Because of Hersh and Rizkís friendship, and the longstanding, but friendly, competition between the Mack and Cali families for 25 years, there was a lot of common ground. "We werenít in each otherís markets," says Rizk. "They owned Paramus [N.J.] and had a significant hold in New Jersey, which we thought was important." Rizk thought the companies would complement one another. Callís interests were in small properties with independent tenants; Mack went after larger properties occupied by Fortune 100 companies.
New Jersey was a market Cali thrived in, despite what analysts said about the stateís viability. What Rizk found was that Jersey City was "the most successful city in the state, absorbing 800,000 square feet a year in new tenants when the market was down in 1991," says Rizk. "It was a perfect solution for [a] number of people who wanted office operations near New York, and newer buildings, that the technology of buildings in downtown New York didnít have the ability to accommodate."
Power of One
With the merger, Caliís territory expanded from four states to 11, and continued its original plan to invest in submarkets into early 1998. Thatís when Mack-Cali purchased the Prudential Business Campus, located in Parsippany, N.J., one of the best sites in the market. It was its first plunge as a unified company, with the 860,000-square-foot facility, plus land to accommodate 1.3 million square feet. As part of the acquisition, Prudential invested $100 million in Mack-Cali stock, "which was ... an asset-for-equity swap," says Rizk. "It was something that people had been talking about, but not too many had happened. That was a high-profile deal."
Monmouth Shores Corporate Park in Wall Township, N.J., includes eight buildings (two office and six flex) totaling 252,000 square feet, surrounded by 60 acres of open space.
Meanwhile, Rizk started looking for a way to continue Caliís tradition of developing its own office buildings. As a public company, Rizk wasnít sure if Mack-Cali, which needed to have a strong balance sheet, could afford taking on development. Hersh and Rizk masterminded a way to develop space without taking on the financial burden. Through a limited partnership with Highridge Partners Inc., a California-based real estate company, Mack-Cali could engage in development, but keep it off its balance sheet. After deciding California was a hot market, Mack-Cali invested $19.2 million in a $56.4 million development with 369,000 square feet in Southern California in June 1998.
"We have an option to buy when it is finished, which is important, because some companies are committing themselves to buying and then having the whole liability on their balance sheets," says Rizk. "Thatís sometimes a significant commitment in advance of seeing the project stabilized."
Looking Back, Moving Forward
Early on, people said we couldnít make it, recalls Rizk. "We werenít even on the radar screen in the beginning, and had to compete as a small, $300 million company in New Jersey." Today, the companyís profile is much higher, 10 times the size Cali was less than four years ago.
"I think we will stand the test of time, as will REITs in general," says Rizk. "We are a much different company than we were in the past. ... We are being built like the rest of corporate America. Things happen much faster, which has been reflected in our business. There are modest levels of debt, you see integrated management teams and a lot of analyst coverage."
Rizk says more than a dozen analysts follow . "We have all the right building blocks in place. I think the market has had a downturn this year as part of the Mack-Cali natural progression of a growing industry." As a result of that evolution, investorsí expectations of Mack-Caliís growth are more modest today than they were three years ago. "We expect they will have returns at a healthy rate of 10 percent and be able to increase their dividend appreciation," says Taylor.
"We have finally earned our stripes," says Rizk. "It was difficult, but we did it."
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