Of ce landlord Paramount Group braces to lose top tenant First Republic Bank in wake of failure

BY AARON ELSTEIN

Paramount Group is an o ce landlord with the misfortune to have its entire portfolio in Manhattan and San Francisco, two of the nation’s most challenged markets. Compounding the pain, its single-largest tenant is the failed First Republic Bank. With its big rolls of the dice producing snake eyes, Chief Executive Albert Behler tried last week to assure that the rm’s luck will turn eventually.

prospect looms that nearly 500,000 square feet leased by First Republic will be abandoned by the bank’s new owner, JPMorgan Chase.

Behler said little except that JPMorgan has 60 days to decide.

“It’s too early to speculate,” he said.

e wave of bank failures is a fresh source of headaches for Manhattan o ce landlords. Signature Bank and Credit Suisse were big tenants for Empire State Realty Trust and SL Green, respectively, but Paramount may have the most at stake.

“I would call this stay alive till ’25,” he said on a conference call with analysts. “You have to be a little patient.”

Patience is thin, however, with Paramount’s stock trading at less than $5 a share. While the rm’s topshelf o ce buildings remain alluring, new tenants are renting less space than previous ones. Now the

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Time: Noon to 2 p.m.

Location: Gotham Hall, 1356 Broadway at 36th Street CrainsNewYork.com/WOI2023 e rm’s second-biggest tenant, Credit Agricole, left its Midtown tower in a planned February exit. e loss of the French bank was partially o set by signing on the law

San Francisco-based First Republic paid $42 million in rent last year, the most of any Paramount tenant and accounting for more than 6% of its total rent collections.

Paramount also leased about 140,000 square feet in Midtown to an investment banking rm owned by the failed Silicon Valley Bank.

SMALL BUSINESS rm O’Melveny & Myers, which leased 160,000 square feet, or about half as much as Credit Agricole. e leased rate for Paramount’s New York portfolio edged down to 90.2% last quarter from 92.1% at the end of 2022. Four years ago the rate was 96.0%.

Quarterly funds from operations were 26 cents a share, a penny ahead of the year-earlier period and better than Wall Street expectations. e rm didn’t repurchase any shares last quarter, and management indicated the dividend would be cut to conserve cash.

In a sign of the bleak times, management said they might hand over buildings to lenders if negotiations to restructure loans aren’t successful. e landlord has $3.7 billion in debt obligations at an average interest rate of 3.6%, up from 3.3% a year ago.

“We are evaluating each case on a case-by-case basis,” Behler said. “Lenders have to face reality.”■