosen Consulting Group 37
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
EXHIBIT 2.3
COLUMBUS LOCATION QUOTIENTS
Sector Location Quotient(*)
------ --------------------
<S> <C>
Glass And Glassware, Pressed Or Blown 8.489
Dairy Products 4.302
Stone, Clay, And Glass Products 2.792
Insurance Carriers 2.401
Total State Government 1.867
State Government Education 1.789
Finance, Insurance, And Real Estate 1.458
Personnel Supply Services 1.342
Business Services 1.272
Retail Trade 1.202
Commercial Banks 1.184
(*) A location quotient measures the regional concentration of
employment in a particular industry. If employment in an industry
were evenly distributed throughout the U.S., a region's location
quotient would be 1.0. Mathematically, it is defined as the ratio
of the percentage of total employment in industry x in a given
region divided by the percentage of total employment in industry
x nationally.
Source: U.S. Bureau of Labor Statistics
-------------------------------------------------------------------
</TABLE>
distance carrier, plans to add 1,000 jobs to its local work force and lease a
156,000 square-foot office in Dublin. The company already has 1,000 employees in
Central Ohio, but plans to hire more to maintain the fast-paced growth of the
company. Many of the jobs to be filled at the network control center will be in
high-tech positions.
In one of the nation's most successful military base conversions, Rickenbacker
Air Industrial Park and Rickenbacker International Airport have been the
locations of significant growth in Columbus in recent years. The volume of air
freight at the Rickenbacker International Airport increased rapidly during 1997.
The airport handled 243.1 million pounds of freight, an increase of 45% over
1996, and freight handled in January of 1998 was up 20% from January of 1997.
Many of the new jobs added have been in manufacturing industries. For example,
in recent expansion activity, Techneglas, a maker of glass for television tubes,
is expanding its warehousing operations at Rickenbacker. American Freightways
Corporation purchased 45.3 acres to expand its shipping operations in Columbus
in 1998. Kraft Foods will complete a 610,000 square-foot warehouse at
Rickenbacker Air Industrial Park in mid-1998 where it will consolidate three
distribution facilities and create almost 200 new jobs by 2001. In 1997, Laura
Ashley transferred its North American distribution operations from Memphis to
Rickenbacker Air Industrial Park, where it will create 100 jobs by 2001. Growth
at Rickenbacker contributed to the small 0.9% gain in manufacturing sector
employment during 1997, a rate of growth that accelerated to 1.7% during the
twelve months ended in February of 1998.
Manufacturing jobs are also being created elsewhere in the metropolitan area as
companies are attracted by ColumbusAE central location and transportation
network. Columbus also has a steady supply of high-
Rosen Consulting Group
38
<PAGE>
tech workers coming into the employment pipeline with 13 universities and
colleges nearby. In recent years, large companies such as Whirlpool have added
hundreds of new jobs to the area. Several other companies have announced plans
for expansion. AK Steel has proposed a $1.1 billion plant that would employ 500
workers near Columbus. In addition, Coca-Cola recently completed a $9 million
expansion of its East Side syrup plant that increased its size by about
one-fourth. In addition, Crane Plastics Company will create almost 100 jobs as
it expands its two South Side operations to accommodate its new TimberTech
product line, a sawdust and plastic composite used to build decks.
Forecasted Employment
The Columbus metropolitan economy grew at a moderately strong rate of 2.4% in
1997. Following national trends, the Columbus economy will also slow, with total
employment decelerating to 2.1% in 1998 and an average of 1.6% per year
thereafter (see Exhibit 2.4). The services sector will continue to contribute
the majority of new jobs to the economy, with growth ranging from 2.9% to 3.8%
during the next three years. Trade employment, another large sector in the
Columbus economy, will grow at a modest rate of close to 1% per year. FIRE
employment will decelerate, but will continue to grow at a moderate rate of
close to 2% during the next three years. Manufacturing will decelerate,
reflecting the maturity of the industrial goods cycle, with employment slowing
to a slightly positive rate by 1999 and 2000.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
EXHIBIT 2.4
NONAGRICULTURAL PAYROLL EMPLOYMENT FORECAST
COLUMBUS, OH MSA
1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 728.0 755.9 783.5 796.0 814.9 832.0 844.5 858.8
% Change 2.1% 3.8% 3.7% 1.6% 2.4% 2.1% 1.5% 1.7%
Construction 27.4 29.8 31.2 32.8 35.0 36.5 36.6 37.1
% Change 2.2% 8.8% 4.7% 5.1% 6.7% 4.3% 0.2% 1.4%
Manufacturing 92.2 92.0 93.4 92.0 92.8 94.2 94.8 94.9
% Change 0.8% -0.2% 1.5% -1.5% 0.9% 1.5% 0.6% 0.1%
Trade 189.7 199.7 210.4 213.2 213.2 215.3 217.1 219.5
% Change 2.9% 5.3% 5.4% 1.3% 0.0% 1.0% 0.9% 1.1%
Services 194.6 204.9 214.9 221.4 229.1 237.7 244.6 252.2
% Change 3.1% 5.3% 4.9% 3.0% 3.5% 3.8% 2.9% 3.1%
T.C.P.U. 30.8 32.8 34.5 35.7 36.2 36.5 36.8 37.2
% Change 1.3% 6.5% 5.2% 3.5% 1.4% 0.8% 0.8% 1.3%
F.I.R.E. 60.9 63.2 64.7 67.0 71.2 72.7 74.1 75.9
% Change 2.9% 3.8% 2.4% 3.6% 6.3% 2.1% 1.9% 2.4%
Government 131.7 132.8 133.6 133.3 136.7 138.5 139.9 141.3
% Change 0.5% 0.8% 0.6% -0.2% 2.6% 1.3% 1.1% 0.9%
Sources: Bureau of Labor Statistics, RCG
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group
39
<PAGE>
- --------------------------------------------------------------------------------
Columbus Industrial Market
- --------------------------------------------------------------------------------
The Columbus industrial market, measuring slightly over 94 million square feet
as of year-end 1997, eased during 1997, as the metropolitan industrial vacancy
rate rose to 8.3% from 6.3% in 1996 (see Exhibit 2.5). Extremely tight market
conditions and strong demand conditions during the last four years attracted
investment and construction activity. Much of the existing inventory consists of
older buildings which do not have the high ceilings, super-flat floors or tax
abatements offered to those who construct new buildings. As a result, most
recent leasing activity has been in new construction, especially in the
southwest submarket.
Demand generators for industrial space in Columbus include manufacturers,
retailers and wholesale distributors. Goodyear Tire & Rubber Company is building
a $14.5 million, 630,000 square-foot distribution center at the new Creekside
Industrial Park in Obetz. Several build-to-suit facilities, including the
610,000 square-foot project for Kraft Foods, are underway at Rickenbacker. Levi
Strauss & Company will serve as the anchor tenant in the redevelopment of the
Cranston Building. In addition, Rickenbacker International Airport and Port
Columbus International Airport are strong demand generators, due to an
increasing level of cargo activity.
Much of the new speculative industrial construction is centered around the
Rickenbacker International Airport, where a number of large warehouses have been
constructed. Most recently, during the fourth quarter of 1997, Opus North
Corporation completed a 434,000 square-foot speculative distribution facility in
the Foreign Trade Zone of Rickenbacker Airport.
In spite of the rising vacancy rate, a number of speculative development
projects are underway. Some of the more notable projects include Ruscilli
Development's two 268,000 square-foot industrial buildings nearing completion
within its Gateway Business Park project at Route 665 and Interstate 270 in the
southern edge of Grove City. Pizzuti Development will complete a 412,000
square-foot warehouse in South Park in 1998. Duke Realty Investment is
constructing two buildings of about 110,000 square feet each at Southpointe and
it plans a 300,000 square-foot addition to an existing building in Grove City.
