These are tough times for “Big D.” Office vacancies in Dallas have topped 20% and absorption levels totaled a negative 3 million sq. ft. for 2001 — and are still falling, according to Cushman & Wakefield.
Faced with a bleak investment outlook in that metro area and other Southwest markets, Mitchell Hersh, CEO of Mack-Cali Realty Corp., has decided it's time to refocus his company's investments a lot closer to home.
The Cranford, N.J.-based REIT is unloading assets in what it describes as “non-core markets” — namely Dallas, Houston and Denver — and redirecting more capital into the Northeast and Mid-Atlantic markets.
“The strategy of the company is to recycle capital in what we believe are markets with lower barriers to entry and bring that capital back here into the Northeast,” Hersh says. Case in point: The company this month sold four office properties totaling 489,000 sq. ft. in Dallas for approximately $34 million. The REIT also plans future sales in Houston and Denver. “We're extremely active in cycling out of those markets,” Hersh says.
The publicly traded REIT owns or has interests in 264 properties nationwide, primarily office and office/flex buildings, totaling 28 million sq. ft. The bulk of its income, some 85%, stems from its properties in the Northeast corridor, according to Hersh.
The Northeast's solid economy is the primary reason Mack-Cali has turned its attention there. “On balance, the Northeast corridor has outperformed many markets throughout the nation because it has a diverse macro economy,” says Hersh.
The REIT is putting its money where its mouth is. Harborside Financial Center, its multi-billion dollar office project in Jersey City, N.J., is progressing at full steam.
Located across the Hudson River from Lower Manhattan, Harborside already has attracted such financial-services giants as Charles Schwab, Deutsche Bank and Morgan Stanley, which occupy space in the 2.1 million sq. ft. of space in four plazas the developer has completed so far at the site. The four plazas are 100% occupied. The complex also is connected to Wall Street by both the water ferry system — currently in service — and the Port Authority Trans-Hudson (PATH) train system, which is being rebuilt following the Sept. 11 attacks on the World Trade Center.
And there is more to come. Mack-Cali is building two more office buildings at Harborside that are scheduled for completion this year. The Harborside Financial Center Plaza 5 — a 34-story, 980,000 sq. ft., Class-A speculative office development begun in 2000 — is 58% leased. The 575,000 sq. ft. Harborside Financial Center Plaza 10 is a build-to-suit project for The Charles Schwab Corp.
Going forward, projects such as this will be in demand as the economy rebuilds, according to Hersh. “There will be a need for diverse, institutional-caliber real estate in macro markets.”