Jones Lang LaSalle


Mack-Cali negotiating to buy entire Gale Co.
Real-estate firms' property deal may become more
Wednesday, February 15, 2006
BY MATTHEW FUTTERMAN
Star-Ledger Staff

Mack-Cali Realty is closing in on a $530 million deal to acquire the Gale Co. in a move that would further solidify the Cranford-based real-estate empire as the leading owner of office space in the state, three real estate executives with direct knowledge of the negotiations said yesterday.
The deal involves some of the best-known office complexes in the state's premiere markets, including Parsippany, Princeton and the Meadowlands. It would also result in a swan song of sorts for Stanley Gale, a veteran real estate investor who was once a top partner in the group that that bought the Nets and attempted to move the team to Newark.

The deal began as a pure property acquisition for Mack-Cali, which for two months has been pursuing roughly 3.5 million square feet of office space known as the "Bellemead Portfolio" owned by Florham Park-based Gale and its main partner, SL Green, a New York- based real estate investment trust.

However, in recent days, the executives say the discussions have evolved into a $530 million deal for Mack-Cali to take over Gale. That includes the property the company jointly owns with SL Green and a service company that manages dozens of buildings throughout the state.
Executives with the companies declined to comment but were said to be planning a formal announcement as early as tomorrow.

For Mack-Cali, the acquisition is an opportunity to take out a major competitor and gain additional credibility with the financial community.

Two years ago, analysts criticized the real estate investment trust for holding a diverse portfolio that included buildings in California and Texas. Mack-Cali Chief Executive Mitchell Hersh responded with a promise to refocus the company's investments mainly in the Northeast, then followed through by selling off many of the company's properties outside the region and acquiring buildings inside its targeted territory.

"Their tenant relationships really give Mack-Cali a head up in managing this portfolio effectively," said Jim Sullivan, an analyst with Green Street Advisors in California, of the imminent Gale acquisition. "When they were in Texas and California, it was hard to see a competitive advantage over other local owners. That is not the case in New Jersey, where they are big and well- known."

The Gale acquisition would give Mack-Cali roughly 34 million square feet of property in the United States, with 85 percent of that here in New Jersey.

For Gale, the deal would represent perhaps the final retreat for a company that was once one of the leading commercial real estate entities in the state.

Stanley Gale, whose company was then known as Gale & Wentworth, built a vast portfolio of buildings during the 1990s, which he then parlayed into a partnership with Raymond Chambers to buy the Nets.

Gale had partnered with JPMorgan and then Morgan Stanley Real Estate Funds to invest more than $1 billion in New Jersey during the high point of the state's last office building boom. Gale himself owned a small stake in each building and collected lucrative management and development fees.

But Morgan Stanley pulled its money from the investments two years ago, selling its stake to SL Green, the New York REIT, and Stanley Gale, who maintained his small interest in the properties and his management contracts.

In November, SL Green announced its intent to sell the New Jersey portion of the portfolio and an auction ensued during the next two months. Late last week, Mack- Cali emerged as the winner among eight bidders, including several institutional investors and a private, New York-based investment firm.

Lawyers for Mack-Cali and Gale have been in exclusive negotiations since then. While the discussions initially focused on the property, they quickly evolved into a total takeover of Gale.
Executives who have been briefed on the discussions said the terms currently on the table call for Mack-Cali to assume $15 million of personal and company debt Gale now holds, and a payment to Gale of up to $15 million over the next three years for his continued operations of the Gale building management services company.

While Sullivan, the California analyst, cautioned that financial professionals still needed to evaluate the price of the acquisition, local industry professionals lauded the deal.
"Mack-Cali is a logical buyer here," said Tom Stanton, principal with the Staubach Co. of New Jersey, a leading real estate brokerage. "We always have had great success working with Mack-Cali, and if the deal goes with them, that's a very good deal."

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