Finally, Security Capital Trust proposed three developments totaling 660,000
square feet at its Capital Park South industrial park in Grove City. Security
Capital has lease commitments for the last 260,000 square feet of available
distribution space within the industrial park.
The outlook is for both new construction and net absorption to slow, responding
to both slower national trends and, in the case of construction, to high vacancy
rates. Since construction may respond with a lag to slowing demand conditions,
the industrial vacancy rate may edge up slightly higher, but not significantly.
Rosen Consulting Group
40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
EXHIBIT 2.5
COLUMBUS TOTAL METROPOLITAN AREA INDUSTRIAL MARKET (000SF)
1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 83,134 85,934 89,434 91,934 94,034 97,334 99,834 101,334
New Construction 3,900 2,800 3,500 2,500 2,100 3,300 2,500 1,500
Net Absorption 6,583 158 2,778 1,976 96 2,800 2,000 1,800
Occupied Stock 81,222 81,379 84,157 86,133 86,229 89,029 91,029 92,829
Vacancy Rate 2.3% 5.3% 5.9% 6.3% 8.3% 8.5% 8.8% 8.4%
Sources: Pizzuti, RCG
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group
41
<PAGE>
- --------------------------------------------------------------------------------
Knoxville Metropolitan Economy
- --------------------------------------------------------------------------------
Economic Overview
Knoxville's economic growth has accelerated during the last two years, with
total employment growth reaching 1.0% in 1997 and 1.4% as of the year ended
February 1998, compared to 0.1% in 1996. Knoxville's economy has grown at a very
similar rate to the U.S. economy over the last five years, although at times
counter-cyclical compared to the U.S. (see Exhibit 3.1). Between 1992 and 1997,
the employment growth rate in Knoxville averaged 2.1% per year compared with
national employment growth rate of 2.4% over the same period. However, unlike
the overall U.S. economy, Knoxville's economy is stable. During the national
recession ended in March 1991, Knoxville's employment did not turn down. For
1991, the employment growth rate in Knoxville was 1.8% compared with a national
employment decline at the rate of -1.1%. During the 1982 national recession,
employment in Knoxville also did not decline.
Knoxville is an attractive location for corporate tenants seeking a low-cost and
central location. Knoxville is below the national average for cost of living and
Tennessee Valley Authority electric rates are among the lowest in the country
for both residential and industrial customers. With the city of Knoxville at its
hub, East Tennessee lies at the geographic heart of the Eastern United States.
Three of the nation's most important interstates intersect in Knoxville,
including I-40, a major East-West artery; I-75, the major North-South route in
the Eastern U.S.; and, I-81, connecting East Tennessee with the population-dense
Northeast. These factors have contributed to attracting new companies to the
area. Among the new company headquarters moving into the area recently are:
Pilot Corporation, Clayton Homes, Proffitt's, Ruby Tuesday, Regal Cinema and
Regal Corporation.
- --------------------------------------------------------------------------------
EXHIBIT 3.1.
- --------------------------------------------------------------------------------
Knoxville vs. U.S.
Total Non-Agricultural Employment
[GRAPH APPEARS HERE]
U.S. Knoxville
1979 3.61 1.9%
1980 0.65 -1.3%
1981 0.83 5.0%
1982 -1.76 1.3%
1983 0.68 7.8%
1984 4.72 3.8%
1985 3.16 1.0%
1986 2.01 3.0%
1987 2.63 4.1%
1988 3.19 1.7%
1989 2.55 2.3%
1990 1.41 1.8%
1991 -1.06 1.8%
1992 1.00 5.3%
1993 2.10 4.0%
1994 3.10 2.5%
1995 2.7 3.2%
1996 2. 0.1%
1997 2.3 1.0%
1998 2.2 1.6%
1999 1.7 1.4%
Sources: Bureau of Labor Statistics, RCG
Rosen Consulting Group 42
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Exhibit 3.2
Nonagricultural Payroll Employment by Sector
Knoxville, TN MSA
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 285.3 296.7 304.1 313.8 314.2 317.2 312.1
% Change 5.3% 4.0% 2.5% 3.2% 0.1% 1.0% 1.4%
Construction 12.4 13.7 15.0 17.9 16.7 15.5 15.0
% Change 7.8% 10.5% 9.5% 19.3% -6.7% -7.2% 3.4%
Manufacturing 49.7 50.6 50.1 49.3 48.2 48.8 49.3
% Change 1.6% 1.8% -1.0% -1.6% -2.2% 1.2% 0.8%
Durable Goods 30.2 30.0 29.0 28.9 28.7 29.3 29.7
% Change --- -0.7% -3.3% -0.3% -0.7% 2.1% 1.4%
Stone, Clay, And Glass Product 1.4 1.5 1.4 1.4 1.4 1.3 1.3
% Change --- 7.1% -6.7% 0.0% 0.0% -7.1% 0.0%
Apparel & Other Textile Products 8.4 9.2 8.6 7.7 6.7 6.4 6.3
% Change --- 9.5% -6.5% -10.5% -13.0% -4.5% -1.6%
Transportation, Communications & P.U. 10.3 11.2 12.2 13.4 14.0 14.3 13.9
% Change 2.0% 8.7% 8.9% 9.8% 4.5% 2.1% -2.8%
Trade 73.4 75.0 78.1 81.4 82.3 83.7 81.4
% Change 2.1% 2.2% 4.1% 4.2% 1.1% 1.7% 1.4%
Eating And Drinking Places --- --- --- 25.0 25.0 25.3 23.7
% Change --- --- --- 0.0% 1.2% 0.4%
Finance, Insurance, And Real Estate 10.6 11.0 11.4 12.0 13.0 13.8 13.8
% Change 7.1% 3.8% 3.6% 5.3% 8.3% 6.2% 3.0%
Services 74.9 79.9 81.4 84.2 84.3 86.3 83.9
% Change 12.3% 6.7% 1.9% 3.4% 0.1% 2.4% 3.6%
Hotels And Other Lodging Place --- --- --- 6.6 6.7 6.9 6.0
% Change --- --- --- --- 1.5% 3.0% 7.1%
Total Government 53.5 54.7 55.6 55.1 55.1 54.4 54.3
% Change 4.3% 2.2% 1.6% -0.9% 0.0% -1.3% -1.1%
Source: Bureau of Labor Statistics
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The strongest growth has occurred in the finance, insurance and real estate
sector (FIRE) and services sector, which grew 3.0% and 3.6%, respectively,
during the year ended February 1998 (see Exhibit 3.2). The FIRE employment base
has grown precipitously in recent years, rising 8.3% and 6.2% during 1996 and
1997, respectively. During the last five years, the FIRE sector grew 5.2%, on
average, outpacing the U.S. average growth in this sector of 1.3%.
Strong growth in the FIRE and services sector bode well for the office market.
The services sector, with average growth of 2.3% over the last five years, is
Knoxville's largest employment sector. Tourism has been a fast-growing
employment sector and the hotel and lodging industry is very concentrated in
Knoxville, with a location quotient of 1.47 (see Exhibit 3.3). Job growth in
hotels and other lodging places rose 7.1% during the year ended February 1998,
following job growth of 3.0% during 1997. Some of the major attractions in the
Knoxville area include the Great Smoky Mountains National Park, the Lost Sea,
and the Forbidden Caverns. Also Dollywood, Dolly Parton's amusement park in
Pigeon Forge, is a big employer (1,800 jobs) and tourist draw. Health services
is also a fairly large sector, with Covenant Health Alliance and St. Mary's
Medical Center among the largest employers in Knoxville.
