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Black's Guide

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O & I Properties






When it went public in August of 1994, Cali Realty Corp.—founded by brothers John and Angelo Cali and their friend Edward Leshowitz in 1949—had a portfolio of 13 properties totaling 2.2 million sf. Since then, the company has enjoyed rapid growth (primarily through acquisitions, although collectively its top management embodies more than 100 years of development experience).

With the acquisition of Harborside in the fall of 1996, the Cali portfolio (at the time) was increased by 40%. A few months later, Cali acquired the Westchester, NY-based Robert Martin Co. in a $400-million merger. (The Harborside purchase included 11.3 acres of fully zoned property that has permits for 4.1 million sf of development, as well as the development and water rights to another 27.4 acres, of which the two piers are a part.)

These moves were shortly followed by the Mack-Cali merger; a marriage of neighbors who shared a tightening core office market in Northern New Jersey. At the time of the merger (in late 1997), the new company owned almost 8% of all the office space throughout that Garden State region. Additionally, the merger created a company with a definitive presence in Phoenix, Houston, Dallas and San Antonio, as well as single office buildings in San Francisco and Tampa.

Similarly noteworthy is the fact The Mack Co. also owned Dallas-based Patriot American Office Group (a Resolution Trust portfolio since brought to full occupancy). Furthermore, The Mack Co. also enjoys a relationship with Apollo Real Estate Management via William Mack, who similarly serves as director of thelatterr organization’s funds. (Apollo Real Estate Management had raised about $2 billion in equity in three real estate funds under William Mack’s aegis).

In a tangible vein, Mack-Cali is "sitting pretty" largely because it sits atop alargec quantity of land. "A little known fact about our company is that we have an enormous land bank that could support 13 million sf of office development, with some 11 million sf of it within our core Northeast market," Hersh offers. "It’s been our practice to assemble land inventory to provide for the needs of our tenants and for opportunistic development. Accordingly, we have an enormous land inventory—approved and zoned—and most of it has specific approvals. Consequently, we have the ability to do build-to-suits and develop with significant preleasing."

Along these lines, Mack-Cali is prepared to move forward on several development projects in New Jersey this year.. .if (and when) it signs up tenants for about 25% of the potential space. In Roseland, where Mack-Cali owns fully leased buildings of 237,000 sf and 151,000 sf at 101 and 103 Eisenhower Pkwy., the organization is currently going for approvals for a 4-story office building at 105 Eisenhower; a project on which it expects to break ground in the early spring. Mack-Cali also could start construction at two Princeton area sites — 5 Vaughn Dr. and 200 Overlook Rd.—near the intersection of Alexander Road and Route 1.

   

   

Taking a look at the big picture, Mack-Cali chief executive officer Thomas A. Rizk claims the downward pressure on stocks in (the latter part of) 1998 had a significant impact on the balance-sheet strategies of just about all the public REITs. "A couple of things happened," Rizk explains. "To begin with, those companies that had continued strong access to capital remained conservative. On the other hand, those companies that didn’t have strong access to capital really hit a brick wall.

"For us," he continues, "it magnified the issues of where, in other parts of the country, there are development concerns; of where there is more [potential for] oversupply. It really focused us on that issue."

Rizk adds that the downturn reinforced Mack-Cali’s strategy of being cautious about development. In New Jersey, where the amount of new construction underway is equal to about 2% of total market inventory, however, he believes it is reasonable not to expect oversupply in the immediate future.

The chief executive officer also reckons that between Robert Martin, the Mack Co. and Cali, Mack-Cali has more than 100 years of development experience—another factor weighing heavily in its calculated and conservative course of developmental action. In line with this, Rizk admits: "The second thing that differentiates us from other public companies is that we have had a moderate approach, regardless of whether the market was very hot or very cold. Accordingly. if we erred, we always erred on the conservative side."

Mack-Cali’s conservative approach has obviously helped it put together a $1-billion line of credit with 28 banks; a development Rizk contends is "very unusual." As he sees it, this represents "one of the most successful syndications of unsecured credit ever."

Specifically, he says this credit line came into being as "the result of a very strong balance sheet. At a turbulent time in the market, we managed not to be over-leveraged. As such, when the music stopped, we’d have some leverage which, in turn, would allow us to have some financing flexibility."

Going forward, the Mack-Cali executive looks for fair-to-modest growth in the economy this year. Since there hasn’t been a problem of oversupply in the office real estate market, his prognosis for the commercial real estate business in general is good. And, given Jersey City’s recent development strength and its ability to absorb office space even during the last down market, Rizk expresses considerable confidence in the city’s future.

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