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EAST RUTHERFORD, NJ-Mack-Cali Realty Corp. is selling its stake in the Xanadu entertainment/retail project’s initial phase to Colony Capital. As reported by GlobeSt.com, Colony Capital is in the process of buying out troubled Mills Corp.’s larger share of the project in a $500 million deal announced this past summer.

Under the terms announced late last week during Mack-Cali’s Q3 conference call, the REIT will get $22.5 million from Colony for its share of the first phase. Mack-Cali has reportedly invested $32.5 million in the first phase, which will encompass a total of more than two million sf, about half of which will be retail and the rest entertainment-related. Also, Mack-Cali will get another $2.5 million at the start of the project’s second phase, which will encompass office space and a hotel.

“Mack-Cali will no longer be involved in the entertainment and retail phase,” Mitchell E. Hersh, Mack-Cali’s president and CEO told analysts during the conference call. “Clearly, Xanadu has not met anyone’s expectations in terms of its execution. I’m sure Mills Corp. feels the same.”

The buy-out deal with Colony is expected to be formally signed this week, Hersh says. Under the terms of the agreement in principle, actual closing will happen after Colony’s buy-out of Mills closes, which is expected to occur later this month.

“In order to get the Mills deal completed, Colony had to simplify the structure of the transaction,” Hersh told analysts. “There are different tax issues involved that no longer apply, because Mills is a REIT and Colony isn’t.”

While Mack-Cali is still aiming to participate in later phases of Xanadu involving offices and hotels, that may take awhile. No timetable has been announced, but phase two work won’t start until after phase one is up and running, which won’t occur before late 2008 under current timetables.

And Mack-Cali itself is on the move. The company is in the process of relocating its headquarters from its long-time home in Cranford, NJ to Metroview Corporate Center, a 196,000-sf building at 343 Thornall St. in Edison, NJ. Mack-Cali added the building to its holdings when it acquired most of the assets of the Gale Co. earlier this year, as reported by GlobeSt.com.

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