Rosen Consulting Group 43
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Exhibit 3.3
Knoxville Location Quotients
Sector Location Quotient(*)
------ --------------------
<S> <C>
Apparel And Other Textile Products 2.950
Total State Government 1.731
Hotels And Other Lodging Places 1.474
Eating And Drinking Places 1.266
Retail Trade 1.169
Durable Goods 1.014
Stone, Clay, And Glass Products 1.003
</TABLE>
(*) A location quotient measures the regional concentration
of employment in a particular industry. If employment in an
industry were evenly distributed throughout the U.S., a
region's location quotient would be 1.0. Mathematically, it
is defined as the ratio of the percentage of total
employment in industry x in a given region divided by the
percentage of total employment in industry x nationally.
Source: U.S. Bureau of Labor Statistics
------------------------------------------------------------------
Transportation, communications and public utilities (TCPU) has historically been
a fast-growing sector, with job growth averaging 6.2% between 1992 and 1997.
During 1997, employment was up 2.1%, but during early 1998, the sector has
registered job losses. As of the year ended February 1998, TCPU employment was
down 2.8%. The largest employer in this sector is Tennessee Valley Authority
(TVA), which is headquartered in Knoxville. The TVA is the nation's largest
power corporation, producing more than 140 billion kilowatt-hours of electricity
a year for a total of 7.3 million people. The TVA has about 36,000 employees
throughout the Tennessee Valley and 2,019 employees in Knoxville and operates 29
hydroelectric dams, 11 coal-fired plants, a pumped-storage plant, and three
nuclear plants. With energy deregulation, the TVA will face more competitive
pressures and is likely to shed some jobs in an effort to cut expenses.
The presence of TVA, the Department of Energy's (DoE) Oak Ridge facility, and
the University of Tennessee have earned Knoxville the designation of the
national energy center. Oakridge National Research Laboratories is one of the
nation's largest federally funded research laboratories. It leads other research
laboratories in the transfer of technology to private industry. Scientists and
engineers are allowed to consult with private companies. Researchers with
marketable products are encouraged to patent and license new products and
developments.
The DoE contracts much of the work at Oak Ridge to Lockheed Martin Energy
Systems. In fact, Lockheed Martin Energy Systems is the largest private sector
employer in Knoxville with 12,775 employees. Lockheed Martin Energy Systems
manages Oak Ridge National Laboratory and the Y-12 nuclear weapons plant and
K-25 plant. Both of the contracts are due to expire in 2000 and DOE is on record
as saying it plans to put the contracts up for competitive bids. In 1996,
then-Secretary Hazel O'Leary gave Lockheed Martin two-year extensions on each of
the Oak Ridge contracts, but vowed to seek bids after that as part of the
contract reform initiative. However, Lockheed has indicated recently that
another contract renewal is possible. A number of other businesses have been
attracted by the Oak Ridge facility. Boeing Defense and Space, for example,
manufactures electronic airplane components at its Oak Ridge facility.
Rosen Consulting Group 44
<PAGE>
Other large private sector employers include DeRoyal Industries, with 2,350
employees, Clayton Homes, The Kroger Company, and Aluminum Company of America,
all with approximately 2,000 employees..
Manufacturing employment rebounded during 1997 and early 1998, after three years
of declines. The most concentrated industry in both the manufacturing sector and
the overall economy is apparel and textile products, which has is nearly three
times more concentrated in the Knoxville economy than it is in the U.S. economy.
Employment in apparel and textile products represents 12.8% of the manufacturing
sector employment, but just 2.05 of total employment. However, job growth in
this sector has been flat to negative since 1994. During 1997, Levi Strauss
Jeanswear Division, then the third largest private sector employer with nearly
3,600 employees, announced that they were closing their Cherry Street sewing and
finishing plant in Knoxville, which resulted in 2,200 layoffs. However, several
other apparel and textile companies operate in Knoxville, including Palm Beach
Company, New Cherokee Corporation, and Bike Athletic Company.
Forecasted Employment
The employment growth rate in Knoxville should continue to accelerate. Total
payroll employment should grow close to 1.5% per year through the year 2000 (see
Exhibit 3.4). FIRE and services will be the leading growth sectors, with growth
ranging between 2.5% and 3.5% in the FIRE sector and between 3.3% and 3.7% in
the services sector. These trends bode well for office space demand. By
contrast, the manufacturing sector will contract, following national trends.
Trade, another major sector, will post growth ranging between 1.0% and 1.4%
during the next three years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Exhibit 3.4
Nonagricultural Payroll Employment Forecast
Knoxville, TN MSA
1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 296.7 304.1 313.8 314.2 317.2 322.3 326.8 332.0
% Change 4.0% 2.5% 3.2% 0.1% 1.0% 1.6% 1.4% 1.6%
Construction 13.7 15.0 17.9 16.7 15.5 15.8 16.0 16.1
% Change 10.5% 9.5% 19.3% -6.7% -7.2% 1.9% 1.5% 0.5%
Manufacturing 50.6 50.1 49.3 48.2 48.8 49.2 49.1 49.2
% Change 1.8% -1.0% -1.6% -2.2% 1.2% 0.8% -0.3% 0.2%
T.C.P.U. 11.2 12.2 13.4 14.0 14.3 14.2 14.2 14.3
% Change 8.7% 8.9% 9.8% 4.5% 2.1% -0.5% -0.4% 0.6%
Trade 75.0 78.1 81.4 82.3 83.7 84.8 85.6 86.8
% Change 2.2% 4.1% 4.2% 1.1% 1.7% 1.3% 1.0% 1.4%
F.I.R.E. 11.0 11.4 12.0 13.0 13.8 14.3 14.7 15.0
% Change 3.8% 3.6% 5.3% 8.3% 6.2% 3.6% 2.5% 2.3%
Services 79.9 81.4 84.2 84.3 86.3 89.5 92.6 95.7
% Change 6.7% 1.9% 3.4% 0.1% 2.4% 3.7% 3.5% 3.3%
Government 54.7 55.6 55.1 55.1 54.4 54.1 54.2 54.6
% Change 2.2% 1.6% -0.9% 0.0% -1.3% -0.5% 0.2% 0.6%
Sources: Bureau of Labor Statistics, RCG
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 45
<PAGE>
- --------------------------------------------------------------------------------
Knoxville Office Market
- --------------------------------------------------------------------------------
The Knoxville office market is tightening, with the metropolitan average vacancy
rate at its lowest level since the 1980s. As of year-end 1997, the Knoxville
office market had an overall vacancy rate of 6.4%. Both the downtown and the
suburban office market have improved significantly during the last year, based
on the decline in vacancy rates in both markets. The improving conditions
reflect both the low level of construction deliveries in 1997 and robust demand
growth. For the market as a whole, only 183,000 square feet net were added to
the market.
The downtown market has tightened considerably, with vacancy rates falling to
7.1% as of year-end 1997 from 10.6% as of year-end 1996 and a recent peak of
13.7% in 1994 (see Exhibit 3.5). Absorption in the downtown market surpassed
that of the suburban market in 1997 for the first time since 1991. However, no
new construction has occurred in downtown for several years and no proposals for
office construction downtown are in process. The Knoxville Utilities Board is
considering a new downtown headquarters, although they have not decided whether
to rebuild on their current site or to look at other downtown sites. The major
new construction downtown is the Knox County Commission's new Justice Center.
The project will include a jail facility and courts and will take five years to
complete.
