Jones Lang LaSalle
USA 02 16 06
MACK-CALI STORMS GALE
Peter Slatin
Bucking the trend of REITs gobbled up by private interests, Mack-Cali Realty Corp. (nyse: CLI) is acquiring 20 properties and the privately held Gale Real Estate Services Corp. for some $545 million. The deal adds about 2.8 million square feet of New Jersey office space to CLI's already substantial portfolio in the state, and partners CLI CEO Mitchell Hersh not only with entrepreneurial investor/developer Stan Gale, but also with his joint-venture partner, SL Green Realty Trust (nyse: SLG).
Gale and SLG, which bought the portfolio together, will retain a 50% interest in eight of the 20 properties Mack-Cali is buying. The interest in those eight buildings, trading at $168 million, represents a key opportunity for CLI (and also for SLG) because they are only 55% leased. The larger group of 12 buildings, which Mack-Cali is acquiring whole ownership of, is valued at $337 million, and are 95% leased. Hersh says the acquisition bulks up his company s portfolio by 10% and estimates that it will add 0.11/share to CLI's earnings, or about $8 million in NOI.
Citigroup Smith Barney REIT analysts Jonathan Litt and Jordan Sadler, in a report on the transaction published Thursday, noted that the deal is likely to bring cash to the bottom line from the get-go. "While rare these days to see immediately accretive acquisitions in the REIT space," they write, "this is largely afforded by CLI's underleveraged balance sheet." According to the report, Mack-Cali's debt load is at a modest 35% of gross asset value, though the funds it will have to draw from its credit lines to close the deal, which includes the assumption of $139 million in debt, will boost that to 39%. That's still below the REIT office-sector average of 42%. The peg the cap rate for the properties in the deal at just below 7%, with the entire transaction coming off at a 6.6% cap rate.
Litt and Sadler add that "the transaction provides the company with significant scale and pricing power in the densely populated region.
"In an interview, Sadler remained unexcited about CLI because of the company's current valuation and its New Jersey concentration. The Gale deal, he said, is "not a home run, and doesn't meaningfully change the company's growth profile." The company, he added, "is still an 800-pound gorilla, and now perhaps a 900 pound gorilla in New Jersey." Nonetheless, he called the deal a "good defensive play in that they are buying a competitor from a leasing and management standpoint, and will certainly control some New Jersey markets" once the transaction closes.
The intriguing notion that ultra-suburban Mack-Cali will now be working in joint-venture partnership with the very Manhattan-centric SL Green is also potentially rewarding, and leads to speculation about the two companies eventually joining forces to dominate two important regions of the nation's dominant real estate marketplace. While that is, if anything, well down the road, SL Green, seeking to expand its opportunities into New Jersey, joined with the entrepreneurial Gale on the purchase of the so-called Bellemead portfolio. Hersh characterizes the new arrangement, with SLG and Gale retaining their 50% ownership in some of the properties, as an "experiment that has the benefi of allowing us to work withone another in creating value in the unstabilized part of the portfolio.
"For Mack-Cali, the most significant piece of the deal involves the $40 million acquisition of Gale Real Estate Services Corp., a third-party services company. This transaction, Hersh told Forbes.com, is a "phenomenal opportunity to get involved in a company with a significant book of business in everything from leasing, asset and property management to development and construction." The company is active not just in Gale's (and Mack-Cali's) backyard of New Jersey suburbs, but also in the U.K. and Europe, says Hersh. Gale gets an upfront payment of $10 milliion in common operating partnership units and $12 million in cash, but his eventual payout will total $40 million. Hersh points to the fact that Gale is taking just over half his compensation up front shows that Gale is "fully aligned" with the transaction.
The sale will also free Stan Gale to pursue a pet project in South Korea, where he is developing the 1,500-acre New Songdo City outside Inchon. The Mack-Cali deal involves none of Gale's interests there or in the Midwest. Gale's principal backing outside of his partnership with SL Green has historically come from Morgan Stanley Real Estate Funds, and those interests will also remain outside of the present deal. However, as part of the transaction, Hersh notes that Mack-Cali is acquiring strategically important development sites in Parsippany and Florham Park, N.J., the township where both Mack-Cali and Gale are headquartered.
