UPDATED, 4:50 p.m., May 9: Paramount Group’s outlook for the New York City office market is “unchanged,” despite reports of slipping asking rents and a slowdown in leasing velocity. On a first-quarter earnings call on Friday, the real estate investment trust said demand for office space in the Midtown market remained “steady.”
The office REIT leased nearly 155,000 square feet of office space in the first quarter across its portfolio, which includes properties in New York, Washington, D.C. and San Francisco. The New York City market accounted for the bulk of those deals, with Paramount signing 97,000 square feet of leases in the city – at a weighted average initial rent of just over $81 per square foot — to push its New York portfolio occupancy to 95.7 percent.
Among those deals was a 52,555-square-foot renewal with law firm Vedder Price at Paramount’s [TRData] 48-story, 2.6 million-square-foot office tower at 1633 Broadway in Midtown. Chicago-based Vedder Price signed a 11-year deal to relocate from the 47th floor of the property, where its lease was due to expire next year, to the 31st floor – where the recently-defunct law firm Dickstein Shapiro entered into a $10.9 million lease termination agreement with Paramount in February.
While Paramount did not directly name Vedder Price and Dickstein Shapiro in either its earnings release or earnings call, The Real Deal verified both parties via outside sources.
The REIT re-leased Dickstein Shapiro’s space to Vedder Price at an initial cash rent of $80 per square foot. Paramount chair, president and CEO Albert Behler lauded both the quick turnaround in re-leasing the space, as well as the company’s ability to keep Vedder Price — which “had a lease out” at another Midtown office building at the time – at 1633 Broadway.
Paramount is “not seeing any significant issues that would cause us concern or have us change our leasing strategy” for the New York City office market, Ted Koltis, the company’s executive vice president of leasing, said on the earnings call. Koltis noted the steadiness of the Midtown submarket, in particular, which he said has displayed greater “long-term stability” compared to trendier submarkets like Midtown South – which has been notoriously tight for space in recent years but has seen signs of softening in recent months.
Behler said Paramount’s first-quarter leasing figures were “in line” with the company’s performance in the year-earlier period and said the REIT is “laser-focused on upcoming [lease] maturities” in Midtown – namely 212,000 square feet of space at 1633 Broadway due to be vacated by accounting giant Deloitte, and 146,000-square-feet at 1301 Sixth Avenue currently occupied by Commerzbank.
Koltis described both large blocks of office space as “prime assets in prime locations” that “offer spectacular views,” and noted that “the market for quality, 100,000-square-foot blocks remains limited” in Midtown.
Paramount also touched on its $500 million refinancing of its office building at 31 West 52nd Street, consisting of a 10-year, interest-only loan fixed at a rate of 3.8 percent. The financing, which replaces a $413.5 million loan on the property that was due to mature next year, fits the REIT’s “strategy of refinancing above-market debt” via “lowering our interest rate and extending our maturity profile,” Behler said.
This story has been updated to clarify that Paramount Group did not directly name the law firms Vedder Price and Dickstein Shapiro in its quarterly earnings release and earnings call.