Paramount Group sale highlights Manhattan office market strength

Introduction to Manhattan Office Market

The prospective purchase of Paramount Group by Rithm Capital is a significant vote of confidence in the strength of the Manhattan office market, where most of Paramount’s holdings are concentrated. This deal would give Rithm, a major force in commercial and residential credit and asset management, a substantial 13.1 million square-feet stake in physical properties for the first time.

The Deal and Its Implications

Several major players, including SL Green and Blackstone, reportedly made offers after Paramount quietly announced in April that it was seeking “strategic alternatives.” The sale, if approved by Paramount shareholders, might lead to some changes in Paramount’s 11-building Manhattan portfolio, sources told Realty Check. Paramount also has five properties in San Francisco, which are rebounding from the city’s economic downturn.

Rithm Capital’s Plans

Rithm CEO Michael Nierenberg has a low public profile and declined to comment directly due to Securities and Exchange Commission disclosure rules. However, he stated that the Paramount acquisition is a “generational opportunity to build out our commercial real estate and asset management platform and expands our owner-operator model.” Market sources expect a “rationalization” of Paramount’s Manhattan holdings, which might include capital upgrades to several buildings in need of renovation.

Potential Sales and Upgrades

Sales of certain Paramount buildings by Rithm are not out of the question, according to sources. Rithm will examine every asset closely, both in New York and San Francisco. Apart from 60 Wall St., which is undergoing a $250 million modernization, Paramount’s holdings like 900 Third Ave. and 31 West 52nd St. have seen minimal upgrades beyond lobby improvements.

Executives and guests of Rithm Capital celebrate its new name and ticker symbol at the NYSE Opening Bell ceremony in 2022. NYSE
Paramount Group has 11 buildings in Manhattan and five in San Francisco. Postmodern Studio – stock.adobe.com
Rithm is a major force in commercial and residential credit and asset management. SOPA Images/LightRocket via Getty Images
Paramount Group CEO Alfred Behler Bloomberg via Getty Images
150 Fifth Ave. is now 100% leased.
1515 Broadway is still in good shape despite a state panel’s rejection of a casino bid for the property. Christopher Sadowski

Market Performance and Scrutiny

Paramount’s Manhattan holdings are 88.1% leased, the highest since early 2022. However, the sale to Rithm is under scrutiny by analysts and some Paramount shareholders who believe the $1.6 billion price, or $6.60 per share, is too low. The SEC is reportedly looking into certain payments made to Paramount CEO Alfred Behler, which could be affected by the sale.

Conclusion

The potential sale of Paramount Group to Rithm Capital reflects the enduring strength of the Manhattan office market. As Rithm examines and potentially reconfigures Paramount’s portfolio, the move is expected to have significant implications for the market. With its substantial assets and plans for expansion, Rithm’s entry into the Manhattan office market is a notable development in the sector.

FAQs

1. What is the significance of the potential sale of Paramount Group to Rithm Capital?

   • The sale reflects confidence in the Manhattan office market’s strength and marks Rithm’s significant entry into physical property holdings.

2. What changes might Rithm make to Paramount’s Manhattan portfolio?

   • Rithm is expected to "rationalize" the portfolio, which could include upgrading buildings in need of renovation and potentially selling certain properties.

3. How is the Manhattan office market performing?

   • The market is showing signs of strength, with Paramount’s holdings being 88.1% leased, the highest since early 2022.

4. What other developments are happening in the Manhattan office market?

   • Other notable developments include the leasing of 150 Fifth Ave. to 100% occupancy and the extension of a mortgage on 1515 Broadway on favorable terms.
5. What is the current status of 60 Wall St.?
   • The tower is currently empty and undergoing a $250 million modernization. There are reports of potential leases, with companies like Sullivan & Cromwell, Moody’s, and Aon showing interest.