A leading Wall Street analyst urged investors to boot out an unspecified number of Paramount Group board members, citing directors’ penchant for awarding lavish undisclosed perks to the CEO while the Midtown office landlord delivers poor results for investors.
“Changes are needed,” Green Street Advisors analyst Dylan Burzinski said in a report to clients that was shared with Crain’s. “Investors deserve steps to be taken that will provide for positive change in the PGRE [Paramount] boardroom, resulting in progress toward improved management accountability and placing shareholder interests first.”
Green Street’s comments were published three days after Crain’s reported that Paramount Group made millions in previously undisclosed payments over the last three years to outside companies owned by CEO Albert Behler, including $3 million to his charter-jet company, $1.6 million to his consulting firm, plus hundreds of thousands to a design firm owned by wife.
Paramount Group had no immediate response to the commentary from California-based Green Street, the leading independent equity-research firm in commercial real estate.
Burzinski didn’t identify which Paramount directors should be voted out and acknowledged that some new members have joined the 10-person board in recent years, but “more improvements are needed.” Long-time board members include lead director Martin Bussmann and Thomas Armbrust, a member of the nominating committee. Behler, who is also chairman, has served as CEO since 1991.
All Paramount directors are due to stand for election at the company’s annual shareholder meeting in May. A slate of nominees will likely be released in early April.
Paramount owns 13 million square feet of office space in Manhattan and San Francisco, including Paramount Plaza at 1633 Broadway and 712 Fifth Ave. Some buildings are 25% empty or more and the stock trades for $4.20 a share, about 70% below its pre-pandemic value. Paramount’s Midtown properties are mainly in the West 50s, so they aren’t especially close to Grand Central Terminal or Penn Station, where office leasing is stronger.
Yet even if shareholders vote Paramount directors off the board, there’s no guarantee they will leave. Last year the company reseated a board member who a majority of investors had voted to remove. The director, Katharina Otto-Bernstein, is daughter of Paramount founder Werner Otto and her family controls 15% of all shares.
That wasn’t the first time Paramount seated a “zombie” director, the term used in corporate governance for board members who have been voted out but stick around anyway.
In 2021 a majority of shareholders voted to remove Mark Patterson, a member of Paramount’s nominating committee. He remains a director and owns no shares, a regulatory filing shows. Patterson and Otto-Bernstein were each paid about $180,000 in cash and stock for their board service in 2023.
In addition to paying millions to Behler’s side businesses, Burzinski noted the Paramount board rejected two unsolicited takeover bids that valued the company at a much higher price than the market does now. In November 2020 investment firm Bow Street offered between $9.50 and $10 a share in cash and in February 2022 Monarch Alternative Capital offered $12 a share in cash.
A “misalignment” exists between the interests of management and shareholders, Burzinski asid. Paramount shares trade for 20% less than their net asset value, reflecting the difficulty management has had leasing space in buildings that face “outsized” renovation costs.
“It’s time for a larger board refreshment that is more proactive in addressing related-party transactions,” Burzinski wrote, “and holds management accountable for relatively poor performance.”
