Paramount Group, Inc. - Successful Recapitalization of Landmark Midtown Office Tower

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The Challenge

In the spring of 2011, affiliates of Bank of America Merrill Lynch and Morgan Stanley (the “Partners”) engaged a brokerage firm to market their collective 49% ownership interest in 1633 Broadway.

1633 Broadway has had an enduring history as one of the most significant office properties in Midtown West, with a vibrant Times Square area location, exceptional accessibility via multiple subway lines, highly efficient floor plates, panoramic views, onsite parking, several restaurants and theatres, and a soon-to-be-redeveloped lobby and plaza with new retail installations. European insurance and financial services giant Allianz (S&P: AA) had recently executed a lease to become the property’s major tenant, motivating the Partners to monetize their positions.

Paramount Group, New York's largest privately held international real estate investment and management firm, has been headquartered at this building since 1976 and already owned the 51% controlling interest in the property via Paramount Group Real Estate Fund I. Paramount pre-empted the marketing process, negotiating a firm contract with an expedited closing timeline to acquire the 49% interest.

Due to the large size of the transaction, Paramount Group retained Cushman & Wakefield Equity, Debt & Structured Finance (formerly Cushman & Wakefield Sonnenblick Goldman) to arrange co-investment capital to complete the acquisition. Our team, along with our professionals in London and EMEA, employed intense senior-level focus in marketing the opportunity as a negotiated transaction to the most significant domestic and international investors.

The Solution

In order to broaden the market of potential investors and procure the best execution, Cushman & Wakefield evaluated structures to reduce the co-investment equity commitment required because of the low leverage in-place financing, including arranging preferred equity. A multi-tiered capital raise, including securing both joint venture and preferred equity partners for a simultaneous closing on a strict timetable for completion, was aggressive, but ultimately the most effective execution.

The Result

A joint venture was arranged between an affiliate of Beacon Capital Partners and Paramount Group Real Estate Fund IV for the acquisition of the 49% interest, and an affiliate of SL Green Realty Corp. (NYSE: SLG) provided preferred equity to the venture.

This highly successful transaction brought together three of the most well-regarded and sophisticated real estate investors in the United States and was completed within the client's required time frame for a closing in the mid-summer of 2011, amidst mounting credit market concerns emanating from European sovereign and financial institutions.