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Black's Guide

Real Estate N.Y.

O & I Properties

At press time, Mack-Cali had submitted plans to the Jersey City Planning Board and New Jersey’s Department of Environmental Protection (DE) for the variances and permits needed to develop the 1.8-million-sf American Financial Exchange (AFE) tower; a structure that would stand as the tallest office building in the state. As envisioned, the tower’s 57,000-sf lower floorplates could be expanded to 120,000 sf on some floors to accommodate larger single-tenant needs.

"We have proposal and marketing exercises underway to a number of tenants," reports executive vice president Brant B. Cali, who adds that Mack-Cali will not start construction without a substantial anchor of close to a million sf. To this end, he notes: "We have [so far] responded to RFPs from a number of tenants."

Nearby to the south (at Harborside Financial Center, where Mack-Cali currently has 1.9 million sf encapsulated in three buildings), the developer is working on changes to the site plan to spread out the remaining 4.1 million sf of potential development over four additional buildings instead of three. The change, Cali notes, would enable Mack-Cali to start building sooner and with less pre-leasing.

Reiterating its aforementioned stance, executives for the REIT steadfastly maintain construction will not start without a tenant or tenants for at least 25% of its next building. "We’re no longer just speculative developers, particularly with 1-million-sf towers," Cali points out. "We want some pre-leasing, and [we feel] the balance of the space is as important as the percentage leased. So, with a 700,000-sf building as opposed to one of 1 million sf - 1.25 million sf, we can accommodate a 300,000-sf tenant and put less space on the market."

However, Mack-Cali has nonetheless already reobtained its waterfront development permit from the DEP and Army Corps of Engineers, allowing for existing piers at both ends of Harborside to be developed. Additionally, the company is working on an agreement with a residential developer to joint-venture residential development on the north pier; a move which could accommodate up to 250 rental units. Mack-Cali claims it is also in talks with a hotel chain to build a full-service hotel on the south pier.

"We’re optimistic we’ll be able to start this year," Cali says, "but you won’t see cranes right off the bat because there’s about 12 - 15 months’ worth of remediation work that has to take place. We’re prepared to go forward with repairing the piers and, accordingly, we anticipate pier renovations will commence in the next few months." Along these lines, Mack-Cali is receiving a $2-million grant from Housing and Urban Development (HUD) and the city to subsidize interest on a $9-million HUD loan for the pier-remediation work.

"We think the hotel brings unique opportunity for anchoring Harborside, especially with the light rail that will run there," Cali contends. "Furthermore, a full-service hotel starts to give the city some weekend appeal as well as [boosting its] business appeal. The lodging property will have views of the Statue of Liberty, Ellis Island and Downtown Manhattan, and [could] he a great boon to the city on weekends and at night."

(In addition to Harborside and AFE. Mack-Cali owns the International Financial Tower at 95 Christopher Columbus Dr. Donaldson, Lufkin & Jenrette Inc.’s Pershing Division occupies about two-thirds of that 19-story, 11-year-old site.)

It’s certainly worth noting that Mack-Cali has been bullish on Jersey City for quite some time, demonstrating its commitment to the area through its current ownership of about 40% of the class-A space. "If Mack-Cali fully developed all its land—and if all the city’s 16 million sf of commercial real estate capacity was realized—we would still own about 40% of the inventory," Call says.



To be sure, Mack-Cali’s strategy of focusing on markets where it can be the dominant player has remained remarkably consistent. By the end of 1998, the four-and-a-half-year-old REIT had grown its portfolio (96% of which was occupied) to 28.1 million sf of space in 12 states and the District of Columbia (occupied by approximately 2,300 tenants). Additionally, its financial position—with market capitalization of $3.6 billion and a debt-to-market capitalization ratio in the high 30% range—continues to strengthen. Small wonder the REIT has the flexibility to act on opportunities in its core Northeast markets, where 75% of its portfolio is located.

"We have $1-billionworth of capacity in our credit lines," says Mitchell E. Hersh, the REIT’s president and chief operating officer. "That we have achieved ane rating of BBB has a very significant impact on us. It allows us to enter the unsecured market where we can do medium investment-grade and long-term bond offerings. We also have the ability to issue preferred instruments and tender preferred stock offerings.

"Furthermore," he adds, "it affords us access to a much greater pool of capital and [serves as] a testimony to the strength of the company, the stability of our balance sheet and the confidence in the management of the company. It’s a very big step for us. At the very least, it will reduce our cost of borrowing."

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