EDISON, NJ-It’s a study in contrasts: Too much money may be chasing trophy properties, while smaller projects have trouble attracting financing, Mack-Cali Realty Corp. president and CEO Mitchell E. Hersh said during the company’s third quarter conference call.
The company acknowledged that it had examined and even bid on some of the major recent deals in New Jersey, but ultimately shied away from an escalating price point.
“You need to be very, very careful,” Hersh said. “You have such an abundance of capital that pays such a dear price, without understanding the intricacies.”
The company looked at acquiring Newport Tower in Jersey City, which recently was acquired by Multi-Employer Property Trust for $377 million, but passed. “I believe it was acquired at a 5% yield–close to what we can develop new product at,” Hersh said. “It’s a good asset, but it’s 20 years old.”
Mack-Cali has approvals to build some three blocks away, he notes. The company also will develop a 203,000-square-foot class A office building for Wyndham Worldwide Corp., which will allow the company to consolidate its Parsippany, NJ-based workforce within a single campus.
“We could have paid 5% for Newport, but chose not to do it,” he said.
Ironically, however, smaller deals, in the $25 million to $150 million are very difficult to underwrite, he continued, and are depressing the market. “We just went though a refi of a small asset, and if I tell you what hoops we had to jump through…,” Hersh recalled. “Underwriting is severe.”
Overall, however, the quarter was successful. Funds from operations (FFO) available to common shareholders for the quarter were $72.9 million, compared with $64.3 million in the third quarter of 2010. Net income was $20.5 million compared to $13.03 million a year previous. The consolidated in-service portfolio was 88.2% leased as of September 30, 2011, up slightly from 88.1% the end of the previous quarter.
During the quarter, the company executed 136 leases at its consolidated in-service portfolio totaling 1.2 million square feet, consisting of 980,764 square feet of office space and 264,581 square feet of office/flex space. Of this, 279,303 square feet consisted of new leases and 966,042 square feet were for lease renewals and other tenant retention transactions.
Hersh said he does expect a dip in occupancy and for rents to remain flat as a large amount of space comes up for renewal in 2012. “We have to do a lot of leasing,” he said.
The Harborside residential development in Jersey City will consist of some 1,800 to 1,900 units to be built in three phases, over an extended period. “There seems to be an insatiable demand for workforce/workplace housing,” Hersh said. “We think we’ll do extremely well along the waterfront.”