With Barclays’ 500,000-square-foot lease at 1301 Sixth Avenue set to expire at the end of this year, landlord Paramount Group had set a goal of pre-leasing half of the investment bank’s space in 2020.
The coronavirus pandemic is complicating those plans, as leasing activity in Manhattan has come to a halt. But the firm is finding ways to keep potential tenants interested.
The original year-end leasing goal, “which was a tall order in itself pre-Covid-19, just got incredibly taller,” chairman, CEO and president Albert Behler said on a quarterly earnings call Thursday. “Most likely this will now be a 2021 achievement, although it remains our immediate priority.”
He continued, “We are doing everything we can to lease this space. While there is no substitute for a presentation from our leasing team during live tours, in the absence of being able to physically tour space, we will provide virtual tours to prospective tenants.”
Paramount’s head of leasing, Peter Brindley, elaborated. “We are in the process of filming our marketing floor to ensure that we do not miss an opportunity during this period of time,” he said, noting the firm’s confidence in the Sixth Avenue submarket and the property’s location and quality.
Paramount saw 200,000 square feet of leasing activity in the first quarter across its New York and San Francisco portfolio. Income per share was $0.27, a slight increase from $0.24 a year prior. The firm has withdrawn its guidance for 2020 in light of the pandemic.
Like other firms in the current economic environment, Paramount has focused on building up liquidity, which currently includes $400 million in cash on the balance sheet and $800 million remaining in its revolving credit facility. CFO and treasurer Wilbur Paes noted that the company is also deferring $50 million in capital expenditures from this year to 2021.
Pending sales are set to add another $215 million to Paramount’s cash pile. The firm announced last month that it had an agreement to sell its last remaining property in Washington, D.C., for $115 million, with closing expected in the fourth quarter. It has also announced the sale — to close next month — of a 10-percent stake in 1633 Broadway in a deal that values the building at $2.4 billion. The buyers were not disclosed, but are both “reliable, well-financed institutions,” Behler said.
Behler also explained why the firm did not sell a larger stake of 1633 Broadway: taxes. “1633 Broadway is the largest asset in our portfolio, and also happens to be the longest-owned Paramount asset, so as you can imagine it also has the largest tax gain associated with it given its basis,” he said. “We needed to ensure that we had the ability to retain the proceeds from the sale, while taking some chips off the table at a full and fair valuation.”
Paramount’s $1.25 billion refinancing of 1633 Broadway was the 3rd largest NYC real estate loan of 2019. The company was also reportedly in talks to sell 900 Third Avenue to Aby Rosen’s RFR Realty for $400 million, though that deal is on hold.
The landlord was able to collect about 94 percent of total billings in April, in line with prior months — although tenants representing about 16 percent of the rent roll asked for deferrals.
“Some of these requests are what I would characterize as opportunistic in nature,” Behler said, adding that the high rate of collection “reflects the benefits of our high-quality, office-centric portfolio, where retail serves as an amenity to the office tenants, and total rents we collect from retailers is less impactful for Paramount overall.”