The deal, Mack-Cali’s first foray into multifamily properties in a decade, comes as the company seeks new ways to expand as demand for office space in the Garden State remains stagnant and competition for office tenants grows fierce.
Meanwhile, the apartment market has been strong, and demand for rental apartments is growing, especially from young, urban professionals priced out of the Manhattan.
Mack-Cali, a real-estate investment trust, is teaming up with the Hoboken-based Ironstate Development Co., which built and owns Hoboken’s W hotel. The Jersey City development plan calls for two luxury towers with 500 rental units; each tower will have one-bedroom and studio apartments, sizes that appeal to younger renters. The towers will utilize two city blocks of vacant parking lots adjacent to Mack-Cali’s Harborside Financial Center office complex spanning roughly 3 million square feet on the waterfront.
“This an opportunity to take advantage of land we already owned and to grow the business by putting that land to work in a sector of the real-estate market where there is very strong demand and where we expect it to be…profitable for us,” said Mitchell Hersh, chief executive of Mack-Cali in an interview. He indicated that this company could announce additional multifamily deals in the future.
Mack-Cali, which is based in Edison, N.J., and owns 278 properties, has been among the worst performing REITs this year, in part because of its heavy concentration in the office sector in New Jersey. The office-vacancy rate in northern New Jersey was 18% as of the third quarter, higher than the national average of 17.4%, according to Reis Inc.
Meanwhile, apartment landlords nationwide are seeing rental rates increase and vacancy rates decline. In the third quarter, the vacancy rate in Hudson County—which includes Jersey City—was 5.2%, flat from a year earlier and lower than the 5.6% national rate, Reis said. Hudson County’s rent after freebies came in at an average of $2,523, up from $2,466 a year earlier. The national rate is $1,004.
“What they’re doing, I think it’s very smart. At the moment, the market clearly shows more demand for residential than for office,” said Jamie LeFrak, a principal in the LeFrak Organization, a major developer in Jersey City. He noted that with so much office space under construction at the World Trade Center just across the river in lower Manhattan, residential is “the highest and best use of the property now.”
Mack-Cali and Ironstate expect to break ground on the apartment towers in the fourth quarter of 2012.