USA 02 16 06
MACK-CALI STORMS GALE
Peter Slatin
Bucking the trend of REITs gobbled up by private interests, Mack-Cali Realty Corp. (nyse: CLI) is acquiring 20 properties and the privately held Gale Real Estate Services Corp. for some $545 million. The deal adds about 2.8 million square feet of New Jersey office space to CLI's already substantial portfolio in the state, and partners CLI CEO Mitchell Hersh not only with entrepreneurial investor/developer Stan Gale, but also with his joint-venture partner, SL Green Realty Trust (nyse: SLG).
Gale and SLG, which bought the portfolio together, will retain a 50% interest in eight of the 20 properties Mack-Cali is buying. The interest in those eight buildings, trading at $168 million, represents a key opportunity for CLI (and also for SLG) because they are only 55% leased. The larger group of 12 buildings, which Mack-Cali is acquiring whole ownership of, is valued at $337 million, and are 95% leased. Hersh says the acquisition bulks up his company s portfolio by 10% and estimates that it will add 0.11/share to CLI's earnings, or about $8 million in NOI.
Citigroup Smith Barney REIT analysts Jonathan Litt and Jordan Sadler, in a report on the transaction published Thursday, noted that the deal is likely to bring cash to the bottom line from the get-go. "While rare these days to see immediately accretive acquisitions in the REIT space," they write, "this is largely afforded by CLI's underleveraged balance sheet." According to the report, Mack-Cali's debt load is at a modest 35% of gross asset value, though the funds it will have to draw from its credit lines to close the deal, which includes the assumption of $139 million in debt, will boost that to 39%. That's still below the REIT office-sector average of 42%. The peg the cap rate for the properties in the deal at just below 7%, with the entire transaction coming off at a 6.6% cap rate.
Litt and Sadler add that "the transaction provides the company with significant scale and pricing power in the densely populated region.
"In an interview, Sadler remained unexcited about CLI because of the company's current valuation and its New Jersey concentration. The Gale deal, he said, is "not a home run, and doesn't meaningfully change the company's growth profile." The company, he added, "is still an 800-pound gorilla, and now perhaps a 900 pound gorilla in New Jersey." Nonetheless, he called the deal a "good defensive play in that they are buying a competitor from a leasing and management standpoint, and will certainly control some New Jersey markets" once the transaction closes.
The intriguing notion that ultra-suburban Mack-Cali will now be working in joint-venture partnership with the very Manhattan-centric SL Green is also potentially rewarding, and leads to speculation about the two companies eventually joining forces to dominate two important regions of the nation's dominant real estate marketplace. While that is, if anything, well down the road, SL Green, seeking to expand its opportunities into New Jersey, joined with the entrepreneurial Gale on the purchase of the so-called Bellemead portfolio. Hersh characterizes the new arrangement, with SLG and Gale retaining their 50% ownership in some of the properties, as an "experiment that has the benefi of allowing us to work withone another in creating value in the unstabilized part of the portfolio.
"For Mack-Cali, the most significant piece of the deal involves the $40 million acquisition of Gale Real Estate Services Corp., a third-party services company. This transaction, Hersh told Forbes.com, is a "phenomenal opportunity to get involved in a company with a significant book of business in everything from leasing, asset and property management to development and construction." The company is active not just in Gale's (and Mack-Cali's) backyard of New Jersey suburbs, but also in the U.K. and Europe, says Hersh. Gale gets an upfront payment of $10 milliion in common operating partnership units and $12 million in cash, but his eventual payout will total $40 million. Hersh points to the fact that Gale is taking just over half his compensation up front shows that Gale is "fully aligned" with the transaction.
The sale will also free Stan Gale to pursue a pet project in South Korea, where he is developing the 1,500-acre New Songdo City outside Inchon. The Mack-Cali deal involves none of Gale's interests there or in the Midwest. Gale's principal backing outside of his partnership with SL Green has historically come from Morgan Stanley Real Estate Funds, and those interests will also remain outside of the present deal. However, as part of the transaction, Hersh notes that Mack-Cali is acquiring strategically important development sites in Parsippany and Florham Park, N.J., the township where both Mack-Cali and Gale are headquartered.
posted by Jones Lang LaSalle NJ News Blog at 9:53 AM
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