New York-based Paramount Group Inc. seems to be facing a real estate dilemma with its San Francisco properties. According to a ConnectCRE report, the company will likely surrender a pair of office towers it snapped up in 2019 for nearly $950 million at the top of the city's pre-pandemic real estate boom. The decision to write down the investments for 111 Sutter St. and the Market Center complex to zero reflects the harsh reality of the market's current state.
Paramount has been left to possibly give back and reconsider the future of two significant San Francisco office properties. "These two assets are in workout mode," Paramount CEO Albert Behler told analysts on a Feb. 15 earnings call. "We do not know what an ultimate resolution will look like, and there is a strong possibility that these assets may not be in the Paramount portfolio going forward," as reported by the San Francisco Business Journal. With looming maturity dates—May 2024 for 111 Sutter and January 2025 for Market Center—the situation underscores a challenging environment for office landlords.
Paramount's CFO Wilbur Paes addressed analysts, highlighting the company's decision to remove 111 Sutter St. and Market Center from its core portfolio. "By excluding it from the get-go," he stated, "investors are able to appreciate the impact, on a go-forward basis, should the resolution be where we end up handing the keys back to the lender." Both towers have seen their fair market value collapse significantly below their acquisition debts, adding pressure to a complex situation.
Despite the challenges, Paramount has successfully negotiated an extension for its $975 million loan on One Market Plaza, another key property in their San Francisco portfolio. However, this proactive financial maneuvering did not extend to properties such as 111 Sutter, where Behler said on the earnings call that an extension deal "didn't make sense" for an asset that has seen its equity presumably evaporated. Details are sparse about the group's discussions with its lenders, and neither Paramount nor their lenders could be reached immediately for further comments.
