Mack-Cali Makes Major Move in M-F Market

Mack-Cali Realty entered into a definitive agreement to buy the real estate development and management businesses of Roseland Partners.

The revamping of its portfolio to incorporate a significant percentage of multi-family assets is a key part of Mack-Cali Realty Corp.’s current strategy and the REIT just took a gargantuan step toward achieving its goal. Mack-Cali has entered into a definitive agreement to purchase the real estate development and management businesses of leading multi-family developer and operator Roseland Partners L.L.C. In the end, the price tag on the transaction could go as high as $134.6 million.

Mack-Cali owns a premier portfolio of commercial assets–predominantly office and office/flex properties–and with the purchase of Roseland the REIT will be able to establish a major multi-family footprint in the Northeast in one fell swoop. Mack-Cali will come into possession of six multi-family properties accounting for an aggregate 1,769 residences–and that’s just for starters. Thirteen in-process development endeavors will yield apartment properties featuring 2,149 units. The assets locations span from New Jersey to Massachusetts, with the majority sited in the Garden State.

“[Our objective is] to diversify the company, to transform the company, to be a very large player in the multi-family for rent arena,” Mitchell Hersh, president and CEO of Mack-Cali, said during the company’s second quarter earnings call in late July.

The apartment market continues to lead the commercial real estate market, outshining every other sector in performance. According to report by apartment research firm Axiometrics, the national occupancy level continued on its steady upward trajectory in the third quarter, rising to 94.5 percent.  Investors’ thirst for the apartment sector seems unquenchable, and for good reason; strong fundamentals bode well for long-term success.

“Even though [multi-family’s] been hot, and valuations are at very, very significant numbers, and cap rates are low, etcetera, there remains what I would say an insatiable demand in certainly urban areas or Class A urban areas, transit-oriented urban areas for workforce-type housing that is affordable,” Hersh said. “Family formation is occurring much later. The for-sale single-family housing market has really not improved. I mean every day you see some new statistic and it’s bouncing around up and down. But most young people still don’t qualify for mortgage loans … and they partly can’t get them, because they have such significant student loans and don’t have the deposits to put down. And so we see a continuation of demand in the affordable, extremely well-designed and well-located sector of the multi-family arena, the for-rent arena.”

Mack-Cali will be well-equipped to respond to increasing demand in the future, as the Roseland collection includes land that can accommodate the development of 5,980 rental units.

The Roseland acquisition will mark Mack-Cali’s second major move in cultivating a significant presence in the multi-family world.  In December 2011, the REIT signed a development deal with Ironstate Development L.L.C. to build two apartment high-rises on land owned by the REIT at its Harborside Financial Center complex along the waterfront in Jersey City, N.J. The first phase of the project will yield a single tower with roughly 750 residences at a cost of approximately $230 million.

Hersh noted during the earnings call that Mack-Cali expects to create a portfolio that is roughly 30 to 40 percent multi-family. But that’s not to say that the company is neglecting the property types that have long been its focus. The group of Roseland assets also encompasses land zoned for a total of 736,000 square feet of commercial space. All told, the Roseland portfolio is valued at $1.2 billion.

The Roseland transaction is on track to close this quarter.