Paramount Group Replaces CFO As Office REIT Considers Path Forward

An office REIT that owns towers in Manhattan and San Francisco is weighing its future after it was revealed that the company paid out millions for its CEO’s personal expenses and business interests.

Paramount Group announced Monday it is undergoing a “review and evaluation of strategic alternatives.” In the same press release, the New York City-based firm disclosed that it had replaced two high-level executives, effective immediately.

Wilbur Paes and Gage Johnson stepped down from their respective roles as chief operating officer, chief financial officer and treasurer and senior vice president, general counsel and secretary.

In Paes’ place, Ermelinda Berberi, who has served as senior vice president and chief accounting officer since 2017, has been appointed executive vice president, CFO and treasurer. Timothy Dembo, who has served as vice president and counsel since 2022, has been appointed senior vice president, general counsel and secretary. 

Paramount’s board of directors has tapped BofA Securities as its financial adviser and Latham & Watkins LLP as its legal adviser for the strategic review.

Paramount CEO and Chairman Albert Behler said in a statement that the review comes as the company focuses on “closing the persistent gap between the Company's public market valuation and our assessment of intrinsic value.”

The company didn't set a timetable for completing the strategic review and stated that “no assurance can be given as to its outcome.” A review could include a sale of the company or certain assets, a debt restructuring or staying the course.

It added that it doesn't intend to make any further public comment regarding the process until it has been completed.

Earlier this year, Paramount disclosed in filings with the Securities and Exchange Commission that it made at least $4M in payments for services retained by Behler as well as contracts with companies that he or his wife have ownership interests in.

That includes more than $3M to a jet-chartering company part-owned by Behler and $214K for one of the REIT's consultants to retain his wife’s design firm over the past three years. In February, Paramount entered into a $220K agreement with the design firm.

In addition, Paramount doled out more than $900K for Behler’s personal accounting services over the past three years. Another $12K was paid last year for wine from the CEO’s vineyard in Germany.

Those payments are on top of the $20.2M that Behler made in 2023, including $1.1M in salary, according to Crain’s New York Business, which first reported the disclosures.

Those payments were previously undisclosed until Paramount expanded its materiality threshold this year to include “direct and indirect related party transactions.”

The disclosures, and previous lack thereof, could put the company at risk of questioning by financial authorities, such as the SEC. As of Monday, no correspondence between the SEC and Paramount has been filed, though that doesn't mean that there are no conversations occurring.

Green Street Advisors urged that investors remove certain Paramount board members following the Crain’s report, though the Wall Street analyst didn't specify whom.

Paramount owns roughly 13M SF of office space after offloading its Washington, D.C., assets to reduce exposure, according to its first-quarter earnings report. In New York, its portfolio was 87% leased as of the end of March, but in San Francisco, that figure is just under 73%. 

In the first three months of the year, Paramount leased nearly 284K SF, the vast majority of which was in New York, as less than 6K SF was leased in San Francisco. Roughly 11% of its leases are set to expire at the end of this year, according to its financial report.

“We are committed to acting in the best interests of our shareholders as we evaluate a comprehensive range of strategic alternatives to maximize shareholder value,” Behler said in a statement Monday.

Over the past five years, its stock price has tumbled more than 25%. Following Monday’s announcement, it jumped more than 14%.