Mack-Cali Realty is a Real estate investment trust or REIT that develops, owns, and manages office buildings. The firm makes money by reselling office properties that it acquires and develops. While its properties appreciate, CLI rents them to tenants to cover the financing costs of the loans used to purchase the property.

CLI's holdings are concentrated in the Northeast corridor of the United States, and the company sold its remaining assets in San Francisco and Colorado in 2006 in order to focus on its core business in the Northeast. This part of the country is dense with businesses, but short on land and on topnotch office facilities, and Mack-Cali's portfolio reflects the wide variety of firms found in the region. Mack-Cali's 2,000-plus clients represent over 30 industries, and its largest client makes up only 3% of its annual rent revenues. Portfolio diversity, and the relative stability of the high-end firms that rent CLI's office space, insulates the firm from swings in the business cycle.

However, Mack-Cali, like other firms in the commercial real estate industry, may see some effects from the subprime lending crisis that has decimated the residential housing industry and squeezed the credit market. The company's position in the Northeast corridor makes it sensitive to an economic downturn in this region, and slow consumer spending could lead to cutbacks in job growth and new office developments.

Business Overview

Over the past several years, Mack-Cali has refocused its portfolio into fewer core markets that offer high growth potential and a comparative advantage. To this end, CLI has sold off properties in Atlantic City and the western states. Despite its focus in high growth areas, many of CLI's properties appear to be less desirable than those owned by competitors, such as Boston Properties (BXP), since they are often outside of urban central business districts.

50 of CLI's properties have restrictions regarding their sale. These restrictions stem from the fact that CLI was cobbled together from a number of different real estate firms. As part of this unification, each firm stipulated that certain properties that they brought into CLI could not be sold for a specified period of time. Another 88 of CLI's properties were originally under these restrictions which have now lapsed. Despite this, CLI still has an obligation to "use commercially reasonable efforts to prevent any sale, transfer or other disposition" of these properties. Such conditions impede CLI's ability to quickly respond to market changes.[1]

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Year Revenue Net income available to common shareholders Annual Dividends per common share
2002 $474,765,000 $139,722,000 $2.50
2003 $516,536,000 $141,381,000 $2.52
2004 $537,239,000 $100,453,000 $2.52
2005 $600,131,000 $93,488,000 $2.52
2006 $740,309,000 $142,666,000 $2.54


Summary of Construction Projects

Mack-Cali has conspicuously few development projects. Many other REITs have turned to development (as opposed to acquisition) as a source for greater potential returns since many believe that the high prices in the commercial real estate market make profitable acquisition unlikely. During the third quarter of 2007, CLI acquired two properties, one in Manhattan and another in Mercer County New Jersey. Commercial real estate prices in both regions were at record highs at the time.

Name of Project Location Estimated placed in service date Square Feet Estimated total costs
Wyndham Parsippany, NJ Q4 2008 250,000 $64,837,000
Boston-Filenes Boston, MA n/a 1,200,000 $710,000,000
One Jefferson Parsippany, NJ Q4 2009 100,000 $28,300,000

Mack-Cali plans to invest about $1 billion in the Manhattan real estate market in the next five years. This market is highly competitive, but presence there will enhance CLI's stature in the Northeast, and the return on invested capital there is potentially quite high.

Trends and Forces

  • The liquidity crunch resulting from the Subprime lending crisis could inhibit CLI's ability to finance expansion. Lending is especially important to Real Estate Investment Trusts since Federal Tax law requires that they return at least 90% of earnings to their shareholders. As a result, they cannot simply finance expansion by retaining a larger portion of their earnings, instead they must borrow this money. Traditionally, 60% to 70% of the financing for the development of new office space came from loans from pension funds or insurance companies. These loans were sized so that rent payments from the building they were used to buy could cover the amortization costs. This baseline was neglected over the past few years as loans were made on the assumption of increasing rents due to rapidly rising real estate values. Also, it became commonplace for different kinds of investors to furnish a greater percentage of the financing, replacing insurance companies and pension funds. But following the liquidity crunch of 2007, real estate developers have turned back to more traditional sources of financing, with lower appreciation expectations for their properties. CLI's balance sheet is relatively clear, and most of its debt is fixed-rate, protecting it from rises in short term interest rates.
  • The liquidity crunch also could affect CLI's tenants. Financial services account for 24.2% of CLI's rental revenue, meaning that a significant number of bankruptcies, or even layoffs, in that industry could adversely affect CLI. This continues to be a risk especially with CLI's extreme concentration of properties in the New York/New Jersey area. Despite the recent turmoil in the financial services industries related to mortgage-backed securities, demand for office properties has remained strong since firms sign long-term leases several years in advance with penalties for early termination. This protects Mack-Cali from falling profits in the short-term, but it may affect the company's plans for long-term growth in markets dominated by financial services clients.
  • A depreciating dollar should spur strong demand for office space amongst exporters. Aside from the financial services industry, CLI leases its properties to companies in the following industries: Computer and Telecommunications (9.6%), manufacturing (7.8%),and Insurance (7.7%). As the dollar continues to devalue on the basis of lower interest rates and more attractive financial investment opportunities abroad, U.S. manufacturers and exporters should reap strong profits as American products appear cheaper on world markets. This should in turn help ensure strong demand for office property, especially since nearly 20% of CLI's leasing income comes from the Manufacturing and Technology industries, both strong potential exporters. [4]
  • Disadvantages and Advantages of CLI's decision to focus on competitive markets with a high barrier to entry. The markets that CLI focuses on all have strong and dynamic economies, resulting in increasing property valuations and rents. However, at the same time this means that CLI often has difficulty acquiring reasonably priced buildings or land in these areas. The following table gives an indication for the frothiness of CLI's markets.

