Prime Group Realty Trust · 8-K · For 2/5/99

Filed On 2/16/99   ·   SEC File 1-13589   ·   Accession Number 1042798-99-12

Current Report   ·   Form 8-K
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 1: 8-K         Current Report                                         4     19K 

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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 5, 1999

PRIME GROUP REALTY TRUST
(Exact name of registrant as specified in its charter)

 Maryland                       1-13589                         36-4173047
(State or other          (Commission File Number)              (I.R.S. Employer 
jurisdiction of                                                 Identification
incorporation or                                                   Number)    
organization)                                                                 

77 West Wacker Drive, Suite 3900, Chicago Illinois                  60601       
(Address of principal executive offices)                       (Zip Code)   

Registrant's telephone number, including area code: (312) 917-1300

 N/A
 (Former name of former address, if changed since last report)

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ITEM 5.  OTHER EVENTS                                                           

The registrant has announced the  acquisition of the National City Center Office
Tower in Cleveland,  Ohio. A press  release  dated  February 5, 1999 relating to
this event is attached to this Report.  This Current Report on Form 8-K is being
filed in  accordance  with  Rule  135c  (d) of the  Securities  Act of 1933,  as
amended. The text of the press release is as follows:                           

Chicago,  Illinois,  February 5, 1999.  Prime Group Realty Trust (NYSE:PGE) (the
"Company")  announced  today its  acquisition of the National City Center office
tower in  Cleveland,  Ohio under a new agreement  with  affiliates of Blackstone
Real  Estate  Advisors  ("Blackstone"),  as well as the  execution  of an option
agreement with  Blackstone  granting the Company an option to purchase IBM Plaza
in Chicago,  Illinois on or before  December 20, 1999.  Under the new agreement,
National City Center was  purchased for $100 million.  The option to acquire IBM
Plaza is at a  purchase  price of $238  million.  Prime  Group  has made an $8.0
million  nonrefundable  option payment to the seller of the IBM Building,  which
payment  will be applied  against  the  purchase  price in the event the Company
exercises its option. As part of the new agreement,  the pending lawsuit between
the parties has been dismissed and the $20.0 million earnest money deposit under
the original  agreement has been applied  toward the purchase price for National
City Center and the option payment for IBM Plaza.                               

"We believe the new  agreement is an excellent  investment  opportunity  for our
Company,  which is expected to provide a combined  10 year  unleveraged  rate of
return of 13.6% on a cash basis,  assuming  the  purchase of IBM Plaza under our
option," stated Richard S. Curto,  the Chief  Executive  Officer of the Company.
"The new  agreement  contains two  important  improvements  for the Company when
compared to the original agreement. First, the combined purchase price for these
two  buildings was reduced by nearly $18 million.  In addition,  the exercise of
the option to acquire IBM Plaza at the end of 1999, as opposed to the originally
scheduled  closing  date  in  September,  1998,  will  result  in a  significant
improvement  in the first year cash return  from the  property to be realized by
our Company.  With  contractual  rent increases and the lease-up of vacant space
during the option  period,  we expect to realize a first year  unleveraged  cash
yield of 9.0% if we exercise  our option and close on the  property on or before
December 20, 1999.  Thereafter,  the property has an expected  ten-year internal
growth rate of 5.4%."                                                           

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FINANCING                                                                       

Financing for these  acquisitions  includes a  combination  of mortgage debt and
cash. The National City Center building was purchased  through the assumption of
a $61.6 million  nonrecourse first mortgage plus approximately  $38.4 million in
cash.  The Company  anticipates  obtaining  mortgage  financing  of $150 to $160
million to purchase IBM Plaza,  with the  remainder of the purchase  price being
paid with cash.                                                                 

