101 Hudson Street in Jersey City — Courtesy: Mack-Cali Realty Corp.
By Joshua Burd
With a goal of reshaping its footprint as a “totally class A portfolio,” Mack-Cali Realty Corp. has sold more than 35 of its office buildings since the start of 2016, the company said, reaping more than $700 million from properties that it deemed nonstrategic or underperforming.
At the same time, Mack-Cali has used more than $500 million of those proceeds to purchase buildings in the state’s top-performing submarkets. And it is on the verge of expanding its reach in the high-end suburbs of Short Hills and Madison, where it has agreed to acquire a six-building portfolio that totals 1.1 million square feet.
The real estate investment trust recapped its capital markets activity on Tuesday, following a flurry of sales and acquisitions over the last two years. For years, its footprint has stretched from the state’s northernmost suburbs to Burlington County, but Mack-Cali executives have narrowed their focus to transit-oriented, downtown locations and key suburban markets.
“As a result of refining our office portfolio, consistent with our earnings and debt range, we continue to increase our profit margins by creating operating efficiencies with reduced expenses, higher rents, and increased occupancy,” said Michael J. DeMarco, Mack-Cali’s president. “This positions us to better focus on our high-growth markets and reposition these assets by introducing robust amenity programs that will drive demand and produce higher rents.
“We believe we are well on our way to owning a totally class A portfolio.”
DeMarco, who took the helm of the REIT in spring 2015 alongside CEO Mitchell Rudin, said Tuesday that Mack-Cali has sold 36 of its noncore office assets for a total of 5 million square feet. It has also disposed of a 220-unit multifamily community, with gross proceeds from all of the sales totaling about $745 million and a weighted average cap rate of about 5.5 percent.
For the fourth quarter of 2016 and year-to-date 2017, office sales totaled $280 million, the company said in a news release. And it’s now exploring the potential of up to $450 million in additional sales that could close by mid- to late 2017, including a 26-building, 1.3 million-square-foot flex portfolio in Moorestown and nine buildings totaling 2.2 million square feet in Bergen County.
In recent weeks, brokers and developers have announced deals that saw Mack-Cali exit submarkets such as Freehold, Roseland and Cranford. But the REIT has been an active buyer, too, fortifying its presence in places such as the Hudson waterfront, Red Bank and the Metropark submarket in Woodbridge and Edison.
On Tuesday, Mack-Cali said it has entered into agreements to acquire “a prominent portfolio” that includes three buildings totaling 575,000 square feet in Short Hills. The portfolio also includes three buildings totaling 525,000 square feet at the Giralda Farms campus in Madison, another high-end suburb.
The deal would give the company ownership of nearly all Class A office space in Short Hills, where rents have exceeded $50 per square foot in some recent lease transactions. The REIT did not provide additional details about the pending transaction.
Mack-Cali’s disposition strategy has also called for an exit from suburban Washington, D.C., where it sold a seven-building portfolio in Greenbelt, Maryland, and the sale of its subordinated or minority interests in assets held with Keystone Property Group around the tristate area.
And the activity comes as Mack-Cali continues to streamline and grow its multifamily platform. The REIT said it has purchased the remaining 50 percent joint venture interest in a development site on the Jersey City waterfront known as Plaza 8/9 for $57.1 million, which was funded with a combination of $14.2 million in cash and the issuance of preferred operating units.
Mack-Cali described the property, which has the ability to accommodate up to 1.2 million square feet of residential or office space, as “the most valuable and prestigious development site in Jersey City.” The company has also reached an agreement to purchase its partners’ 85 percent joint venture interest in Monaco, a 523-unit multifamily, high-rise in the city.
“The net result of these activities increases our development potential and stable cash flow from our multi-family platform,” DeMarco said. “We also continue to simplify our NAV and balance sheet by reducing our minority and subordinated joint venture interests which have decreased from eleven positions to two.”