8 Campus Drive in Parsippany, part of Mack-Cali Realty Corp.’s 2.2 million-square-foot office portfolio in the Parsippany submarket — Courtesy: Mack-Cali Realty Corp.
By Joshua Burd
For all the talk of white elephants and stranded assets, landlords who have paid to upgrade well-located, suburban office buildings in New Jersey have seen tenants come calling.
That’s part of the strategy for Mack-Cali Realty Corp. in Parsippany — but on a bigger scale.
The company, the state’s largest office landlord, is pushing ahead with plans to re-energize its 2.2 million square feet of space in the township. Doing so means investing in new amenities such as cafeterias, fitness rooms and conference centers across roughly a dozen buildings, but also enhancing the area with new uses such as a hotel, a supermarket and new apartments.
“I always try to look at myself from the consumer point of view,” Michael DeMarco, Mack-Cali’s president and chief operating officer, said in a recent interview. “So if I were in one of these parks, what would I want?”
Doubling down in Parsippany was part of a plan laid out by DeMarco and CEO Mitchell Rudin, who took the helm last year in a bid to reverse the company’s struggles of recent years. It came at a time of great angst for the aging suburban office locales, which have lost tenants to more transit-oriented, urban submarkets.
Since then, Mack-Cali has bolstered its portfolio in Parsippany through both addition and subtraction. The company earlier this year acquired 3 Sylvan Way, a 150,000-square-foot property, while selling four others on Century Drive and Parsippany Road.
DeMarco said the decision to sell or buy has been dictated by several factors, but the purchase of 3 Sylvan Way offered the chance to build a campus within a campus. The real estate investment trust owns two adjacent buildings at 1 Sylvan Way and 5 Sylvan Way, which happen to be connected to the middle property by underground parking.
That concentration can help it retain tenants and encourage them to grow within its portfolio.
“I want to be able to offer a tenant that needs to move or expand more options,” DeMarco said. “And by clustering buildings, you’re able to run it correctly.”
It may seem like tenants in Parsippany have plenty to choose from. According to Colliers International, the submarket has a 30 percent availability rate and average asking rents of $25.70 per square foot.
But Richard J. Madison, an executive managing director with Colliers, said much of the submarket is made up of outmoded, 1980s buildings. It’s why owners who are willing to invest in upgrades and new amenities will win the day.
“Every landlord in the old days would say, ‘Bring a tenant to my building and then we’ll do the work,’ ” said Madison, who is based in Parsippany. “But, right now, it’s more the proactive landlords that are seeing the success, and numerous buildings throughout New Jersey have gone this route.”
For instance, Mack-Cali’s plans call for taking over about 10 cafeterias in Parsippany, under a joint venture with a culinary group that will eventually extend throughout its portfolio. DeMarco said this will allow for better efficiency and quality, marking a step up from disjointed third-party operators that weren’t always invested in the success of the buildings.
Adding to the environment around those buildings is another priority for Mack-Cali, which has big plans for several parcels that were once slated for new office development. The company now plans to build a 175-room hotel at one of those sites, 3 Campus Drive, and is talks with a major hospitality operator.
DeMarco also pointed to the Wegmans that is under construction at the edge of the Mack-Cali Business Campus, at Ridgedale Avenue and Route 10 in Hanover. He also floated the possibility of luring a 60,000-square-foot fitness operator nearby.
And the REIT is now talking to local officials about razing dated office buildings on Littleton Road and Campus Drive to make way for apartments, and there is excess land on the campus that could be sold as restaurant pads.
With those projects in the works and millions of dollars’ worth of upgrades planned for its office buildings, DeMarco sees Parsippany as a viable option for suburban tenants. And he noted that large blocks of space are scarce in nearby submarkets such as Short Hills, Madison and Florham Park.
That could make a block such as 3 Sylvan, which is vacant, an attractive option for a large company. That’s especially true, given that tenants are increasingly willing to explore different submarkets when their lease is expiring.
“The barriers have sort of gone away, so the geographic search areas have increased dramatically over the years — more for the bigger ones than the little guys,” Madison said. “I think it’s a sign that people will travel farther to get exactly what they want.”
He added that “there’s a lot of strong corporate activity. If you don’t need to be in a train station market, Parsippany — because of its highway access and how they’re redeveloping all of the supporting amenities — is on the uptick.”
It’s no surprise, given the submarket’s history with blue-chip corporations. Despite its large pockets of vacancy, it is still the home to the likes of Avis, The Medicines Co., Zoetis and Wyndham Worldwide.
“It’s a relatively good corporate environment,” DeMarco said. “You’ve just got to make it better.”
When to sell and when to buy? Inside Mack-Cali’s gameplan in Parsippany
Mack-Cali Realty Corp.’s strategy in Parsippany has involved both buying and selling properties over the past year. When it comes to selling, Michael DeMarco said those decisions are typically based on the quality of the buildings and the tenant mix.
For instance, the company would prefer to shed buildings that have become inefficient to operate, where large tenants have moved out and given way to a hodgepodge of smaller firms.
“Those are the types of buildings you sell,” he said. “You want to be in the business of providing space to performers — pharmaceutical companies, financial services firms, financial institutions, engineering companies, those types of things.”
That approach should generate a larger return with less square footage “because we’ve focused on the buildings that we want to improve, and we’re adding improvements to them.”
On the flip side, the company’s acquisition of 3 Sylvan Way in January offered the chance to build a cluster. But DeMarco also saw it as a “defensive measure” that would allow it to maintain its competitive advantage within the office park.
“If it’s next to my existing buildings, I don’t need a guy buying the building at a cheap price and then undercutting me,” DeMarco said. “I’ll buy it at my own cheap price and then I’ll just work my way through it.”
Parsippany by the numbers*
Number of properties: 140
Total square footage: 16,241,867
- Class A: 10,564,175
Availability rate: 30 percent
- Class A: 27 percent
Average asking rent: $25.70
- Class A: $28.29
Year-to-date net absorption: 86,665 square feet
Year-to-date leasing activity: 969,475
*Data compiled by Colliers International
Largest office transactions year to date
Crum & Forster (130,740 square feet): 260 Cherry Hill Road
Ogilvy CommonHealth (86,104 square feet): 400 Interpace Parkway, Building C
Tangoe (67,000 square feet): 169 Lackawanna Drive
PDR Network (59,075 square feet): 115 South Jefferson Road, Building 200 (Whippany)
Ferrero Foods (50,000 square feet): 7 Sylvan Way
