Rithm Capital bets on office space recovery with $1.6 billion Paramount Group deal

Core Viewpoint - Rithm Capital has agreed to acquire Paramount Group for $1.6 billion, indicating a strategic bet on the recovery of the office real estate market [1][2]. Group 1: Acquisition Details - The acquisition values Paramount Group at $6.60 per share, representing a 10.7% discount to its last closing price [1]. - Paramount Group's shares fell 11.8% in premarket trading following the announcement [1]. - The deal is expected to close by the end of the fourth quarter, pending approval from Paramount shareholders [4]. Group 2: Market Context - The U.S. office market has been challenged by rising interest rates, remote work trends, and declining property values, leading investors to assess whether the market is nearing a bottom [2]. - Rithm plans to fund the acquisition through a combination of cash, existing liquidity, and potential contributions from co-investors [2]. Group 3: Strategic Implications - Rithm's CEO stated that the acquisition will enhance their commercial real estate and asset management platform, expanding their owner-operator model [3]. - Paramount Group's portfolio includes 13 owned and four managed office properties, spanning over 13.1 million square feet, with an occupancy rate of 85.4% as of June 30 [4]. - Rithm expressed confidence in the recovery of office market fundamentals in cities where Paramount operates, citing improving rent rolls and a more favorable interest rate environment [4].