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Real Estate Forum
January 1998

MACK-CALI
Anatomy
of a Merger

By Joseph Cavaluzzi
Editor, Real Estate Forum

   

Critics wondered how Cali Realty could sustain its three-year feverish growth rate. The firm's $1.2-billion merger with the Mack Co. answered their questions.

The merger of Cali Realty Corp. and the Mack Co. in December her created a real estate investment trust with extraordinary financial clout and an immediate presence in several growing suburban office markets. But the marriage has done much more. The combined firms today stand on the threshold of major new market inroads.

In many respects, the $1.2-billion merger of Cranford, NJ-based Cali and Roehelle Park, N.J.-based Mack is the culmination of a period of intensive growth for Cali. The firm’s first three years as a REIT — it went public in August of 1994 — produced a cumulative return of 178%, leading real-estate-shy banks to extend the company a $400-million unsecured line of credit in late August. Those returns, not surprisingly. also created enthusiasm on Wall Street when Cali sold 13 million shares to raise another $491 million in October.

   
  

John J. Cali (left) and William Mack. Their handshake, at Cali's December shareholders meeting to bless the marriage, represents the $1.2 billion merger of two entrepreneurial spirits.

But this success led many real estate professionals to question how the company could maintain its feverish growth pace, especially with available space in its core market drying up and little new space coming on line. The marriage to Mack, a family-owned developer founded in 1896, is likely to provide the answer.

As a result of the deal, Mack-Cali Realty Corp. has grown from 13 properties totaling 2.2 million square feet to 21.6 million feet of office, flex and industrial space in 187 buildings in 10 states. The merger created a company with a presence in Phoenix, Houston, Dallas and San Antonio, as well as a 270,500-square-foot office building in San Francisco and a 285,000-square-foot office asset in Tampa. It also broadened the company’s access to tenants in growing industries, including energy, financial services and telecommunications.

And in terms of its core market — the office segment of northern New Jersey, the sixth largest office market in America — the firm now owns 8% of all the office space in that region and 20% of the market’s class A space. The firm also owns some 200 acres of undeveloped land.

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