The downtown market is dominated by government agencies, which lease an
estimated 45% of the downtown office inventory. Government-owned space in the
downtown will undergo some shifts during the next year or two, with the proposed
consolidation of TVA space. TVA has announced that it will move out of two
floors of the West Tower, with workers relocating into the East Tower. In
addition, the opening of the Baker Courthouse, formerly the headquarters of
Whittle Communications, in the second quarter of 1998 will result in the
consolidation of several smaller government leases.
With no new construction in the pipeline and demand growth expected to continue
at a moderate pace, the outlook for Knoxville's downtown office market is
strong. The downtown vacancy rate will continue to decline, albeit slowly,
putting additional upward pressure on rent growth.
- --------------------------------------------------------------------------------
EXHIBIT 3.5
KNOXVILLE DOWNTOWN OFFICE MARKET (000SF)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 5,590 5,590 5,590 5,590 5,590 5,590 5,590 5,590 5,590
New Construction 0 0 0 0 0 0 0 0 0
Net Absorption 129 28 (274) 235 (61) 196 40 40 25
Occupied Stock 5,070 5,098 4,824 5,059 4,997 5,193 5233 5273 5298
Vacancy Rate 9.3% 8.8% 13.7% 9.5% 10.6% 7.1% 6.4% 5.7% 5.2%
Gross Rent $11.80 $9.68 $10.67 $10.57 $11.57 $11.27 $11.86 $12.53 $13.27
</TABLE>
Sources: Knoxville Metropolitan Planning Commission, RCG
- --------------------------------------------------------------------------------
Rosen Consulting Group 46
<PAGE>
- --------------------------------------------------------------------------------
Milwaukee Metropolitan Economy
- --------------------------------------------------------------------------------
Economic Overview
The Milwaukee metropolitan area experienced accelerating economic growth during
1997 and into 1998 (see Exhibits 4.1 and 4.2). For 1997, average annual
employment was up 1.8%, following a 1.1% increase in 1996, and between February
of 1997 and 1998, nonagricultural payroll employment gained a much stronger
3.0%. During the past twelve months, construction sector employment grew 9.2%,
the largest gain in percentage terms. The services sector, however, added the
greatest number of jobs. Its 4.9% growth rate represented the addition of more
than 12,000 jobs. The labor market is tight, with an unemployment rate of 3.0%
in February of 1998.
Many of the new services sector jobs are in business services. Business services
includes a wide array of industries, ranging from temporary employees to the
software industry. Illustrating the growth in business services, Manpower, the
temporary help service, is creating 150 full-time jobs in the Milwaukee area.
Another fast growing part of Milwaukee's services sector involves hotels,
conventions and entertainment. In the hotel market, an $8 million renovation of
the 484-room Hyatt Regency Milwaukee will be completed in the second quarter of
1998, and the Milwaukee Hilton will soon start a 250-room expansion that will
bring its total to 750 rooms. Several downtown office buildings are also being
converted into hotels. Developer John Ogden is converting a 1930's-vintage
office building into a 65- suite downtown hotel. A similar conversion is
occurring in an 8-story building close to the Midwest Express Center. In the
suburbs, development activity for budget hotels is strong. Completion is
expected
- --------------------------------------------------------------------------------
Exhibit 4.1
- --------------------------------------------------------------------------------
Milwaukee vs. U.S.
Total Non-Agricultural Employment
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
United States Milwaukee
<S> <C> <C>
1979 3.61% 3.6%
1980 0.65% -1.4%
1981 0.83% -1.9%
1982 -1.76% -3.6%
1983 0.68% -1.3%
1984 4.72% 4.0%
1985 3.16% 1.0%
1986 2.01% 2.0%
1987 2.63% 2.9%
1988 3.19% 3.5%
1989 2.55% 2.8%
1990 1.41% 2.0%
1991 -1.06% -1.0%
1992 1.00% 1.4%
1993 2.10% 1.7%
1994 3.10% 2.1%
1995 2.7% 1.9%
1996 2% 1.1%
1997 2.3% 1.8%
1998f 2.2% 2.2%
</TABLE>
Sources: Bureau of Labor Statistics, RCG
Rosen Consulting Group 47
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 4.2
NONAGRICULTURAL PAYROLL EMPLOYMENT BY SECTOR
MILWAUKEE, WI MSA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 760.1 772.7 788.8 804.0 812.9 827.2 832.4
% Change 1.4% 1.7% 2.1% 1.9% 1.1% 1.8% 3.0%
Construction & Mining 27.4 28.0 28.6 28.1 28.8 30.3 28.5
% Change 1.9% 2.2% 2.1% -1.7% 2.5% 5.2% 8.4%
Manufacturing 165.3 167.2 172.1 176.7 174.8 176.1 178.0
% Change -1.3% 1.1% 2.9% 2.7% -1.1% 0.7% 2.4%
Primary Metal Industries 7.5 7.8 8.2 8.8 8.9 9.0 9.2
% Change -2.6% 4.0% 5.1% 7.3% 1.1% 1.1% 4.5%
Fabricated Metal Products 18.9 18.8 19.6 20.2 20.2 21.0 21.5
% Change -3.1% -0.5% 4.3% 3.1% 0.0% 4.0% 5.4%
Metal Forgings And Stampings 4.9 4.8 4.7 4.7 4.6 4.7 4.7
% Change -2.0% -2.0% -2.1% 0.0% -2.1% 2.2% 2.2%
Industrial Machinery And Equip 40.2 40.5 41.3 42.3 41.1 40.6 40.8
% Change -2.7% 0.7% 2.0% 2.4% -2.8% -1.2% -0.2%
Engines And Turbines 8.8 8.9 9.2 9.0 7.7 7.0 6.9
% Change -1.1% 1.1% 3.4% -2.2% -14.4% -9.1% -6.8%
Construction And Related Machines 7.0 6.8 6.8 7.2 7.2 7.1 6.9
% Change -4.1% -2.9% 0.0% 5.9% 0.0% -1.4% -4.2%
Metalworking Machinery 6.9 6.9 7.2 7.7 7.9 8.2 8.2
% Change -4.2% 0.0% 4.3% 6.9% 2.6% 3.8% 1.2%
General Industrial Machinery 5.6 5.8 6.1 6.4 6.5 6.7 7.0
% Change -5.1% 3.6% 5.2% 4.9% 1.6% 3.1% 7.7%
Electronic & Other Electric Eq 18.0 17.9 18.6 20.1 20.7 21.3 21.9
% Change -1.1% -0.6% 3.9% 8.1% 3.0% 2.9% 4.8%
Electrical Industrial Apparatus 8.4 8.3 8.7 9.6 10.0 10.6 11.1
% Change -3.4% -1.2% 4.8% 10.3% 4.2% 6.0% 8.8%
Instruments And Related Produc 12.3 11.7 11.3 11.3 11.1 11.1 11.3
% Change -3.1% -4.9% -3.4% 0.0% -1.8% 0.0% 2.7%
Medical Instruments And Supplies 6.1 5.9 5.8 5.8 5.9 6.0 6.1
% Change 3.4% -3.3% -1.7% 0.0% 1.7% 1.7% 3.4%
Beverages 3.9 3.8 3.5 3.5 3.2 2.8 2.7
% Change 2.6% -2.6% -7.9% 0.0% -8.6% -12.5% 0.0%
Printing And Publishing 19.0 19.6 19.7 20.2 20.1 20.7 21.0
% Change 1.6% 3.2% 0.5% 2.5% -0.5% 3.0% 3.4%
Commercial Printing 10.2 11.0 11.2 12.1 12.6 13.4 13.9
% Change 2.0% 7.8% 1.8% 8.0% 4.1% 6.3% 6.1%
</TABLE>
Source: Bureau of Labor Statistics
- --------------------------------------------------------------------------------
Rosen Consulting Group 48
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 4.2 (CONT'D)
NONAGRICULTURAL PAYROLL EMPLOYMENT BY SECTOR
MILWAUKEE, WI MSA
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Transportation And Public Utilities 36.6 37.2 38.1 38.8 39.1 39.4 40.1
% Change 0.0% 1.6% 2.4% 1.8% 0.8% 0.8% 2.3%
Trade 169.6 170.7 172.4 176.2 178.0 179.7 178.0
% Change -1.1% 0.6% 1.0% 2.2% 1.0% 1.0% 1.5%
Finance, Insurance, And Real Estate 52.0 52.9 55.3 56.1 56.4 57.8 58.4
% Change 1.2% 1.7% 4.5% 1.4% 0.5% 2.5% 2.6%
Depository Institutions 14.4 14.6 15.0 15.2 15.2 15.1 14.9
% Change 2.1% 1.4% 2.7% 1.3% 0.0% -0.7% -2.0%
Insurance Carriers 17.6 17.5 18.0 17.8 17.1 16.7 16.7
% Change -1.7% -0.6% 2.9% -1.1% -3.9% -2.3% 0.6%
Services 220.9 228.2 232.7 238.5 246.8 255.3 258.6
% Change 5.2% 3.3% 2.0% 2.5% 3.5% 3.4% 4.9%
Business Services 48.2 52.1 55.9 57.3 58.7 63.5 65.0
% Change 10.3% 8.1% 7.3% 2.5% 2.4% 8.2% 10.5%
Health Services 67.8 69.3 69.9 70.1 73.8 75.4 76.6
% Change 2.6% 2.2% 0.9% 0.3% 5.3% 2.2% 3.0%
Total Government 88.4 88.5 89.6 89.7 89.0 88.8 90.7
% Change 2.2% 0.1% 1.2% 0.1% -0.8% -0.2% 0.6%
</TABLE>
Source: Bureau of Labor Statistics
- --------------------------------------------------------------------------------
in the first quarter of 1998 on a 114-room TownePlace Suites by Marriott in
Brookfield. CSM Corporation will soon begin construction on a $9 million, 131-
room Country Inns & Suites in Brookfield.
