TRD Insights: The rents at Paramount Group’s 1633 Broadway

The 48-story, 2.5 million-square-foot tower at 1633 Broadway is the largest and longest-owned asset in Paramount Group’s 15-property office portfolio. And in the difficult economic environment caused by coronavirus, the building has also proven to be a source of much-needed cash.

In April, Paramount announced the sale of a 10 percent stake in the building to an unnamed institutional investor, netting proceeds of about $114 million in a deal that valued the property at $2.4 billion. On the firm’s most recent earnings call, CEO Albert Behler explained that Paramount had refrained from selling a larger stake because of the tax implications.

“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,” Behler said.

The landlord had already managed to extract substantial liquidity from the building last fall, when it secured a $1.25 billion refinancing for the property with the third-largest real estate loan in New York of the year, generating $179 million in net proceeds.

A $250 million portion of that loan was packaged into a single-asset CMBS deal known as BWAY Trust 2019-1633, while other pieces were included in several other CMBS transactions, the most recent of which is JPMDB 2020-COR7, set to close later this month. CMBS loan documents reveal inside information about the property’s finances, as well as the recent impact of coronavirus.

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See table here

As the table shows, the top tenants at 1633 Broadway include financial firms such as Allianz and Morgan Stanley, entertainment companies including Warner Music Group (WMG) and Showtime (a ViacomCBS subsidiary), and law firm Kasowitz Benson Torres.

In general, base rent is more expensive for tenants on higher floors, with private equity firm New Mountain Capital paying the most, $86 per square foot, for the top two floors of the tower.

Retail and theater tenants at the building, which account for just 5.3 percent of base rent, are all closed because of the coronavirus, according to Kroll, and most office tenants are working remotely. The building remains open.

One unspecified tenant who represents about 8 percent of base rent has been granted a rent reduction from May through the end of 2020, while another unnamed tenant representing about 4.7 percent of the base rent received a rent deferral for April through June. In total, 89.9 percent of base rent was collected in April and May.

Other notable office tenants outside of the top 10 include Paramount Group itself (18th floor), Industrial and Commercial Bank of China (18th and 28th floors), and sports news company Bleacher Report (second and third floors), whose space has “a basketball court complete with a mural of Michael Jordan on one of its walls,” per Kroll.

Gym chain Equinox is the anchor tenant for the building’s retail space, while the theater space is occupied by two tenants — the Gershwin Theater with 110,622 square feet and Circle in the Square Theatre with 34,570 square feet.

The Gershwin Theater, which has hosted the Broadway musical Wicked since 2003, pays about $10.60 per square foot in base rent plus 3 percent of weekly sales in the form of percentage rent.