MW This $1.6 billion deal is a sign that the worst of the crisis in office real estate is in the past

By Steve Gelsi

The market for office space has struggled to bounce back from the pandemic - but there are encouraging signals in marquee markets

Empty office space has been a problem since COVID-19, but demand is starting to return, according to Rithm Capital.

The U.S. market for office space has been depressed since the sharp increase in remote work that began in 2020, which has outlasted the pandemic. But a new deal suggests a market bottom may have been reached.

Rithm Capital Corp. (RITM), a New York-based investment firm, said Wednesday that it would spend $1.6 billion to purchase Paramount Group Inc. (PGRE), a real-estate investment trust with holdings in the hard-hit commercial-property markets of New York City and San Francisco.

The company said the pending acquisition was partly driven by the opportunity to buy assets at prices that appeared attractive - as commercial real estate overall is still priced about 40% below prepandemic values and roughly 25% to 30% below the cost of building new space. But Rithm also sees signs of improving trends, it said, and the purchase serves as the latest sign that some investors are willing to take a fresh look at a forlorn market.

Other investors may still be feeling grave effects of the sharp drop-off in office-space demand that occurred beginning in March 2020, when the COVID-19 outbreak was declared a pandemic and a wide swath of the workforce was instructed to stay at home.

And even optimists in the sector, including private-equity giant Blackstone Inc. (BX), are saying a full recovery will be gradual, while Rithm Capital conceded that it's mostly focused on the most desired properties and locations for now.

Industrywide, quarterly delinquency rates on commercial mortgage-backed securities rose above 6% for the first time since 2021 in the second quarter of this year, due partly to the office sector along with multifamily properties, according to a report by the Mortgage Bankers Associations.

But in New York City, the supply of office space has been dwindling as buildings such as the marquee Flatiron Building in Manhattan are being converted into residential space and as construction of new office space has come to a standstill. Meanwhile, in San Francisco, the frenzy around artificial intelligence has stoked fresh interest in office space.

"We've been waiting for this for a long time," Rithm Capital Chief Executive Michael Nierenberg told analysts on Wednesday. "When you look today, 'A' office is in demand. People are back to work."

Class-A office buildings are typically defined as newer structures in prime locations on the premium side of the market, commanding the loftiest rents.

Federal Reserve interest-rate cuts - including the one announced Wednesday - are also expected to lower the cost of borrowing and make the sector more appealing, Nierenberg said.

Rithm Capital cited these and other factors in its Wednesday announcement that it agreed to pay $6.60 a share for Paramount. Shares of Rithm rose more than 3% on Wednesday in a sign that Wall Street liked the deal.

Paramount Group's stock dropped more than 11% to $6.54 a share, as it fell back from more speculative levels following its May 19 announcement that it would review the possibility of a sale or another strategic move for the company.

Some of the largest players in the office-space market include $Vornado Realty Trust(VNO-N)$ $(VNO)$, Blackstone, SL Green Realty Corp. (SLG), CBRE Group Inc. $(CBRE)$, Annaly Capital Management Inc. (NLY) and BXP Inc. $(BXP)$

Among these, Vornado, Blackstone and SL Green expressed interest in buying Paramount during the sales process, according to a report by the Wall Street Journal.

While Nierenberg told analysts that Rithm's Paramount acquisition marks "the beginning of the so-called office-space recovery," there have been signs since early 2024 that things have started to improve, at least in the umbrella category of commercial real estate.

Blackstone CEO Stephen Schwarzman said in July that the firm called the bottom in the real-estate cycle in early 2024, and it's been investing actively since then.

"Private real-estate markets have appreciated gradually over this period," Schwarzman said on the company's second-quarter earnings call in July. "We are now seeing promising signs, with new supply falling sharply, the cost of debt capital coming down and transaction activity picking up."

Blackstone in June teamed up with real-state firm Fisher Brothers to refinance 1345 Avenue of the Americas, an office building in Midtown Manhattan, at a value of $1.4 billion. In April, it announced plans to team up with DivCore Capital to reposition 300 Howard Street in San Francisco as a Class-A office building in a "prime" area of the city.

The building "has been reimagined to embrace its location within 'AI Alley,' where a growing wave of tech and AI companies are redefining the area," Blackstone said at the time.

For its part, Rithm Capital said Wednesday it's been an "early mover" in the New York and San Francisco office markets, including acquiring the debt of Columbia Property Trust, which holds an office portfolio in New York, Boston and San Francisco, for an undisclosed sum.

"We've actually taken over some of the buildings both in New York and San Francisco," Rithm's Nierenberg said of the Columbia Property Trust deal. "When we look at this, we expect to see north of two times on our investment."

The firm has also been drawing interest from institutional investors for office real estate, with 70% of the capital for recent deals coming from outside parties, he said.

With its investors on board for the deal, Rithm Capital will only need to put up $300 million to $500 million to buy Paramount, which is also holding about $490 million of cash, he said. Rithm Capital currently manages about $36 billion of assets.

Rithm's stock is up around 15% in 2025, while the S&P 500 SPX is up by more than 12%.

Joy Wiltermuth contributed.

-Steve Gelsi

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September 17, 2025 15:44 ET (19:44 GMT)

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