Paramount Launches Strategic Review After Red Flags Raised

After controversy enveloped its leader and prompted top executive departures, Paramount Group’s future is less clear than ever.

The real estate investment trust launched a strategic review of the business, the Wall Street Journal reported, tapping law firm Lathan & Watkins to lead the process and Bank of America to serve as financial adviser. There’s no timetable attached to the review.

A wide range of possible outcomes is on the table for the office landlord. Among the possibilities: a sale of all or part of the company, a recapitalization or the forming of a joint venture.

Paramount stock surged by as much as 15 percent on Monday after the strategic review was announced. The rise continued during Tuesday morning trading.

Last month, security filings revealed that the company paid chief executive officer Albert Behler at least $4 million for personal expenses and business interests, which it then disclosed in a proxy statement.

In the last three years, the company has paid more than $900,000 for Behler’s personal accounting services, more than $3 million to a jet-chartering company co-owned by Behler, $214,000 to a consultant who used Behler’s wife’s design firm and $220,000 for a separate use of the same design firm.

Public companies are usually required to annually disclose transactions above $120,000 involving people or entities tied to the company.

In the wake of the revelations, the company’s chief operating officer and general counsel have departed and its outside counsel advising on disclosures is gone. The head of asset management also recently left for a job.

Another issue is that top Paramount executives earn disproportionately high pay packages related to returns and relative to other companies, according to a recent Green Street report, which called Paramount “one of the worst performing office REITs over many time periods.”

In the last five years, the company rejected two takeover offers without strategic reviews or explanations to shareholders, according to analysts.

Paramount owns 14 million square feet, centered around New York City and San Francisco. It recently sold a quarter stake in One Front, a 38-story tower at 1 Front Street in San Francisco’s Financial District.

— Holden Walter-Warner