Mack-Cali selling waterfront trophy for $380M

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Mack-Cali is in contract to sell a trophy office tower on
the Hudson River waterfront for $380 million, according to sources close to the
deal.

Mark Meisner’s Nanuet-based Birch Group is the buyer of 101 Hudson
Street, a 1.2 million square-foot class A office tower in Jersey City which Mack-Cali
bought for $329 million in 2004.

The REIT remortgaged the tower with a 10-year, $250 million loan
in 2016, money that was used repay outstanding secured and unsecured debt as
the company worked to streamline its suburban office portfolio to focus on its prime
waterfront assets.

Last year, AIG inked a deal to take a reported 230,000 s/f
of space in the building, previously known as the Goldman Sachs tower.

Mack-Cali declined to comment on the sale and no word yet
from the Birch Group. Cushman & Wakefield confirmed its Adam Spies, Andy
Merin, David Bernhaut, Kevin Donner, Gary Gabriel and Frank DiTommaso arranged
the sale, but declined further comment.

The sale stands out among two years of suburban office
disposition at Mack-Cali. This year alone, the company has sold $549 million of
suburban office buildings and newly appointed CEO Mahbod Nia has been focused
on boosting the share price and rewarding investors who’ve stuck with the firm
through a takeover battle and a pandemic.

During the 2Q earning call he said, “We remain highly
focused on our strategic objectives of simplifying the business and
streamlining the balance sheet, as illustrated by the disposal of virtually all
of our remaining suburban assets during the quarter, substantially in line with
our pre-pandemic valuation expectations.”

A Colony Capital and Northstar (NRE) alum, Nia was credited
with helping NRE get its business in order ahead of a sale to AXA Investment
Managers that netted a 16 percent IRR.

During a summer NAREIT meeting, Nia spoke about expanding Mack-Cali’s
lucrative multifamily platform beyond its core in New Jersey.

He told investors during the earning call, “That comment was
more centered around concentration risk and whether to the extent that we do
gravitate more toward becoming a multifamily REIT, whether we should be more
concentrated in our current markets or look to new markets.

“We’re at the point where we’re really evaluating potential
options for us in the future, but no conclusive decisions have been made at this
point.”

The Waterfront office portfolio – which included 101 Hudson
– was 75.4 percent leased, up from 74.2 percent as of March 31, 2021,
reflecting 75,500 s/f of leases signed during the quarter, including 51,600 s/f
of new leases. The office portfolio also enjoyed a 2.5 percent increase in NOI
from the previous year.

Analysts have given the efforts a gold star. Although BTIG’s
Thomas Catherwood just lowered his share price target from $30 to $26, Mack-Cali
is still considered a buy. As of September, its share price was 16.65 – way below
the 56 it enjoyed in its heyday during the 2000s but a major improvement on its
most recent 52-week low of 10.35.

Catherwood attributed the price target change to the
company’s shorter hold period for its remaining office assets. He said investors
could lose sight of positive near-term potential as dispositions, incremental
short-term debt, COVID-impacted apartment rental rates, and recent office lease
expirations result in lower earnings.

The sale of 101 Hudson is likely to help Mack-Cali pay down
a $400 million loan and credit facility it arranged with JPMorgan Chase Bank in
May 2021.

David J. Smetana, chief financial officer, said during the
earning call that the company was also looking at disposal of excess land
adding, “hotels probably are not part of our long-term kind of operating core
portfolio. So those in total should be able to take care of the remaining line
balance.”

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