Mack-Cali Boosts Multi-Family Portfolio

Continuing with its venture into the multifamily apartment sector, Mack-Cali Realty Corp. (CLI) disclosed the acquisition of a 220-unit multi-family residential asset in Andover, MA. The company shelled out $37.7 million for purchasing the property from AEW Capital Management and Corcoran.

Known as Andover Place at 650 Bulfinch Drive, this 94% leased property comprises luxury apartments equipped with a good amenity package. The property is conveniently located with access to downtown Boston, North Shore beaches, and New Hampshire’s White Mountains. Mack-Cali's Roseland subsidiary is in charge of managing and leasing the property.

As a matter of fact, Andover, which is an affluent town in Essex County, houses high-quality schools. This makes the property an efficient buyout for Mack-Cali, ensuring steady rental revenue going forward. Notably, the increase in the echo boomers population is particularly expected to drive the demand for this property.

With the continued weakness in the company's core office markets, Mack-Cali has been divesting a notable part of its office portfolio and simultaneously targeting to expand its holdings in the multi-family residential sector that has traditionally been more of a stable product type. In connection with this, in 2013, Mack-Cali bought several multi-family properties in prosperous locations across the U.S. This included Park Square, Riverwatch Commons and Richmond Court – all in New Jersey.

While the portfolio repositioning efforts through multifamily apartment buyouts and office assets divestiture are encouraging, we believe that the aggressive disposition efforts are continuing to have a dilutive impact on its financials in the near-to-medium term.

Also, with rental rates declining over the last few years in Mack-Cali’s core markets, the company is anticipated to experience lower rental rates at these commercial properties on new leases than the current rates with leases expiring in the quarters ahead. However, we believe that these strategic initiatives will benefit Mack-Cali in the long run.

Currently, Mack-Cali carries a Zacks Rank #4 (Sell). Investors interested in the REIT industry may consider stocks like Cousins Properties Incorporated (CUZ), Duke Realty Corp. (DRE) and Public Storage (PSA). All these stocks carry a Zacks Rank #2 (Buy).

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