The walls are closing in at Paramount Group, a Midtown office-tower owner with the misfortune to own towers that tenants don’t want to move into.
The landlord said late Thursday that rental income for 2025 will fall by 33% because tenants are leaving Paramount’s buildings much faster than they’re coming in. Although the broader Manhattan office market finished 2024 strong, Paramount leased only 109,000 square feet of space last quarter, its third consecutive quarterly decline. Officials attributed the shortfall to a big deal at 1301 Sixth Ave. falling through at the last minute.
“We were really counting on that being done,” Chief Executive Albert Behler said on an earnings call today. “It was really pretty much ready to be signed.”
Paramount Group owns 14 million square feet of office space split between Manhattan and San Francisco. Its namesake tower at 1633 Broadway is 93% leased for now, but Showtime Networks is expected to move out of nearly 250,000 square feet next year. None of Paramount’s buildings are close to Grand Central Terminal or Penn Station. Its stock trades for nearly 65% less than five years ago and fell 5% on Friday’s disappointing news, to about $4.40 a share.
“The company’s main challenges are around tenant expirations and the struggle to back fill vacant space,” Evercore ISI analyst Steve Sakwa said in a client report.
Not only have many shareholders washed their hands of Paramount, a firm that last year re-seated a director who had been voted off the board, but lenders are growing more wary. Under an agreement struck last month, Paramount pledged to borrow no more than $200 million from its $750 million credit facility. Lenders demanded that concession in exchange for green-lighting Paramount’s sale of a 45% stake in 900 Third Ave.
That sale added about $100 million to Paramount’s bank account, and its $560 million cash pile could come in handy next year when it’ll be time to refinance 1301 Sixth Ave.’s $860 million mortgage and 31 W. 52nd St.’s $500 million loan. 1301 Sixth is 86% leased but 31 W. 52nd, a 29-story granite tower, is a third empty after law firm Clifford Chance left.
Behler said he’s ready to sell more pieces of his buildings — if he can get the right price. That depends on finding another party who agrees the stock market has misvalued Paramount’s properties.
“Pricing might not be correct in the public markets,” he offered.
