Hersh courting tenants for 1m s/f Jersey tower.

Encouraged by the strength of the Jersey City office market, Mack-Cali's president and CEO Mitchell Hersh said that the company may soon add an over one million s/f office tower to Harborside Financial Center, the 3.6 million s/f cluster of office properties Mack-Cali owns on the Jersey City waterfront.

Revealing the news while speaking at NAREIT's Investor Forum held at the Waldorf Astoria last week, Hersh indicated that firm would develop the tower only with an anchor tenant in place and said that he is in negotiations with two financial firms that currently occupy space in Manhattan.

"They're having difficulty dealing with their space needs, and they don't want to pay the rent that's required in their current location," Hersh said. "If a deal happens it will happen relatively quickly."

Hersh did not make clear either potential tenant's space requirements but it can be assumed from the size of the tower, and the fact that Mack-Cali's participation in the deal is contingent upon an anchor's commitment, that it would likely be in the hundreds of thousands of s/f. Because the negotiations were ongoing, Hersh said that he could not name the tenants.

If the development gets a green light, it would be the latest in a string of big deals for Mack-Cali. In May, the company closed on its acquisition of rival property management firm the Gale Company and its 2.8 million s/f portfolio of New Jersey office properties, some of which the company owns in partnership with fellow REIT SL Green. At the beginning of June, Mack-Cali announced the $53.6 million purchase of a suburban Boston portfolio of office buildings, a market the company has long sought to enter.

The deal could benefit Jersey City as well, which has been losing ground as the metropolitan area's most significant office market outside of Manhattan to Brooklyn's downtown, where there are millions of s/f of office space slated for development.

Long an economical location for firms seeking respite from Manhattan's rents and a popular market for tenants seeking space to house back office functions, Harborside Financial Center has nonetheless been able to command higher rents according to Hersh, a reflection of what he described was a change in tenants' perception of the market.

"We've seen midtown relocations, an important signal of the viability and validity of Jersey City," Hersh said. "There is a lot of condo development which signals permanence to a burgeoning residential population and the transformation of Jersey City into an area with a certain cache.

"Companies have been moving their front offices to the Jersey City now not just their back offices and IT operations."

Hersh said that Mack-Cali has raised rents at Harborside Financial Center by as much as ten percent in the past few months.

Aside from the potential office tower development, Mack-Call is currently planning to sell two adjacent development sites at Harborside known within the company as Plaza 8 and Plaza 9. Hersh said that they would likely go to a condo developer because a residential project would garner the highest land value. Together, the two plots can support roughly 1.1 million s/f of development.