Rithm Capital to Acquire Paramount Group in $1.6 Billion Deal, Expanding Office Market Presence
Rithm Capital Corp. has revealed its intention to acquire Paramount Group for an impressive $1.6 billion. This strategic move will see Rithm, the parent company of Newrez, significantly expand its footprint in the commercial real estate sector, particularly within the office market. The acquisition is expected to bolster Rithm's asset management platforms and solidify its role as a key owner-operator in prominent urban centers like New York and San Francisco, where office markets are showing signs of rejuvenation.
Paramount Group, a real estate investment trust (REIT), specializes in office properties and currently manages a substantial portfolio. This includes 13 owned and four managed assets, collectively spanning more than 13.1 million square feet. As of late June, a significant portion, 85.4%, of this extensive portfolio was actively leased, highlighting its operational strength. The timing of this acquisition is particularly notable, occurring as the office market grapples with a recovery from the widespread shift to remote work, a trend accelerated by the recent global pandemic, which profoundly impacted occupancy rates in major metropolitan areas.
Michael Nierenberg, the Chief Executive Officer of Rithm, emphasized the transformative potential of this acquisition, describing it as a \"generational opportunity.\" He believes the deal will serve as a crucial launchpad for the company to enhance its commercial real estate holdings and expand its asset management capabilities. Nierenberg expressed strong confidence in the resurgence of office market fundamentals within these key cities, citing improving rental income, a more favorable interest rate climate, and increasing demand as primary drivers for this optimism.
Rithm's offer of $6.60 per fully diluted share of Paramount will be financed through a combination of cash, existing liquidity, and potential contributions from co-investors. Following the announcement, Paramount's stock experienced an 11.52% dip, trading at $6.53 on Wednesday morning. The transaction has received unanimous approval from the boards of both companies and is anticipated to conclude in the fourth quarter, subject to stockholder approval and other customary closing conditions. Martin Bussmann, Paramount's lead independent director, stated that the acquisition provides the necessary financial scale to enhance the company's operational performance.
Financial advisory services for Rithm were provided by UBS Investment Bank and Citigroup Global Markets Inc., while BofA Securities advised Paramount. Analysts from Keefe, Bruyette & Woods estimate Rithm's equity contribution for the deal to be between $300 million and $500 million, with the remaining funds sourced from co-investors and $490 million from Paramount's balance sheet. This structure means Rithm will not need to issue new equity and the transaction is not expected to affect its dividend policy. While short-term synergies are projected to be neutral, the company anticipates long-term benefits from asset management fees and an increase in assets under management.
This acquisition follows closely on the heels of other significant expansions for Rithm. Just weeks prior, the company announced the acquisition of Crestline Management, an alternative investment manager, adding $17 billion in assets. Other notable deals in recent years include the $720 million purchase of Sculptor Capital Management and an agreement for Computershare Mortgage Services and its subsidiary, Specialized Loan Servicing. Rithm has also aggressively expanded its consumer credit and lending footprint, acquiring $1.4 billion in consumer loans from Goldman Sachs, partnering with Upgrade for $1 billion in home improvement loans, and collaborating with an institutional investor on a potential $1.5 billion in residential transitional loans.
This series of strategic acquisitions underscores Rithm Capital's aggressive growth strategy and its commitment to diversifying its portfolio across various segments of the financial and real estate markets. The Paramount Group acquisition, in particular, positions the company to benefit from the evolving dynamics of the urban office market, leveraging its expertise in asset management and its robust financial backing to drive future growth and enhance shareholder value.