A struggling Paramount Group has peeled 25 percent off its ownership of a 648,000-square-foot office building in San Francisco to help buttress its local office portfolio.
The New York-based investor sold a quarter stake in One Front, the 38-story tower at 1 Front Street, in the Financial District, the San Francisco Business Times reported, citing a regulatory filing and unidentified sources.
The buyer was Boston-based Beacon Capital Partners in a deal that valued the building at $255 million — and pegged Beacon’s quarter stake at $63.8 million, or $393 per square foot.
Paramount provided Beacon with $40.5 million in seller financing for the One Front deal at a 5.5 percent interest rate for two years, according to regulatory filings. After costs, it will keep $11.5 million in net proceeds from the sale.
The deal will provide the firm with access to new capital to reposition One Front ahead of the tower’s “upcoming lease-up phase,” Albert Behler, CEO of Paramount, said in a statement.
Occupancy of the pleated tower once known as the Shaklee Building, built in 1979, is expected to drop to 42.5 percent next month at the end of a 219,180-square-foot lease by JPMorganChase, from 76.3 percent late last year.
The bank has more leases expiring in 2027, 2029 and 2030, for another combined 120,100 square feet.
Paramount is planning to invest in sweeping upgrades at One Front, at an unspecified cost, the company has said. They may include a full revamp of its lobby, plus a new conference facility, fitness center and shops, a source told the Business Times.
Beacon’s investment in the building will help fund the work. In 2016, Paramount paid $521 million for One Front, nearly double its recent $255 million valuation.
Apart from One Front, Paramount faces financial headwinds in San Francisco and beyond.
Last month, Canada Life Assurance listed a loan backed by Paramount’s 25-story, 379,300-square-foot office building at 55 Second Street, allowing it to be grabbed for around $375 per square foot.
In 2019, Paramount bought a 44.1 percent stake in the building in a deal that valued the offices at $408 million, or $1,054 per square foot.
Paramount also bought two other office buildings in San Francisco in the year prior to the pandemic. It acquired a 293,000-square-foot structure at 111 Sutter Street for $227 million, or $775 per square foot, followed by the 745,000-square-foot Market Center complex at 555 and 575 Market Street for $722 million, or $969 per square foot.
Paramount wrote both investments to zero in 2023 and 2022, respectively, then told investors early last year neither property would likely remain in its portfolio.
In January, locally based Flynn Properties bought the troubled $416.5 million loan debt backed by Market Center. The sale of the $416.5 million loan allowed Flynn to take control of the former Chevron headquarters for around $230 per square foot, or $171.4 million.
Paramount and New York-based Blackstone are also working to fill 340,000 square feet vacated by Google at the 1.6-million-square-foot One Market Plaza at 1 Market Street, where they just inked a lease with law firm Simpson Thacher.
Paramount, which owns 14 million square feet of offices in New York and San Francisco, has been under fire from shareholders.
Top Paramount executives earn disproportionately high pay packages related to returns and relative to other companies, according to a recent Green Street report, which called Paramount “one of the worst performing office REITs over many time periods.”
Beacon has $14 billion of assets under management, according to its website. In San Francisco, it owns a 42-story office tower at 44 Montgomery Street and a six-story office campus at 650 Townsend Street
.— Dana Bartholomew
Read more
Paramount seeks sale of debt tied to distressed FiDi office
Paramount under scrutiny for new undisclosed CEO payments
Simpson Thacher to take up 32K sf at SF’s One Market Plaza
Copyright for syndicated content belongs to the linked Source link