Employment growth in the finance, insurance and real estate (FIRE) sector was up
a strong 2.5% in 1997 and continues at a moderately strong rate in early 1998,
with growth of 2.6% during the year ended February 1998. Insurance carriers are
highly concentrated in the Milwaukee economy, with 16,700 employees (see Exhibit
4.3). Strong growth in FIRE and business services combined bodes well for the
office market.
Several major public works projects are underway. The first phase of Midwest
Express Center, Milwaukee's new $170 million convention facility, will open in
the third quarter of 1998. The second phase, which will encompass the site of
the existing convention center, will open a year later. In addition,
construction is proceeding on a $38 million expansion of the Milwaukee Art
Museum. The expansion, which is scheduled for completion on New Years Eve of
2000, will form a defining feature of the Milwaukee skyline and is expected to
lead to a significant boost in Milwaukee's tourism market. Plans are also
underway to build a new $250 million baseball stadium for the Milwaukee Brewers.
Milwaukee has historically had a very strong manufacturing base. Manufacturing
sector employment in Milwaukee accounts for 21% of the total employment base
compared with 15% nationally. Manufacturing employment grew 0.7% in 1997, with
the pace accelerating to 2.4% for the twelve months ended
Rosen Consulting Group 49
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Exhibit 4.3
MILWAUKEE LOCATION QUOTIENTS
Sector Location Quotient*
------ ------------------
<S> <C>
Engines And Turbines 13.550
Electrical Industrial Apparatus 9.466
Construction And Related Machinery 4.568
General Industrial Machinery 3.707
Metalworking Machinery 3.352
Commercial Printing 3.293
Medical Instruments And Supplies 3.213
Industrial Machinery And Equipment 2.860
Metal Forgings And Stampings 2.693
Beverages 2.664
Fabricated Metal Products 2.051
Printing And Publishing 1.917
Instruments And Related Products 1.916
Electronic & Other Electric Equipment 1.842
Primary Metal Industries 1.831
Insurance Carriers 1.663
Business Services 1.190
Health Services 1.145
Depository Institutions 1.103
</TABLE>
* A location quotient measures the regional concentration of employment in a
particular industry. If employment in an industry were evenly distributed
throughout the U.S., a region's location quotient would be 1.0. Mathematically,
it is defined as the ratio of the percentage of total employment in industry x
in a given region divided by the percentage of total employment in industry x
nationally.
Source: U.S. Bureau of Labor Statistics
- --------------------------------------------------------------------------------
in February of 1998. Engines and turbines and electrical industrial apparatus
are two important manufacturing industries in Milwaukee. These two industries
have location quotients of 13.5 and 9.5, respectively, signifying their heavy
concentration in Milwaukee by comparison to the U.S. economy (see Exhibit 4.3).
One of the biggest developments in the manufacturing sector during the last few
years is Harley Davidson's expansion. Harley Davidson is renovating the 400,000
square-foot Briggs & Stratton plant in Menomonee, where it will make engines and
transmissions. The facility will also be expanded to include a 300,000
square-foot product development center and a 250,000 square-foot distribution
center. Harley Davidson will create up to 400 jobs at the site by the year 2000.
Harley Davidson also recently completed a 250,000 square-foot distribution
center in Franklin. Further, Harley is planning to open a company museum at
Schlitz Park. The 75,000 square-foot museum, scheduled for completion in early
1999, should be a major tourist attraction.
Rosen Consulting Group
50
<PAGE>
Employment in the transportation, communication and public utilities (TCPU)
sector gained a small 0.8% in 1997, but the pace of growth accelerated to 2.3%
in the twelve months ended in February. Midwest Express Airlines is moving
forward with plans to build a 70,000 square-foot hanger and 25,000 square-foot
shop at General Mitchell International Airport.
Forecasted Employment
Employment growth will accelerate during 1998 in Milwaukee, then slow during
1999 and 2000, following national trends (see Exhibit 4.4). Undermining overall
employment growth will be weakening trends in the manufacturing sector. The
services sector will be one of the fastest growing sectors, with growth ranging
between 3.0% and 3.5% during the next three years. FIRE employment will continue
to grow at a moderate rate of 2% per year through the year 2000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EXHIBIT 4.4
NONAGRICULTURAL PAYROLL EMPLOYMENT FORECAST
MILWAUKEE, WI MSA
1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 772.7 788.8 804.0 812.9 827.2 845.4 860.6 872.7
% Change 1.7% 2.1% 1.9% 1.1% 1.8% 2.2% 1.8% 1.4%
Construction 27.9 28.4 28.0 28.7 30.2 31.7 32.3 32.3
% Change 2.2% 1.8% -1.4% 2.5% 5.2% 5.0% 1.9% 0.0%
Manufacturing 167.2 172.1 176.7 174.8 176.1 179.2 179.5 178.7
% Change 1.1% 2.9% 2.7% -1.1% 0.7% 1.7% 0.2% -0.5%
Trade 170.7 172.4 176.2 178.0 179.7 182.3 185.6 188.7
% Change 0.6% 1.0% 2.2% 1.0% 1.0% 1.4% 1.9% 1.6%
Services 228.2 232.7 238.5 246.8 255.3 264.3 273.0 281.2
% Change 3.3% 2.0% 2.5% 3.5% 3.4% 3.5% 3.3% 3.0%
T.C.P.U. 37.2 38.1 38.8 39.1 39.4 40.1 40.6 40.9
% Change 1.6% 2.4% 1.8% 0.8% 0.8% 1.8% 1.2% 0.8%
F.I.R.E. 52.9 55.3 56.1 56.4 57.8 58.9 60.0 61.2
% Change 1.7% 4.5% 1.4% 0.5% 2.5% 1.9% 1.9% 2.0%
Government 88.5 89.6 89.7 89.0 88.8 88.9 89.5 89.6
% Change 0.1% 1.2% 0.1% -0.8% -0.2% 0.1% 0.7% 0.1%
Sources: Bureau of Labor Statistics, RCG
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group
51
<PAGE>
- --------------------------------------------------------------------------------
Milwaukee Office Market
- --------------------------------------------------------------------------------
Overall office market conditions in Milwaukee deteriorated during 1997, with
moderately strong suburban office market conditions offset by weakness in the
downtown office market. The overall vacancy rate rose to 16.4% during the year
from 15.7% in 1996. Metropolitan demand growth is strong, with office employment
(defined as FIRE and business services employment) up 5.4% between 1996 and 1997
compared to national growth of 4.0%. Between 1992 and 1997, office employment in
Milwaukee grew at an annual average rate of 3.9% compared to 4.3% for the nation
as a whole.
