Rithm Capital Near Deal to Buy Office Owner Paramount Group — WSJ

By Rebecca Picciotto, Lauren Thomas and Ben Glickman

A real-estate firm based in New York City is nearing a deal to buy Paramount Group, a large Manhattan and San Francisco office landlord, in the latest sign that those once-beleaguered office markets are bouncing back.

The sale process drew interest from a host of pre-eminent real-estate owners, including investment firm Blackstone and office owners SL Green Realty and Vornado Realty Trust, according to people familiar with the matter. The leading bid is from Rithm Capital, these people said. Rithm is a publicly traded real-estate owner founded under Fortress Investment Group in 2013.

The sale price and other details regarding a proposed deal, which could be announced as soon as this week, couldn't immediately be determined. Paramount had a market capitalization of $1.7 billion as of Tuesday.

Analysts at real-estate analytics firm Green Street estimate that a deal could be valued around $2 billion, given the competitive bidding process and investor confidence in New York and San Francisco's office rebound.

A deal would conclude Paramount's review of alternative paths for its business. The company said in May it would explore "strategic alternatives" after shareholders raised concerns over the company's performance and management. At that time, the company said that Wilbur Paes, who served as chief operating officer, chief financial officer and treasurer, was stepping down. The firm's general counsel, Gage Johnson, also left.

In April, the company revealed $4 million of previously undisclosed payments for Chief Executive Albert Behler's personal expenses and business interests. Paramount said in a July filing it was under investigation by the Securities and Exchange Commission over whether it adequately disclosed its executive perks, conflicts of interest and transactions with entities related to the company.

Paramount said it is "unable to estimate" the outcome of the SEC probe nor the range of potential costs that might result, according to the July filing.

Rithm's acquisition offers a sign of confidence that the two prominent office markets are emerging from the Covid-19 pandemic's deep doldrums. The office-vacancy rate in San Francisco has been easing, helped by a number of artificial-intelligence-related companies gobbling up open space, tech companies requiring employees to return to the office, and the city's reduction in homelessness and crime.

The New York office market has been recovering at a faster rate than most any other city, also boosted by return-to-office mandates and by a lack of new supply. Higher-end Manhattan office buildings in prime locations, such as Park Avenue or Fifth Avenue, have led the rebound.

Overall, Paramount owns more than a dozen office towers in the two cities, including on Fifth Avenue and Wall Street in New York. Paramount also owns One Front Street in San Francisco, which was designed by Skidmore, Owings & Merrill and offers views of the Golden Gate Bridge.

It is unclear what the company's sale means for Behler after 34 years as the company's CEO. Paramount said payouts from the company toward his businesses and personal expenses included $900,000 for Behler's personal accounting services and more than $3 million for a private jet company partly owned by the CEO.

The spending in question took place from 2022 to 2024. But it was disclosed for the first time in April. The SEC requires public companies to disclose every fiscal year all executive perks above $10,000 and transactions above $120,000 with people or entities related to the company.

Analysts say Paramount has been underperforming other office real-estate investment trusts since at least 2017, in part because of overspending on costs such as executive compensation and relatively low valuations on some properties. Paramount received unsolicited takeover offers in 2020 and 2022, both of which it rejected. Analysts have questioned why these buyouts were declined given Paramount's struggling stock value.

Paramount shareholders have also raised red flags over the company's large compensation packages for executives, along with Behler's previously undisclosed payments.

The company's market capitalization is a little more than half of what it was in 2019 before the pandemic emptied out office buildings. The stock price has jumped about 30% since Paramount announced the strategic review.

Write to Rebecca Picciotto at Rebecca.Picciotto@wsj.com, Lauren Thomas at lauren.thomas@wsj.com and Ben Glickman at ben.glickman@wsj.com