By Paul R. La Monica
Big banks and tech firms are urging workers to return to the office more often, with some even pushing for a full five days a week back at their desks. Now, one real estate investment company that pays a juicy dividend yield of above 9% is also betting that white collar employees will start to commute more again, at least in the two major finance and tech hubs of New York and San Francisco.
Rithm Capital, which owns residential and commercial real estate lending firms Newrez and Genesis Capital as well as alternatives asset manager Sculptor Capital Managment, announced in September that it was planning to buy Paramount Group, an office real estate investment trust that owns several flagship "A" quality buildings in New York and San Francisco, for $1.6 billion. The Paramount deal, if approved, is expected to close by the end of this year.
Rithm Capital reported its third-quarter earnings on Thursday. Its profit topped forecasts.
Barron's spoke with CEO Michael Nierenberg earlier this week about the proposal to buy Paramount -- and why he's bullish on office real estate.
For one, prices are still pretty cheap. Nierenberg said that the cost-per-foot to acquire commercial real estate in New York and San Francisco is still about 40% below the prices they were at before the Covid pandemic upended the office landscape.
And Nierenberg is confident that the company will be able to steadily raise rents for key tenants as more people return to work.
"The macro trends are attractive and the winds are at our sails. We're seeing some of the best quarters for leasing in years," Nierenberg said. "Demand for office is still high and with the Federal Reserve cutting rates, that is bullish for real estate."
Nierenberg said he's also not greatly concerned about the prospect of Zohran Mamdani, a Democrat who has endorsed socialist economic policies, likely winning the New York City mayoral race. Nierenberg said that he would be more worried about the possibility of rent stabilization for apartments hitting multifamily building owners than he is about businesses leaving New York.
Still, sentiment for office real estate remains lousy. Despite the return-to-office mandates from top companies like JPMorgan Chase, Amazon and Dell, many other firms are still offering more relaxed hybrid schedules. And investors don't seem to believe that American workers are going to be heading back to their cubicles in droves either.
In fact, Rithm's stock is flat this year while other top office owners, such as $Vornado Realty Trust(VNO-N)$, SL Green Realty Corp. and BXP, are lagging behind the market. So are shares of many regional bank stocks due to worries about commercial real estate loan portfolios souring.
Real estate investment trusts in general could be good investment opportunities right now, especially because more rate cuts from the Fed will make REITs, which tend to pay high dividend yields, even more attractive.
But Nathan Sonnenberg, chief investment officer for Pitcairn, said at a media presentation in New York Tuesday that he prefers self-storage, industrial and apartment REITs over office owners. He's still concerned about low occupancy rates, particularly outside of top markets like New York.
Nierenberg is undeterred though, arguing that the firm is picking its spots carefully. It isn't looking at the current time to own offices in other markets that have yet to rebound as much as New York and San Francisco have.
For what it's worth, investors shouldn't have to worry too much about Rithm, which is classified as a mortgage real estate investment trust, being able to continue paying that big dividend.
The company reported earnings available for distribution of $296.9 million in the third quarter and wound up paying out $138.5 million of that to shareholders as a dividend. According to FactSet, analysts are forecasting that the company will earn about $275 million to $300 million a quarter for the next four quarters.
So as long as Rithm continues to churn out solid profits, it has plenty of cash to cover the dividend. The big question though is whether the bet on office real estate will pan out. Investors are skeptical.
But the stock is now trading for less than five times 2026 earnings estimates, a discount to its 10-year average price-to-earnings ratio of 6.5, according to FactSet. And all 11 analysts who cover Rithm rate the stock a buy, with a consensus price target of $14. That's nearly 30% above its current price.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
October 30, 2025 09:21 ET (13:21 GMT)
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