Asset manager Rithm Capital Corp., the parent company of multichannel lender Newrez, has agreed to pay $1.6 billion to acquire Paramount Group and develop a presence in the office market, the companies announced Wednesday. 

Real estate investment trust (REIT) Paramount specializes in office properties in New York and San Francisco, with 13 owned and four managed assets totaling more than 13.1 million square feet. As of June 30, 85.4% of the portfolio was leased. 

The acquisition comes as the office market continues to recover from the work-from-home trend accelerated by the Covid-19 pandemic, which has weighed heavily on occupancy rates in gateway cities.

Michael Nierenberg, CEO of Rithm, called the acquisition a “generational opportunity,” describing it as a “springboard” to grow the company’s commercial real estate and asset management platforms while expanding its role as an owner-operator.

“The Paramount portfolio is situated in cities where we have a strong conviction in the recovery of office market fundamentals, including improving rent rolls, a more favorable interest rate environment and increasing demand,” Nierenberg added in a statement.

Rithm is offering $6.60 per Paramount’s fully diluted share through cash, liquidity and potential opportunities from co-investors. Paramount stock traded down 11.52% at $6.53 on Wednesday morning following the announcement.

The boards of both companies have approved the deal, which is expected to close in late Q4 pending stockholder approval and other closing conditions. 

Martin Bussmann, lead independent director of Paramount, said in a statement that the deal offers “the financial scale needed to improve our fundamental operating performance.”  

UBS Investment Bank and Citigroup Global Markets Inc. advised Rithm, while BofA Securities served as financial advisor to Paramount. 

Analysts at Keefe, Bruyette & Woods wrote in a report that Rithm’s equity contribution for the transaction is $300 million to $500 million, with the rest coming from co-investors and $490 million of cash on the Paramount balance sheet.

“So, the company will not need to raise any equity. There will be no goodwill created, and the company expects no impact on the dividend,” the analysts wrote. “Management noted that short-term synergies are expected to be neutral, but the company expects longer-term synergies from asset management fees and assets under management.”

The transaction comes only a few weeks after Rithm announced the acquisition of alternative investment manager Crestline Management. The other two deals in recent years included a $720 million purchase of Sculptor Capital Management and an agreement for Computershare Mortgage Services and its subsidiary, Specialized Loan Servicing.

Rithm has also bulked up its consumer credit and lending footprint, adding $1.4 billion in consumer loans from Goldman Sachs, partnering with Upgrade on $1 billion in home improvement loans and teaming up with an institutional investor on a potential $1.5 billion in residential transitional loans.

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