Albert Behler, CEO of Paramount Group and patient father to its Midtown offices, still expects his underperforming kids to turn things around.
“Every child has a different character. So every building has a different character and every lease is different,” Behler said Wednesday, sidestepping an analyst’s question about what price 500,000 vacant square feet at 1301 Sixth Avenue could command.
If children are products of their environments, the office REIT could hardly have picked worse milieus than Manhattan and San Francisco to concentrate its assets before the pandemic. For the second quarter it reported losing $15.9 million, compared with a loss of $6.3 million in the same period last year and a $2.5 million gain two years ago.
Paramount has marketed the Sixth Avenue space, once leased by Barclay’s, for more than a year without landing a tenant — a quest that the Delta variant’s spread will not make any easier.
Still, Behler, on an earnings call Wednesday, expressed optimism about office space. And funds from operations came in at a healthy $47.6 million for the quarter, or 22 cents per share, within shouting distance of the $50.1 million in the same quarter last year and $53.2 million in 2019. The company credited lower operating costs during the pandemic.
Paramount executives said in New York City it leased 247,000 square feet during the second quarter with an average term of 9.6 years and at initial rents averaging about $70 per square foot.
Behler cited the theater lease as proof that New York City would return to its former glory. But San Francisco, where Paramount has 30 percent of its asset value, has been even slower to come around.
“San Francisco has certainly rebounded more slowly, probably because of the prolonged lockdowns,” Deutsche Bank analyst Derek Johnston said on the call.
“It’s a different kind of culture that you have in California,” Behler explained. He later said that office attendance by Paramount’s San Francisco tenants is still only 7 percent to 10 percent.
The tech workers who set the tone in the northern California office market are likely to work from home for a while longer. Apple and Google, both based in California, recently delayed the date when it will ask workers to return to the office, and big tech companies are taking advantage of remote work to recruit talent from small-market firms.