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Mack-Cali (CLI) Acquires Liberty Towers in 1031 Exchange

Zacks Equity Research

Mack-Cali Realty Corporation CLI recently announced the acquisition of Liberty Towers, a 648-unit residential tower located on the Jersey City Gold Coast, for a total value of $409 million. The move comes as part of its 1031 exchange that will aggregate more than $820 million in value.

The purchase of Liberty Towers was initially financed using a mortgage of $232 million and rest from the company’s line of credit. Located on the Jersey City Gold Coast, the property buyout seems a strategic fit. It has superior amenities, including yoga studio, a spin studio, a rooftop pool, a boxing gym and an on-site concierge. Further, it offers convenience retailing like pharmacy, florists and even nails salons. This highly-amenitized residential tower is, therefore, likely to witness superior demand from tenants.

The other part of the 1031 exchange includes the sale of the Chase at Overlook Ridge and Alterra at Overlook Ridge in Boston, MA, which are likely to close at the end of this month.

Developed by Mack-Cali's Roseland Residential Trust subsidiary, these properties are presently under contract to be sold to Rockpoint Group, for approximately $411.5 million. Mack-Cali will use the proceeds from the divestitures to repay its line that was used to buy Liberty Towers.

Michael J. DeMarco, CEO of Mack-Cali stated, “This transaction allows us to further concentrate our capital on the waterfront where we believe our market share and operating familiarity with the community should allow us to enhance the performance of Liberty Towers."

Moreover, Mack-Cali expects to get $2.6 million of proceeds in relation to the sale of its Urby tax credit in the fourth quarter of this year. The company’s funds from operations (FFO) will realize a direct benefit from this tax credit.

Our Take

Over the past years, Mack-Cali has made concerted efforts to transform from a sub-urban office REIT to a residential and geographically-focused office REIT, with presence in select waterfront and transit-oriented markets throughout the Northeast. The latest acquisition will boost its presence on the Jersey City waterfront.

This portfolio-repositioning strategy helps capture attention of people who prefer to live, work and play in the same area — a trend that drove development in several other cities in the United States. This group also gives importance to transit options, and hence, focusing on such areas is a strategic choice for the company. Nevertheless, Mack-Cali’s strategic plans involve significant upfront costs and will likely restrain profit margins in the near term. High disposal activity will also affect earnings.

Mack-Cali’s shares have gained 10.6% so far this year, underperforming the industry’s rally of 24.3%.



Currently, the company carries a Zacks Rank #4 (Sell).

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Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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