Rithm Acquires Paramount in $1.6B Deal

Paramount Group has officially snagged a buyer.

Rithm Capital inked a deal to acquire the major office landlord for $1.6 billion. The mortgage servicer plans to acquire the outstanding shares of Paramount’s common stock for $6.60 per diluted share, slightly below where the firm’s stock price traded prior to the announcement.

Rithm announced the news on Wednesday after The Real Deal and other outlets reported it was in the lead to acquire Paramount. The sale is expected to close in the fourth quarter and is subject to shareholder approval.

Rithm’s acquisition of Paramount, which has over 13 million square feet of office space in New York City and San Francisco, is a big bet on the resurgence of office values. On a Wednesday conference call with investors, Rithm’s Michael Nierenberg said Rithm is “very bullish on office,” noting the company’s own struggles to find high-end office space in New York City.

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Nierenberg said it saw a rare opportunity to buy Class A office space at a low entry point as the Federal Reserve is expected to lower interest rates.

“We’ve been waiting for this for a long time,” said Nierenberg. “(Class) A office is in demand, people are back to work, the Fed will cut rates.”

Nierenberg noted that Rithm is buying Paramount’s assets at a 40 percent discount from its pre-pandemic values.

Paramount started exploring a sale of the company in May after analysts and shareholders raised concerns about the management of the company and executives’ high compensation relative to its stock performance.

Notably, Paramount revealed it made millions of dollars in previously undisclosed payments for Behler’s personal and business interests. This included $900,000 to Behler’s personal accounting services. In July, Paramount disclosed it was under investigation by the Securities and Exchange Commission related to disclosures for related party transactions, executive compensation, and conflicts of interest, among other issues.

A multiple-round bidding process ensued, which included Vornado, SL Green, Empire State Realty, and Blackstone. In the end, the race came down to two companies less known to the New York City real estate industry, Rithm and DivcoWest partnering with Dubai-based Saray Capital, according to sources familiar with the matter.

Rithm, one of the largest U.S. mortgage servicers, ultimately pulled out ahead. Rithm expects to fund the transaction with cash from its balance sheet and with co-investors, according to a release. It said the deal allows the company to expand its asset management fee business.

At the time of the expected closing, Rithm expects to have $2.5 to $3 billion of cash and liquidity.

If the deal is terminated under certain conditions, Paramount will be required to pay Rithm $59.7 million, according to a filing with the SEC.

Behler’s future remains unknown. Behler became the CEO of Paramount in 1991, leading the company to its $2.3 billion initial public offering in 2014, the largest in U.S. REIT history. But the company’s stock price has languished in recent years and Behler sparked concerns with cushy perks and bizarre decision-making, including personally directing a no-bid contract to a security firm tied to his ex-girlfriend, 30 years his junior.

An analyst on the conference call on Wednesday asked about headlines surrounding Paramount’s senior management and who will be running Paramount’s assets.

Nierenberg did not mention Behler by name, instead saying, “Paramount has a very very large management team.”

“It’s not about any one of us,” he added.