NATIONAL CITY CENTER                                                            

National  City Center is one of the most  visible  Class A office  buildings  in
downtown  Cleveland  and is located at Euclid  Avenue and East 9th  Street.  The
35-story  building  contains a total of 766,965 net rentable  square feet and is
currently  99% leased.  The building is the corporate  headquarters  of National
City Bank which occupies 520,425 rentable square feet in the building.  National
City Bank is the largest bank in Ohio and the 13th largest in the United States,
and carries an A+ credit  rating from  Standard & Poor's.  The building  also is
occupied by Baker & Hostetler,  one of Cleveland's  leading law firms, KPMG Peat
Marwick, and Ernst & Young.                                                     

"The  purchase  price of $100.0  million,  or $130.38 per rentable  square foot,
represents  approximately  60% of estimated  replacement  cost," added Curto. We
expect  this  transaction  to  produce  a first  year cash  yield of 9.4%.  More
importantly,  however, the projected ten year unleveraged rate of return on this
property is estimated to be 14.2%."                                             

IBM PLAZA                                                                       

Chicago's  prominent  IBM Plaza  building  is located  between  State and Wabash
Streets along the north bank of the Chicago  River,  just two blocks east of the
Company's  flagship office tower at 77 West Wacker Drive. The 47-story,  Class A
office tower contains  1,354,354  rentable square feet and provides tenants with
unobstructed  views of Lake Michigan and the Chicago  River.  The purchase price
includes an adjacent  eleven-story,  902-space parking garage worth an estimated
$15.0 million,  as well as  approximately  6,500 rentable  square feet of retail
space.  IBM Plaza was designed by the  internationally-renowned  architect,  the
late Ludwig Mies van der Rohe. The two largest  tenants are IBM  Corporation and
Jenner & Block, a leading Chicago law firm, which combined occupy  approximately
48% of the building under long term leases.                                     

"Our  purchase  of an option to acquire  the IBM Plaza  presents  a  significant
opportunity  for Prime Group Realty Trust to capitalize on the continued  growth
of the downtown Chicago office market," stated Mr. Curto.  "Current rents in the
building are below market and a majority of the leases  provide for  substantial
escalation  in net rent over the next ten years.  Net of the value  allocated to
the parking  garage,  the  Company's  option price  represents  only $164.65 per
rentable  square  foot,  which  we  believe  is  less  than  70% of the  current
replacement cost of the building."                                              

Prime  Group  Realty  Trust  is  a  fully-integrated,   self-administered,   and
self-managed  real estate investment trust (REIT) which owns,  manages,  leases,
develops,  and redevelops  office and industrial  real estate,  primarily in the
Chicago  metropolitan  area.  Including  National  City  Center,  the  Company's
portfolio  consists of 27 office  properties,  containing  an  aggregate  of 8.2
million net rentable  square feet,  and 48 industrial  properties  containing an
aggregate of 6.1 million net rentable  square feet.  The portfolio also includes
225.5 acres of developable land and rights to acquire more than 325.8 additional
acres of  developable  land which  management  believes  could be developed with
approximately  12.3  million  rentable  square  feet of  additional  office  and
industrial space.                                                               

This  press  release  contains  certain  forward-looking  statements.  The words
"believes", "expects", "anticipates",  "estimates", "projects" and similar words
or expressions are generally  intended to identify  forward-looking  statements.
These statements  involve risks and  uncertainties  and actual results may vary.
For further information,  reference should be made to Prime Group realty Trust's
filings with the Securities and Exchange Commission.                            

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SIGNATURE 

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be signed  on its  behalf  by the
undersigned thereunto duly authorized.                                          

                                            PRIME GROUP REALTY TRUST
                                            ------------------------
                              Registrant

                                         /s/ William M. Karnes
                                            ------------------------
                                     William M. Karnes
                                                Executive Vice President and
                                           Chief Financial Officer

Date:  February 12, 1999                                                        

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Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This 8-K Filing		Date		First		Last			Other Filings
For The Period Ended		2/5/99		1		2			8-K
Filed As Of		2/12/99		4					8-K
Filed On		2/16/99
		12/20/99		2
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