The suburban office vacancy rate fell to 15.4% in 1997 from 17.0% in 1996 (see
Exhibit 4.5). Most office absorption has been a result of expanding local
companies, rather than relocations from outside the Milwaukee area.
Office development is mainly occurring in the west suburbs along the Interstate
94 corridor, which connects Milwaukee and Madison. At least one million square
feet of speculative office projects are on the drawing board. In Wauwatosa
County, Opus North completed a 135,000 square-foot building in early 1998 which
is anchored by Graef Anhalt Schloemer & Associates, an engineering company,
which occupies 35,000 square feet. This building, of which 35,000 square feet is
still available, is the first phase in the development of the 350,000
square-foot Honey Creek Corporate Center in the West Allis area. In Waukesha,
WISPARK completed a 63,000 square-foot building in early 1998, of which 40,000
square feet is still available. Brookfield is a strong area for new
construction. At the Crossroads Corporate Center, TOLD Development will deliver
two buildings of 50,000 and 75,000 square feet, respectively, in the third
quarter of 1998. Contrary to market trends, both buildings are approximately 80%
pre-leased.
Several office project will be completed in 1999. Great Lakes REIT has a 90,000
square-foot project which will start construction soon in the Riverwood area. In
Brookfield, Continental Properties plans to build two 54,000 square-foot
buildings. Because, half of the space in each building will be retail, a total
of 54,000 square feet of office space will be added to the market. In addition,
Inland Management Corporation is planning to develop a 65,000 square-foot office
building at 300 North Executive Drive. Neither of these projects are under
construction yet. The Polacheck Company has launched a joint venture with A.O.
Smith Corporation and Peter Schwabe Incorporated to develop a 68,000
square-foot, speculative office project, the first in a new 28-acre park.
Construction is on hold until financing is
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 4.5
MILWAUKEE SUBURBAN OFFICE MARKET
-------------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 13,615 13,615 13,615 13,805 13,986 14,036 14,361 14,788 14,888
New Construction 0 0 0 190 181 50 325 427 100
Net Absorption 759 408 735 (601) (140) 266 275 225 100
Occupied Stock 11,205 11,614 12,349 11,748 11,608 11,874 12,149 12,374 12,474
Vacancy Rate 17.7% 14.7% 9.3% 14.9% 17.0% 15.4% 15.4% 16.3% 16.2%
-------------
Sources: Polacheck, RCG
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group
52
<PAGE>
secured. During 1999, another 50,000 square feet will be delivered in the
Milwaukee County Research Park and another 100,000 square feet will be delivered
in the Honey Creek Corporate Center.
The Mayfair Road submarket is the most popular of Milwaukee's suburban office
submarkets. Available space in the Mayfair Road submarket is usually the first
space to lease and the last to be vacated. The only available land for office
development is within the Milwaukee Country Research Park, which has strict
restrictions on development. No construction occurred within this submarket
during the last six years, with the exception of one 43,700 square-foot office
building by Boldt Development in 1997. During the third quarter of 1997, Boldt
Development started construction on the second 43,700 square-foot building,
which will be completed during 1998 and is close to 75% preleased. One other
office buildings will be completed in this submarket will be completed during
1998, including a 128,000 square-foot office building at 1200 Mayfair Road
which is being developed by S.M. Wangard Company.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
EXHIBIT 4.6
MAYFAIR OFFICE MARKET
---------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 2,090 2,090 2,090 2,090 2,090 2,134 2,306 2,356 2,406
New Construction 0 0 0 0 0 44 172 50 50
Net Absorption 59 115 (86) (4) 16 150 75 50
Occupied Stock 1,808 1,867 1,982 1,895 1,892 1,908 2,058 2,133 2,183
Vacancy Rate 13.5% 10.7% 5.2% 9.3% 9.5% 10.6% 10.8% 9.5% 9.3%
---------
Sources: Polacheck, RCG
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The outlook for the Milwaukee suburban office market is for vacancy rates to
remain stable in 1998. By 1999, construction deliveries may outpace demand
growth, pushing the suburban vacancy rate up slightly, a trend which should
reverse in the year 2000.
Rosen Consulting Group
53
<PAGE>
- --------------------------------------------------------------------------------
Nashville Metropolitan Economy
- --------------------------------------------------------------------------------
Economic Overview
During 1997, the Nashville metropolitan economy accelerated compared to 1996,
with total payroll employment growth of 2.9%, slightly faster than the 2.3%
growth registered for the nation as a whole in 1997 (see Exhibit 5.1). In
absolute terms, Nashville's employment base expanded by about 17,400 jobs during
1997. Data as of February 1998 reflect even faster growth of 3.1% during the
last year (see Exhibit 5.2). In recent years, Nashville has attracted expanding
and relocating companies because of its central location, high quality of life
and favorable business climate, created by low taxes and right-to-work laws.
Nashville's key industries include health care, entertainment and tourism,
government, printing and publishing, and automobile manufacturing. However, an
increasingly diverse array of businesses are relocating to Nashville.
The finance, insurance and real estate (FIRE) sector was the fastest growing
sector in Nashville's economy during 1997, with robust growth of 5.7%. More
recently, FIRE sector employment increased 3.4% between February of 1997 and
1998. A number of FIRE sector employers are expanding. For example, Primus
Automotive Financial Services is consolidating its headquarters and local
processing centers in Franklin. American General will occupy two new 120,000
square-foot buildings near Cool Springs. The consolidation of American General
and Tampa-based Independent Insurance Group will result in the creation of 700
jobs locally. Another important employer, CIGNA, completed a build-to-suit
facility in 1997.
- --------------------------------------------------------------------------------
EXHIBIT 5.1
- --------------------------------------------------------------------------------
Nashville vs. U.S.
