NEW YORK CITY — Rithm Capital Corp., a global alternative asset manager, has entered into a definitive agreement to acquire Paramount Group Inc. (NYSE: PGRE), a vertically integrated real estate investment trust (REIT) that owns, operates, manages and redevelops Class A office properties in New York City and San Francisco. The purchase price is approximately $1.6 billion.
New York City-based Paramount’s portfolio includes 13 owned and four managed office assets totaling more than 13.1 million square feet, 85.4 percent of which was leased as of June 30.
Under the terms of the agreement, which has been approved by the boards of directors of both companies, Rithm will acquire all outstanding shares of Paramount common stock for $6.60 per fully diluted share. Paramount’s stock price closed at $7.38 per share Tuesday, Sept. 16, up from $5.08 per share one year ago, a more than 45 percent increase.
Rithm expects to fund the transaction with a combination of cash and liquidity from its balance sheet and potential opportunities from co-investors.
New York City-based Rithm says the addition of the Paramount portfolio will create new opportunities for investors to access its real estate platform and bolster its asset management business.
“We believe the acquisition of Paramount is a generational opportunity that will serve as a springboard to build out our commercial real estate and asset management platform and will expand our owner-operator model,” says Michael Nierenberg, CEO of Rithm. “The Paramount portfolio is situated in cities where we have a strong conviction in the recovery of office market fundamentals, including improving rent rolls, a more favorable interest rate environment and increasing demand.”
Martin Bussmann, lead independent director of Paramount, says that Rithm offers the financial scale needed to improve Paramount’s fundamental operating performance. “After an extensive process and evaluation of a range of strategic alternatives, we are pleased to have reached this agreement that will deliver immediate, full and fair value to our shareholders.”
The transaction is expected to close by the end of the year, subject to customary closing conditions, including the approval of Paramount’s common stockholders.
The deal comes at a time when many office markets are starting to show more signs of recovery. Manhattan’s office vacancy rate was 14.1 percent in the second quarter, a decrease from 15.7 percent the same period a year ago, according to CBRE.
UBS Investment Bank and Citigroup Global Markets Inc. are acting as financial advisors to Rithm, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as the company’s legal counsel. Newmark Group and Eastdil Secured LLC are acting as real estate advisors to Rithm.
BofA Securities is acting as exclusive financial advisor to Paramount, and Latham & Watkins LLP is serving as its legal counsel.
Rithm’s integrated investment platform spans across asset-based finance, lending across residential and commercial real estate, mortgage servicing rights and structured credit. Through subsidiaries such as Newrez, Genesis Capital and Sculptor Capital Management, Rithm has established an owner-operator model capable of sourcing, financing and actively managing debt and equity investments.
— Kristin Harlow