Rithm Capital bets on office space recovery with $1.6 billion Paramount Group deal

By Abhinav Parmar

Global asset manager Rithm Capital NYSE:RITM on Wednesday said it had agreed to acquire office portfolio owner Paramount Group NYSE:PGRE for $1.6 billion in cash, betting on a rebound in office real estate.

The deal comes as investors gauge whether the U.S. office market, hit hard by rising interest rates, remote work and declining property values, may be reaching a bottom.

The offer values New York City-based Paramount Group at $6.60 per share, repenting a 10.7% discount to the stock's last closing price.

Shares of Paramount fell 11.6% in morning trade, while Rithm rose 3.4%.

"With office and commercial real estate fundamentals improving, impending rate cuts and an increase in the return to office narrative, we view this transaction as well-timed with an attractive asset profile," said Jason Weaver, analyst at JonesTrading.

Rithm said it plans to fund the deal with a mix of cash, existing balance sheet liquidity and possible contributions from co-investors.

"(The deal) will serve as a springboard to build out our commercial real estate and asset management platform and expands our owner-operator model," Rithm CEO Michael Nierenberg said in a statement.

Paramount Group owns, operates and redevelops office properties in central business district submarkets of New York City and San Francisco. Its portfolio includes 13 owned and four managed office properties.

The REIT's portfolio spans more than 13.1 million square feet, with 85.4% leased as of June 30, the company said.

"The Paramount portfolio is situated in cities where we have a strong conviction in the recovery of office market fundamentals, including improving rent rolls, a more favorable interest rate environment, and increasing demand," Rithm's Nierenberg added.

The deal, which still needs to be approved by Paramount shareholders, is expected to close by the end of the fourth quarter.