Total Non-Agricultural Employment
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
United
States Nashville
------ ---------
<S> <C> <C>
1979 3.61 3.6%
1980 0.65 -1.1%
1981 0.83 2.9%
1982 -1.76 -1.1%
1983 0.68 3.9%
1984 4.72 7.1%
1985 3.16 6.5%
1986 2.01 5.1%
1987 2.63 4.5%
1988 3.19 2.8%
1989 2.55 1.5%
1990 1.41 0.9%
1991 -1.06 -0.3%
1992 1.00 2.8%
1993 2.10 5.3%
1994 3.10 5.4%
1995 2.7 4.3%
1996 2 2.4%
1997 2.3 2.9%
1998f 2.2 2.6%
</TABLE>
Sources: Bureau of Labor Statistics, RCG
Rosen Consulting Group 54
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Exhibit 5.2
Nonagricultural Payroll Employment by Sector
Nashville, TN MSA
- ---------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 Feb-98
---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 514.5 541.8 570.8 595.4 609.4 627.0 633.1
% Change 2.8% 5.3% 5.4% 4.3% 2.4% 2.9% 3.1%
Construction & Mining 19.9 22.3 25.4 27.5 29.6 31.1 31.2
% Change -5.2% 12.1% 13.9% 8.3% 7.6% 5.1% 7.6%
Manufacturing 90.7 94.2 98.7 99.8 96.5 96.3 98.1
% Change 4.4% 3.9% 4.8% 1.1% -3.3% -0.2% 1.7%
Furniture And Fixtures 3.8 4.3 4.4 4.1 3.7 3.0 2.6
% Change 8.6% 13.2% 2.3% -6.8% -9.8% -18.9% -18.8%
Fabricated Metal Products 8.6 9.3 10.1 9.9 8.3 8.4 8.4
% Change 2.4% 8.1% 8.6% -2.0% -16.2% 1.2% -1.2%
Electronic & Other Electric Equip. 8.8 8.9 9.2 9.6 9.7 9.9 10.0
% Change --- 1.1% 3.4% 4.3% 1.0% 2.1% 1.0%
Transportation Equipment 12.7 13.5 14.4 15.1 15.0 15.3 15.9
% Change 15.5% 6.3% 6.7% 4.9% -0.7% 2.0% 7.4%
Printing And Publishing 14.4 14.4 15.0 15.2 14.2 14.2 14.4
% Change 2.1% 0.0% 4.2% 1.3% -6.6% 0.0% 2.1%
Leather And Leather Products 1.7 1.7 1.7 1.6 1.5 1.4 1.3
% Change 0.0% 0.0% 0.0% -5.9% -6.3% -6.7% -13.3%
Transportation, Communications & P.U. 30.3 32.2 32.4 32.2 31.2 31.0 31.3
% Change 3.8% 6.3% 0.6% -0.6% -3.1% -0.6% 1.3%
Trade 125.0 129.9 137.3 143.1 147.2 151.6 152.6
% Change 1.8% 3.9% 5.7% 4.2% 2.9% 3.0% 3.0%
Finance, Insurance, & Real Estate 30.6 31.4 33.1 34.4 36.8 38.9 39.3
% Change -0.3% 2.6% 5.4% 3.9% 7.0% 5.7% 3.4%
Services 149.3 159.3 168.6 182.2 190.3 196.9 196.1
% Change 6.5% 6.7% 5.8% 8.1% 4.4% 3.5% 3.2%
Hotels And Other Lodging Place --- --- --- 12.1 10.1 10.5 10.4
% Change --- --- --- --- -16.5% 4.0% 1.0%
Health Services --- --- --- 51.2 51.5 52.0 52.5
% Change --- --- --- --- 0.6% 1.0% 1.7%
Educational Services --- --- --- 13.7 14.0 14.3 15.3
% Change --- --- --- --- 2.2% 2.1% 4.8%
Total Government 68.8 72.6 75.4 76.3 78.0 81.2 84.5
% Change -1.3% 5.5% 3.9% 1.2% 2.2% 4.1% 3.9%
Source: Bureau of Labor Statistics
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Rosen Consulting Group 55
<PAGE>
With nearly 200,000 jobs, the services sector is by far the largest sector of
the economy. This sector added 6,600 jobs during 1997 for a 3.5% growth rate.
Since 1992, the services industry has posted an impressive 5.7% average growth
rate. Although still very strong, services sector growth has decelerated in
recent years. Most recently, the services sector posted a 3.2% employment gain.
Important service industries in Nashville include health, entertainment and
tourism. Nashville is a major medical center in the South. It is the home of
Vanderbilt University Medical Center, Columbia/HCA, Baptist Health Care Systems,
St. Thomas Hospitals, ClinTrials, Surgical Care Affiliates, Quorum, and REN
Corporation. Columbia/HCA Healthcare Corporation is Nashville's second largest
private-sector employer with more than 8,000 employees. Columbia/HCA is
expanding. It is building its fifth Nashville office building, a five-story,
130,000 square-foot facility that will accommodate 400 employees. In addition,
Vanderbilt University Medical Center has announced plans for a 200-bed pediatric
center to open by 2001.
In the entertainment industry, Nashville is the country music capital, and it
has more than 200 recording studios. MOR Music TV recently relocated to
Nashville, creating 150 jobs. In addition, Nashville's new 20,000-seat, $124
million arena was completed in early 1997. Nashville was awarded a National
Hockey League expansion franchise that will play its first season in 1998-1999
at the new arena downtown. Also under construction near downtown is a
65,000-seat National Football League stadium that will be the future home for
the former Houston Oilers. The Oilers are playing in Memphis until the stadium
is completed in 1998. Plans also exist for a new $26 million, 105,000
square-foot Country Music Hall of Fame near the arena.
Tourism and conventions are a significant part of Nashville's economic base. In
fact, the hotel and lodging industry is about 15% more concentrated in
Nashville's economy than it is in the national economy (see Exhibit 5.3). The
Grand Ole Opry and Opryland USA, a country music themed amusement park, are
large sources of tourism. Opryland is Nashville's fourth largest private-sector
employer, with about 8,000 employees. A $200 million expansion of the Opryland
Hotel and Convention Center was completed in 1996 and 1997. However, the owners
of Opryland closed the park for redevelopment in 1998. New attractions will be
phased in over a five-year period, with the first opening in the spring of 2000.
Included among the new additions will be enhanced attractions at the theme park
and a 1.1 million square-foot Opry Mills complex that will combine themed
restaurants, and entertainment venues with retail stores, creating an
entertainment corridor between the Opry Plaza and Cumberland Landing areas.
Other parts of Nashville's hospitality sector are expanding. A number of hotels
are under construction throughout the metropolitan area. Many of the new hotels
are in the budget or extended stay category. In the downtown area, a 192-room
Marriott Courtyard will emerge from the redevelopment of the former J.C.
Bradford office building in the second quarter of 1998, and a 400-room Marriott
Hotel, located next to the new downtown arena, has received initial financing.
Trade sector employment posted gains of 3.0% in 1997 and again in the twelve
months ended in February of 1997. Almost 75% of trade sector employment is in
retail trade, and growth in this sector has been healthy as a result of the
area's strong demographics and new residential construction. In addition,
several national and regional retailers are headquartered in Nashville,
including Castner Knott Department Stores, Service Merchandise Company, Dollar
General, Shoney's and Cracker Barrel. In other retail operations, the Gap is
building a 1.8 million square-foot distribution facility just north of Nashville
that will eventually create 1,025 jobs. Because of its central location,
Nashville is also an active distribution center, which contributes to growth in
wholesale trade employment.
Rosen Consulting Group 56
<PAGE>
-----------------------------------------------------------------
Exhibit 5.3
Nashville Location Quotients
Sector Location Quotient/*/
------ --------------------
Leather And Leather Products 3.016
Printing And Publishing 1.805
Transportation Equipment 1.651
Furniture And Fixtures 1.453
Educational Services 1.363
Hotels And Other Lodging Places 1.156
Electronic & Other Electric Equipment 1.155
Fabricated Metal Products 1.127
Health Services 1.066
Total Government 0.786
/*/ A location quotient measures the regional concentration
of employment in a particular industry. If employment in an
industry were evenly distributed throughout the U.S., a
region's location quotient would be 1.0. Mathematically, it
is defined as the ratio of the percentage of total
employment in industry x in a given region divided by the
percentage of total employment in industry x nationally.
