If the commercial real estate market has seen any gains since the recession, they have not been in the suburban Philadelphia office market. As far as rents are concerned, the slowdown started before the recession: To keep tenants in their buildings, landlords have held rents steady for 10 years or more. With hiring in a slump, more employees working at home and businesses opting for more shared space, office leasing has all but ground to a halt.
Mack-Cali Realty Corp., one of the Northeast’s largest commercial and mutli-family housing landlords, has decided to move on. The company is shedding its office space portfolio and a few empty lots in the Philly suburbs and will shift its focus to apartments.
Keystone Property Group will acquire Mack-Cali’s 1.66 million square feet of suburban office space in a joint venture arrangement that includes a $201 million cash payment, a $10 million mortgage and “subordinated interests” valued at $22 million. In the end, Mack-Cali will receive about $140 per square foot.
Mack-Cali will maintain its Philadelphia presence through its subsidiary, Roseland. Roseland will be developing luxury apartments in Bala Cynwyd in Lower Merion Township.
Keystone plans to improve the properties it is acquiring in the deal. The owner said in a statement that he will use “economies of scale” to build up office rents in the area.
At the end of June 2013, Mack-Cali controlled a total of 30.5 million square feet of office space, according to the company’s website. In its apartment portfolio were nine multi-family properties with a total of more than 3,300 units.
Source: Philadelphia Inquirer, “N.J.’s Mack-Cali gives up on Philly-area offices,” Joseph N. DiStefano, July 21, 2013