🚨Rithm Capital will acquire Paramount Group for ~$1.6 billion equity value, assuming debt and taking ~13.1 M SF of NYC and SF office space private. The deal, at a discount to peak NAV but premium to public pricing, removes Paramount from the REIT universe and provides optionality for asset sales or JV recaps to manage leverage. For CRE, the transaction marks the first sizable gateway CBD office take-private this cycle, suggesting institutional buyers see floor-setting in prime assets despite weak leasing fundamentals.
Deal size: ~$1.6 B equity value; 13.1 M SF office portfolio (NYC/SF)
TI/LC underwriting: $90–$130 per SF Class A CBD; renewal probability 50–65%
Debt sizing assumption: 7.0–7.5% debt yield; stress DSCR ≥1.35x forward curve
Loan Performance. Debt sizing anchored on stabilized NOI with 7%+ yields suggests lenders are cautious; DSCR stress at 1.35x indicates financing tightness, especially if forward curve materializes.
Demand Dynamics. Leasing velocity in Class A NYC/SF towers remains muted; tenants require heavy TI/LC packages and plug-and-play options. Renewal probability assumptions at ~50–65% highlight ongoing rollover risk.
Asset Strategies. Expect Rithm to rationalize holdings via JV recaps, selective disposals, and capex-heavy repositioning. Spec suites and tenant experience upgrades critical to backfill anchor vacancies.
Capital Markets. This deal sets a reference point for NAV discounts and potential private market floor pricing. CMBS/CLO desks likely to watch leasing wins before tightening spreads.
Rate cuts help, but office spread risk dominates.
Trophy CBD towers favored; commodity assets remain challenged.
Financing constrained to stabilized NOI, not re-cap value.
Expect follow-on sales/JVs for balance sheet management.
🛠 Operator’s Lens
Refi. Only achievable with stabilized occupancy; caps must be structured through maturities.
Value-Add. Tie capex to leases; 10–15% contingency advisable for TI/LC overruns.
Development. Avoid ground-up; focus instead on conversion or adaptive reuse triggers.
Lender POV. Banks and CMBS underwrite on cash-in-place; leverage constrained, spreads wide until leasing velocity proves.
Watch Rithm’s post-close asset sales and JV structures.
Leasing wins at flagship NYC/SF towers will set benchmarks.
Monitor BBB-/BB CMBS spreads for read-through on office risk repricing.
Reuters — Green Street — CoStar