Source: U.S. Bureau of Labor Statistics
------------------------------------------------------------------
The manufacturing sector experienced a slight 0.2% decrease in employment during
1997, but growth rebounded in early 1998, with a 1.7% increase in employment
between February of 1997 and 1998. Durable goods, especially the automobile
industry, are very important to the Nashville economy. Within the automobile
industry, Saturn Corporation and Nissan Motor Manufacturing Corporation are
among the ten largest employers. Suppliers to the automobile industry include
Bridgestone-Firestone, Peterbilt Motors, Ford Motor Company Glass Division and
numerous smaller companies. In connection with the auto industry, Accuride
Corporation is converting a vacant building into a new wheel production plant
that will initially create 125 jobs, a figure that could grow to 600 through
three planned expansions.
Non-automotive manufacturers are also expanding in Nashville. VAW Aluminum will
create 155 jobs at a new 50,000 square-foot manufacturing facility in the
Fayetteville industrial park. A 35,000 square-foot expansion at Precision
Painting and Packaging will create 115 jobs. National Fulfillment is expanding
its warehouse by 115,000 square feet and will add 100 new employees by the end
of 1998. Bentz Companies is expanding its boat manufacturing facilities and will
add up to 100 employees. In Nashville's important printing industry, Quebecor
Printing Corporation, RR Donnelley & Sons, and Adnet Midwest have expanded. In
addition, American Banknote Corporation is relocating its security printing
facility to Nashville, creating 200 local jobs.
Rosen Consulting Group 57
<PAGE>
Nashville is the headquarters for BellSouth Telephone Company. All of the
nation's major long distance carriers also have a presence in Nashville, since
Nashville's central location is an advantage to large volume distance users. For
instance, BellSouth Mobility, Cellular One and Sprint PCS provide cellular
coverage for the region. The transportation, communication and public utilities
sector, of which telecommunications is a part, contracted during 1997, but grew
1.3% as of the year ended in February 1998.
Forecasted Employment
The outlook for the Nashville metropolitan area is for moderate economic growth
through at least 2000 (see Exhibit 5.4). Our positive outlook largely rests on
Nashville's attractions as a corporate location, including affordable housing
and a central location. With national employment expected to slow during the
next three years, Nashville's economy will also slow, albeit only slightly.
Total employment will be in the 2.5% range, with the strongest growth occurring
in the services and FIRE sector, which bodes well for office space demand.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Exhibit 5.4
Nonagricultural Payroll Employment Forecast
Nashville, TN MSA
1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total 541.8 570.8 595.4 609.4 627.0 643.3 658.7 675.9
% Change 5.3% 5.4% 4.3% 2.4% 2.9% 2.6% 2.4% 2.6%
Construction 21.7 24.7 26.8 29.0 30.4 31.9 32.3 33.2
% Change 13.0% 13.8% 8.5% 8.2% 4.8% 4.9% 1.3% 2.8%
Manufacturing 94.2 98.7 99.8 96.5 96.3 97.6 98.8 100.3
% Change 3.9% 4.8% 1.1% -3.3% -0.2% 1.3% 1.3% 1.5%
Trade 129.9 137.3 143.1 147.2 151.6 156.3 160.9 165.9
% Change 3.9% 5.7% 4.2% 2.9% 3.0% 3.1% 2.9% 3.1%
Services 159.3 168.6 182.2 190.3 196.9 203.3 209.5 216.6
% Change 6.7% 5.8% 8.1% 4.4% 3.5% 3.3% 3.0% 3.4%
T.C.P.U. 32.2 32.4 32.2 31.2 31.0 31.5 32.2 32.8
% Change 6.3% 0.6% -0.6% -3.1% -0.6% 1.6% 2.3% 1.9%
F.I.R.E. 31.4 33.1 34.4 36.8 38.9 40.1 41.4 42.8
% Change 2.6% 5.4% 3.9% 7.0% 5.7% 3.0% 3.3% 3.4%
Government 72.6 75.4 76.3 78.0 81.2 82.1 83.1 83.7
% Change 5.5% 3.9% 1.2% 2.2% 4.1% 1.1% 1.3% 0.7%
Sources: Bureau of Labor Statistics, RCG
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Rosen Consulting Group 58
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Nashville Office Market
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The Nashville office market is one of the tightest in the nation, with a low
overall office vacancy rate of 5.8% in 1997 (see Exhibit 5.5). New construction
added significantly to supply in the suburbs during 1997, but the space was
readily absorbed. Conditions in both downtown and the suburbs tightened during
1997. Nashville's metropolitan office market ranked eighth lowest out of 70
major metropolitan office markets nationwide as of year-end 1997 with respect to
its vacancy rate.
The downtown vacancy rate fell to 9.5% at year-end 1997 from 14.6% in 1996. Net
absorption was strong, totaling over 250,000 square feet, its highest level in
over six years. Extremely tight suburban office market conditions contributed to
stronger net absorption in the downtown market and we expect this trend to
continue. As of year-end 1997, the suburban office vacancy rate was down to an
extremely low 4.4%.
Office employment growth has been strong in Nashville (defined as FIRE and 40%
of services employment). Between 1992 and 1997, office employment increased 5.4%
compared to 4.3% nationally. During 1997, office employment was up 4.3% compared
to the prior year, compared to 4.0% nationally. Entertainment and retail users
are establishing operations downtown, attracting office tenants. In conjunction
with the relocation of the Houston Oilers to Nashville, construction continued
during 1997 on a new state-of-the-art football stadium on the East bank of the
Cumberland River in downtown Nashville In addition, a new 290,000 square-foot
downtown library is planned for the Church Street Centre site. Of further
interest downtown is the continuing revitalization of Historic Second Avenue,
which has been supported by the popularity of themed restaurant venues such as
Hard Rock Cafe and Planet Hollywood and many other eateries.
No office construction is underway in the downtown market, boding well for
future rent growth. The most probable downtown construction will be a 120,000
square-foot building and a 400-car garage for the Nashville Chamber of Commerce
and two other tenants. The Chamber will occupy 25,000 to 30,000 square feet in
the project. In addition, a 120,000 square-foot office tower is proposed for
Music Row. The building would be anchored by all of BMG's Nashville
entertainment divisions, including Arista Records/Nashville, RCA
Records/Nashville, BNA Entertainment and BMG Music's local publishing and
distribution arms.
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<CAPTION>
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Exhibit 5.5
Nashville Downtown Office Market (000SF)
--------
1992 1993 1994 1995 1996 1997 1998f 1999f 2000f
---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock 5,026 5,026 5,026 5,026 5,026 5,026 5,026 5,026 5,146
New Construction 0 0 0 0 0 0 0 0 120
Net Absorption 85 10 -30 171 -80 256 100 50 65
Occupied Stock 4,222 4,232 4,202 4,373 4,292 4,549 4,649 4,699 4,764
Vacancy Rate 16.0% 15.8% 16.4% 13.0% 14.6% 9.5% 7.5% 6.5% 7.4%
Gross Rent $16.62 $16.03 $15.51 $15.39 $16.39 $17.03 $17.65 $18.09
--------
Sources: CB Commercial, Trammell Crow, RCG
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Rosen Consulting Group 59
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The outlook for the Nashville downtown office market is strong. A low suburban
office vacancy rate will continue to contribute to office demand growth in the
downtown, where office space is relatively more plentiful, but still in short
supply. Based on forecasted employment in both the FIRE and services sectors and
the paucity of office projects in the construction pipeline, RCG expects the
downtown vacancy rate to trend down to the 6.5% to 7.5% range during the next
three years, putting significant upward pressure on rent growth (see Exhibit
5.5).
Rosen Consulting Group 60
