A rendering of Mack-Cali Realty Corp.’s soon-to-be-upgraded Harborside complex in Jersey City — Courtesy: Mack-Cali
By Joshua Burd
Mack-Cali Realty Corp. will largely stay the course for now, its interim CEO said this week, with a continued focus on selling its suburban office buildings and stabilizing its waterfront portfolio as it searches for a permanent chief executive.
Speaking to analysts and shareholders on Monday, MaryAnne Gilmartin said she was “deeply committed to ensure we continue to execute on the plans currently in place.” That includes leasing up office space in Jersey City and completing sales that were in progress in areas such as Parsippany, Madison and Metropark in the midst of the company’s recent board shakeup and the ouster of former CEO Michael DeMarco.
“Clearly the focus on the suburban dispositions is a clear priority that’s been reaffirmed by the newly reconstituted board of directors,” Gilmartin said during the real estate investment trust’s second-quarter earnings call. “In addition, there is a feeling that the lease-up strategy on the waterfront is critical, and that we are going to be focused on wins there in the coming months.”
Another ongoing consideration for the Jersey City-based company is whether to separate its office and residential assets.
“And then with the board, we’re going to be working as management to develop strategic alternatives in the coming months. Clearly, given the environment we find ourselves in, there are challenges around execution and whether it’s the right time to make any strategic moves, but the board of directors is focused on this, and we’ll be ready should there be an opportunity.”
Gilmartin, who was installed as board chair in mid-June, spoke on the call a week after being named acting CEO. The shakeup followed a year-long proxy fight by a group of activist investors, led by hedge fund Bow Street LLC, which won control of the board in June ahead of the company’s annual meeting.
The veteran development executive thanked DeMarco for his service to the real estate investment trust. But she went on to say the board “is in clear alignment with shareholders … that the company is unlikely to realize maximum value in its current structure. Consequently, the board is actively continuing to pursue value maximization strategy.”
She added that “there is the broader thinking around where does the company go, and what strategic alternatives are available for the company.” But “given where we are in the middle of a pandemic, it’s difficult for us to give any sense of how opportunistic we can be.”
“What we’re not going to do is sell the company in a fire sale — and we need to be strategic,” Gilmartin said. “And that is the work of the day.”
Mack-Cali announced late last year that it had agreed to sell 2.4 million square feet of office space in Parsippany and Madison to a joint venture led by Onyx Equities LLC, the first step in a plan to shed its remaining suburban assets. David Smetana, the REIT’s chief financial officer, said Monday that the first phase of the sale includes 11 buildings with a sale price of $167.6 million. That phase is slated to close at the end of the third quarter, while a second phase with four buildings is slated to close by year-end at a price of $105.8 million.
The company is also selling clusters of buildings in Monmouth County, Short Hills and Metropark and hopes to see the transactions completed late this year or early next year. At Metropark, Smetana said “we are starting to see more institutional names than we typically see in New Jersey starting to look at that product,” while the Monmouth and Short Hills portfolios will likely go to local operators partnered with hedge fund or private equity investors.
Mack-Cali may be able to add value to those buildings in the coming months, in the wake of the COVID-19 crisis, as office tenants look to spread their operations across multiple locations. Nick Hilton, executive vice president of leasing, said the REIT was seeing an uptick in Metropark and Short Hills, which are served by multiple highways but also have access to mass transit.
“If you want to just look at the entire market itself, we’re talking about the second largest suburban office market outside of Los Angeles and sort of a structural vacancy problem of about 20 percent market-wide,” Hilton said. “So the real product that’s going to perform well is the true Class A and trophy. I think we’re going to still continue to follow that strategy to capitalize on this activity and continue to execute the strategy of disposing the assets.”
That trend could also benefit Mack-Cali’s Jersey City portfolio.
“We’re seeing a movement toward … companies that are close in the urban core of Manhattan who are looking at strategies even post-vaccine to decentralize,” Gilmartin said. “And I think that bodes well for the waterfront. I think there is potential for a refresh and a strategy that might look to capitalize on the world we find ourselves in, and the changing trends in how to keep talent safe, engaged and content.”