Occupancy by Region as of June 30, 2007

Northern NJ Central NJ Westchester Co, NY Manhattan, NY Philadelphia, PA Fairfield, CT Washington DC/Maryland
92.5% 89.9% 96.2% 100% 90.5% 85.2% 88.9%


Market share is listed by 2007 revenues.[6] In 2007, CLI held 8% of total U.S. office REIT market share, and was the fifth largest office REIT, by revenues. There are 14 U.S. exchange traded REITs focusing on office properties.[7] Of those, the top three Boston Properties (BXP), Brookfield Properties (BPO) and SL Green Realty (SLG) accounted for just over half of Market Share by 2007 revenus.

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  • Boston Properties (BXP): BXP owns 138 properties in just five areas of the United States: Midtown Manhattan, Boston, Washington D.C., San Francisco, and Princeton, N.J. The company operates high end class A buildings and its largest tenants are the legal and financial service Industry. BXP also owns two hotels, an industrial center, and a land bank in the Northeast with 10 million square feet of space for development.[9] As of May 21, 2008 BPO had a market cap of $11.85B.[10]
  • Brookfield Properties (BPO) BPO develops, owns and manages U.S. commercial office properties and develops residential land. The company's commercial property portfolio consists of interests in 109 properties totaling 73 million square feet, primarily located in New York, Boston, Washington D.C., Houston, L.A. and Toronto where its buildings can lease to a tenant base of government, energy and financial companies. As of May 21, 2008 BPO had a market cap of $8.25B.[11]
  • SL Green Realty (SLG) SLG owns and leases office space to corporations in Manhattan. The company owns more than 30 New York City office properties totaling over 22 million square feet.[12] In 2007, SL Green cemented its position as the Big Apple's largest landlord when it acquired Reckson Associates Realty Corp. The transaction added a total of 9 million square feet to its portfolio, including over 5 million square feet of suburban offices and 4 million additional square feet of prime Manhattan office space.[13] SLG faces a particular risk from the subprime crisis. By weakening the financial sector, the heart of the New York economy, it threatens to crimp demand for office space in the company's core market. As of May 21, 2008 SLG had a market cap of $5.71B.[14]


All of the following companies are REITs except for Brookfield Properties (BPO). While each company owns office properties, like CLI some own other types of property as well, while others focus solely on offices. For example, HRPT Properties Trust owns considerable amounts of health care properties, while Boston Properties holds office properties almost exclusively.

Company Operating Cash Flow Total Debt Total Cash Shares OutStanding Dividend Yield Square Feet in Portfolio Markets Property Occupancy
HRPT Properties Trust (HRP) $298.96 m $2.71 B $25.64 m 225.43 m 11.40% 64,000,000 Five largest markets: Hawaii, Pennsylvania, New York, Texas, Massachusetts. But owns real estate through United States. 92.8%
Mack-Cali Realty (CLI) $250.17 m $2.13 B $29.98 m 67.91 m 8.60% 33,733,011 New Jersey, New York City, Pennsylvania, Connecticut, Washington D.C., Maryland, Massachusetts 92.2%
Brookfield Properties (BPO) $45 m $12.59 B $202 m 394.19 m 3.10% 73,200,000 New York City, Boston, Washington D.C., Houston, Los Angeles, Toronto, Calgary, Ottawa, Denver, Minneapolis 95%
SL Green Realty (SLG) $401.72 m $5.35 B $98.1 m 59.23 m 3.80% 30,220,700 Manhattan, Brooklyn N.Y., Westchester N.Y., Connecticut about 95.7%
Vornado Realty Trust (VNO) $824.92 m $12.58 B $834.27 152.26 m 4.40% about 64,000,000 New York City, Washington D.C., retail properties throughout United States 94.67%
Boston Properties (BXP) $598.07 m $5.41 B $1.89 B 119.27 m 3.10% 44,100,000 Midtown Manhattan, Boston, Washington D.C., Princeton N.J., San Francisco 94%


  1. Mack-Cali 2006 Annual Report
  2. Mack-Cali 2006 Annual Report
  3. Mack-Cali Q32007 Earnings Statement
  4. Mack-Cali Q32007 Earnings Statement
  5. Mack-Cali Q32007 Earnings Statement
  6. Google Finance
  7. InvestinREITs.com
  8. All Taken From Google Finance
  9. BXP's Investor Relations Website
  10. Google Finance
  11. Google Finance
  12. http://slgreen.com/about/ SL Green- About Us
  13. http://slgreen.com/about/company-history/ SL Green- Company History
  14. Google Finance
  15. All data from third quarter reports of companies and yahoofinance.
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