Mack-Cali Realty Corp. (CLI) and Keystone Property Group have penned a deal to form joint ventures whereby Keystone would acquire 12 office properties across Northern New Jersey, New York and Connecticut from Mack-Cali for around $230.8 million. The move comes as part of Mack-Cali’s efforts to shed its office portfolio and diversify into the more promising multi-family residential sector.
This marks the fifth deal signed by Keystone and Mack-Cali and involves 2.3 million square feet of space in total. The purchase price of $230.8 million comprises $201.7 million in cash and the rest in the form of senior and subordinated equity.
Mack-Cali will take part in the portfolio management fees as well as a percentage of value creation over certain hurdle rates. It would also keep a senior pari-passu equity position at 570, 555 and 565 Taxter Road.
Amid continued weakness in the company's core office markets, Mack-Cali has been divesting a notable part of its office portfolio and deploying its capital to expand its holdings in the multi-family residential sector that has traditionally been more of a stable product type. The growth in the echo boomers population is particularly expected to drive the demand for these properties.
Notable acquisitions in this respect involve multi-family residential properties in New Brunswick, NJ, Alterra at Overlook Ridge 1A and 1B – luxury multi-family properties in Mass., and Park Square in Rahway, NJ.
While we believe that the venture into the multi-family apartment sector is expected to help in long term growth of Mack-Cali, the aggressive disposition of office assets would continue to have a dilutive impact on its financials in the near-to-medium term.
Mack-Cali currently carries a Zacks Rank #4 (Sell) stock. However, investors interested in the REIT industry may consider stocks like Cousins Properties Inc. (CUZ), Liberty Property Trust (LRY) and Public Storage (PSA). All these stocks carry a Zacks Rank #2 (Buy).
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