Mack-Cali Realty Corporation Announces Opportunistic Transactions Valued at $121.1 Million
06/01/1998 Category: Acquisitions
Joint Venture for California Development with Highridge Partners, Inc.
Acquisitions Include Suburban New York and San Francisco Properties
CRANFORD, NJ--June 1, 1998--Taking advantage of strong relationships and emerging opportunities in key real estate markets, Mack-Cali Realty Corporation (NYSE:CLI) today announced a series of opportunistic transactions valued at $121.1 million.
The transactions include:
A $56.4 million joint venture development agreement to form a limited partnership with Highridge Partners, Inc., a nationally-recognized, California-based real estate company, to initially develop four office and office/flex properties totaling 369,000 square feet in Southern California. Mack-Cali will invest $19.2 million toward the projects.
The acquisition of a 49.9% interest in Convention Plaza, a 305,000 square-foot class A office building in San Francisco. Mack-Cali acquired its interest in the building, initially valued at $58 million, or $190 per square foot, through a combination of operating partnership units and cash totaling approximately $10 million. The property is held in a partnership with Alvin Dworman, owning 50%; Mack-Cali, owning 49.9%; and Larry Feldman, owning .1%. The occupancy rate of the property, which was 46.6% at closing, has increased to 63%, due to new lease commitments obtained by the partnership for over 60,000 square feet.
The acquisition of One Ramland Road, a 232,000 square-foot vacant office/flex building, plus developable land, in Orangeburg, New York for approximately $6.7 million, or $28.70 per square foot. The Company plans to initiate an extensive renovation and leasing plan for the property.
Thomas A. Rizk, chief executive officer of Mack-Cali, said, "Today's transactions are consistent with our strategy of taking advantage of our relationships to pursue opportunistic transactions that build a presence in select markets. These transactions will allow us to diversify our portfolio of solid, income-producing properties with new value-added opportunities that maximize returns to our shareholders." Rizk added, "We fully expect to see more of these types of transactions in the months ahead."
Mitchell E. Hersh, president and chief operating officer of Mack-Cali, commented, "These transactions utilize our extensive experience in leasing, repositioning and development, coupled with our commitment to partner with expert local talent. The Highridge project in particular allows us to enter Southern California in a prudent manner, with limited investment and risk, and with an opportunity to work with the highly-regarded Highridge team to generate high returns."
TRANSACTIONS EXPECTED TO PROVIDE COMPANY WITH ATTRACTIVE RETURNS
The transactions announced today are expected to provide the Company with attractive returns on its investments, based in large part on the creative structuring of the transactions and the immediate benefits of market repositioning and leasing activities.
The joint venture with Highridge, a well-established company with 30 years of real estate development and management experience in California, requires a limited investment by Mack-Cali of $19.2 million. The Company projects unleveraged stabilized yields of approximately 12% on the development of the four properties which will benefit from a vibrant and strong Southern California market.
In the Convention Plaza agreement, Mack-Cali acquired a 49.9% interest from Larry Feldman, one of the property's original developers, at $190 per square foot, representing two-thirds of replacement cost and well below the price for recent property sales in San Francisco's CBD market, one of the strongest office markets in the country. When the property is leased at current market rates, the Company expects unleveraged stabilized returns in excess of 10.5%.
One Ramland Road, acquired for $28.70 per square foot, which is significantly below replacement cost, is expected to generate unleveraged stabilized returns in excess of 12% after renovation and leasing by the Company.
HIGHRIDGE PARTNERS WELL-KNOWN IN CALIFORNIA MARKETS
Since its inception in 1978, Highridge has acquired, developed, managed, owned and sold over $2.5 billion of real estate assets in California. Its portfolio has included office complexes, apartments, industrial parks, shopping centers and residential subdivisions. Today, Highridge's various operating companies control over $700 million of real estate assets. The company is recognized for its research-driven strategy in examining real estate opportunities and its successful track record of identifying and building real estate value.
Mitchell E. Hersh commented, "Highridge and its co-founders, Gene Rosenfeld and John Long, are very well-respected entrepreneurs with extensive experience in California, which provides us with an immediate reservoir of market knowledge and contacts. We are already evaluating expanding this program to develop other sites with Highridge in California."
The joint venture with Highridge calls for the development of 369,000 square feet of office and office/flex space in El Segundo and San Diego. The development costs, estimated to total approximately $56.4 million, will be funded by an investment of $19.2 million by Mack-Cali, using its cash and existing credit facilities; $10 million in cash and land contribution by Highridge Partners, Inc.; and the balance by a construction loan to the partnership.
