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From the Survey: Mack-Cali Realty Corporation
Mack-Cali Realty Corporation (CLI) is a self-administered real estate investment trust (REIT) that owns, develops, leases, and manages office and industrial buildings, primarily in the Northeast and Mid-Atlantic markets, with a strong position in New Jersey and suburban New York. It’s real estate portfolio is comprised predominantly of Class A office and office/flex properties, which are defined by the Building Owners and Managers Association as those buildings competing for premier office users with rents above average for the area. Additionally, the portfolio also includes industrial facilities, warehouses, stand-alone retail properties, a hotel, and developable land. The company’s entire holdings consist of some 275 properties, totaling more than 32 million square feet. Mack-Cali’s headquarters are located in Edison, New Jersey.
Mack-Cali’s tenant roster exceeds 2,000, and includes some of the world’s leading corporations. Some of the company’s largest tenants include Deutsche Bank (DB); AT&T (T - Free AT&T Stock Report); Wyndham Worldwide (WYN); National Union Fire Insurance, a unit of AIG (AIG); as well as the U.S. government’s General Services Administration. The company operates in two industry segments, real estate and construction services, and has 390 full-time employees. Its three main competitors include Boston Properties (BXP), ProLogis (PLD), and Vornado Realty (VNO).
This REIT’s origins date from 1949, when brothers John and Angelo Cali, along with family friend Edward Leshowitz, founded Cali Associates. The company began as a developer of single-family homes in northern New Jersey, and ultimately went on to develop over 5,500 housing units in the state. As the Garden State’s population boomed in the 1960s, suburban office building development was added to the company’s litany of construction activities to meet the increasing demand for office space. Cali Associates completed its first office building in Cranford, New Jersey in 1969.
In the 1970s and 1980s, the company increasingly focused on suburban office development, and built over 2.2 million square feet of office space in New Jersey. Cali’s reputation grew over this period, and it was recognized with several development accolades, including seven “New Good Neighbor” awards and a recognition as “Developer of the Year” by the New Jersey chapter of the National Association of Industrial and Office Properties (NAIOP). As speculative construction activity in New Jersey declined in the 1990s, Cali switched its strategy from developing office buildings to acquiring and managing them. Cali Associates conducted an IPO in 1994 and became a publicly traded real estate investment trust, known as Cali Realty Corporation, trading on the New York Stock Exchange. With access to the equity markets, growth in the company’s portfolio accelerated, and it expanded its northeast presence. In 1996, for example, Cali acquired the Harborside Financial Center on the Jersey City waterfront, and began expanding into the suburban Philadelphia market.
In 1997, Cali acquired the Westchester, NY-based Robert Martin Company, known as a pioneer in the development of executive office parks, for $450 million. The transaction added over four million square feet of real estate to the portfolio, including 65 office, office/flex, and industrial properties. Further, the additions provided the company with a commanding position in Westchester County, as well as a presence in Connecticut. Later that year, Cali made REIT history with its $1.2 billion merger with The Mack Company and its affiliate, The Patriot American Office Group, the largest private-to-public REIT transaction to that date. The Mack Company, which was also based in New Jersey, had been founded in 1962 as a family-owned company involved in commercial real estate development, management, and acquisitions. As a result, 54 office properties totaling over nine million square feet were added to the new entity’s portfolio, which was thenceforth known as The Mack-Cali Realty Corporation. With 21 million square feet of office properties, the new company instantly became one of the northeast’s leading REITs.
Due to the weakened state of the economy in its core markets, Mack-Cali saw deterioration in its base rents and occupancy rate, which fell below 90% in 2010 following two consecutive years of declines after the 2007 to 2009 recession. Tenant retention was also troublesome in that span. However, despite the challenges, the REIT remained profitable. It continued to keep an eye out for attractive acquisitions, though it did not close any through the first half of 2011. The company’s strong balance sheet should allow it to pursue potential purchases or developments as it sees fit, and in mid-2011, management suggested it is looking at a potential build-to-suit opportunity in northern New Jersey and at least one high rise apartment development at its Harborside Financial Center property. Longer term, the REIT is looking to get more involved in New York City. We like the direction Mack-Cali is going, and think a continued emphasis on stronger markets should put the company in a good position to take advantage of an eventual economic strengthening.
At the time of the article’s writing, the author did not have positions in any of the companies mentioned.