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Paramount’s Behler Knows When to Hold and Fold

If there’s one thing Albert Behler knows, it’s how to make money. Behler is president and CEO of New York-based Paramount Group, a German-owned firm that is the largest privately owned real estate acquisition and property management company in New York City. Paramount’s portfolio is valued at $10 billion.

In 2008, Paramount partnered with Allianz Life Insurance Co. to buy nearly 1.8 million sq. ft. of Manhattan office space from Macklowe Properties and Fortress Investment Group for $1.46 billion, making it one of the top five U.S. deals of the year, according to New York-based research firm Real Capital Analytics.

“It was a distressed portfolio,” says Behler. “Deutsche Bank, which was foreclosing, basically had control of the assets of Mr. [Harry] Macklowe. We bought an asset that was substantially below the acquisition price of Mr. Macklowe’s 15 months before. The value came down from about $2.1 billion to $1.46 billion.”

Although some observers point out that if Paramount had waited, the price might have dropped even lower, Behler believes that’s a risky approach. “A property of close to 2 million sq. ft. is not traded every day, and you don’t have a choice. It wasn’t that we were the only ones bidding for that property.” Had he not acted swiftly, another bidder could have swept the trophy off the market.

Paramount’s 2008 prize, located at 1301 Avenue of the Americas, is 100% leased. Tenants include financial services firm PricewaterhouseCoopers. Behler’s strategy is to hold the 45-story property for the long term, and search for other Class-A properties in New York, Washington, D.C. and San Francisco.

“We are looking for buying opportunities. You may not believe it, but there’s not that much out there,” says Behler. His company evaluates about 600 acquisition opportunities a year, but few meet the stringent criteria — distressed Class-A and trophy properties in prime locations.

Behler’s approach to selling is likewise strategic. In 2007, Paramount sold 2.5 million sq. ft. of office properties for a substantial profit, he says, and the group’s funds realized an impressive internal rate of return of 80% per year over four years. The unusually high rate is accurate, Behler says. “You can imagine that there were some very hefty profits made.”

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