Development efforts for the strategic alliance, in which Highridge Partners, Inc. will serve as managing general partner, will be led by John S. Long, founder and managing partner of Highridge Partners; and Jack Mahoney, president of Summit Commercial Properties, a division of Highridge Partners.
Under the terms of the joint venture, Mack-Cali will have the option to purchase the assets upon stabilization with the competitive advantage of the Company's 50% equity interest in the project.
Initially, the partnership will develop a 237,000 square-foot class A six-story office building with structured parking in El Segundo, in the South Bay market of Los Angeles. The property is located minutes from Los Angeles International Airport and several major freeways, and within one block of a Metrorail station. The El Segundo class A office vacancy rate is currently 5%.
In Sorrento Mesa, San Diego, California, the partnership will develop three one-story office/flex buildings totaling 132,000 square feet, with surface parking. The Sorrento Mesa marketplace is recognized as San Diego's most dynamic research and development market, with thriving companies in the telecommunications, electronics, computer software, biotech and medical instrument industries. The office/flex vacancy rate in San Diego is currently at 4.5%.
The construction for both projects is expected to begin immediately and completion is anticipated as mid-1999.
CONVENTION PLAZA LEASING PROGRAM UNDERWAY
Since closing, the new partnership has increased the occupancy rate of the 12-story Convention Plaza from 46.6% to 63%, significantly adding to the rental stream and value of the property. Leased to six tenants including Wells Fargo Bank, Bank of America, Qorvis Media Group, Ticketmaster and the San Francisco Convention and Visitor's Bureau, the property is located in the Yerba Buena Garden section of San Francisco's CBD. The strong San Francisco central business district (CBD) market had a 4% vacancy rate at the end of the first quarter of 1998.
Convention Plaza is situated three blocks from the Phelan Building, another Mack-Cali property in San Francisco's CBD, and will be managed by existing Mack-Cali personnel. With the Convention Plaza agreement, Mack-Cali now owns interests in and operates two office properties totaling 580,000 square feet in San Francisco.
Alvin Dworman, a well-recognized real estate developer and entrepreneur and one of the two original developers of Convention Plaza, will continue to own 50% of the property, and Larry Feldman, from whom Mack-Cali purchased the 49.9% interest, will maintain a .1% interest. Mack-Cali funded the purchase of its interest through the issuance of operating partnership units and cash totaling approximately $10 million. In addition, the partnership has obtained a two-year, $44 million mortgage loan from Hypo Bank with a one-year extension option. The loan bears interest at a rate of LIBOR plus 1.75%.
Upon completion of construction of the El Segundo and San Diego properties, Mack-Cali's holdings in California will increase to six properties totaling over 940,000 square feet.
ONE RAMLAND ROAD TO BE REPOSITIONED
One Ramland Road will undergo an extensive interior and exterior renovation and leasing program initiated by Mack-Cali. The 20 acres of land acquired with the property, which is zoned for the development of 100,000 square feet of office/flex space, also offers the Company valuable development opportunities in the tight Rockland County market.
"The opportunistic transactions announced today are indicative of some of the many creative opportunities that lie ahead for Mack-Cali. We look forward to continuing to build upon our relationships and enter into additional alliances that will further build value for our shareholders with minimal risk and investment capital," said Thomas A. Rizk.
Mack-Cali Realty Corporation is a fully integrated, self-administered, self-managed real estate investment trust (REIT) providing leasing, management, acquisition, development, construction and tenant-related services for its portfolio. With the completion of the Company's pending transactions, Mack-Cali will own or have significant interest in 244 properties, primarily office and office/flex buildings, totaling approximately 26.8 million square feet and serving over 2,300 tenants. Mack-Cali's properties are located in 11 states, primarily in the Northeast, as well as in the Southwest and West.
Additional information on Mack-Cali Realty Corporation is available on the Company's website at www.mack-cali.com.
Certain information discussed in this press release may constitute forward-looking statements within the meaning of the Federal Securities law. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to certain risks, trends and uncertainties that could cause actual results to different materially from those projected. Among those risks, trends and uncertainties are the general economic climate; the supply of and demand for office, office/flex and industrial/warehouse properties; interest rate levels; the availability of financing; and other risks associated with the development and acquisition of properties, including risks that the development may not be completed on schedule, that the tenants will not take occupancy or pay rent, or that development or information on factors which could impact the Company and the statements contained herein, reference should be made to the Company's filings with the Securities and Exchange Commission including quarterly reports on Form 10-Q on Form 8-K, and annual reports on Form 10-L.