Exclusive: Property firm UDR explores deal with Mack-Cali Realty - sources

(Reuters) - U.S. multi-family apartment firm UDR Inc UDR.N is exploring a combination with Mack-Cali Realty Corp CLI.N, an owner of multi-family rental properties and commercial office space, people familiar with the matter said on Thursday.

UDR’s interest coincides with a board committee established by Mack-Cali to review its strategic options mulling whether to pursue a sale of the company. Mack-Cali said on Thursday that it would follow the committee’s recommendation to sell its suburban office portfolio totaling approximately 6.6 million square feet.

UDR is in talks about partnering on its bid for Mack-Cali with investment firm Rizk Ventures CEO Thomas Rizk, and has contacted Mack-Cali to express its interest, the sources said. Rizk was CEO of Mack-Cali from 1997 to 1999, and previously led Cali Realty, whose merger with Mack Company created Mack-Cali in 1997.

UDR and Rizk are discussing whether to make an offer for the entirety of Mack-Cali, using debt financing to help fund the deal, two of the sources said. Mack-Cali has a market capitalization of $1.8 billion, and total debt as of the end of September of $3.2 billion.

UDR is interested in the company’s residential properties, while Rizk is eying some of its commercial offices space, according to the sources.

The sources cautioned that no deal is certain and asked not to be identified because the matter is confidential. UDR and Mack-Cali did not immediately respond to requests for comment, while Rizk Ventures declined to comment.

Mack-Cali shares rose 3.8% to $21.68, while UDR shares spiked 3.3% to $47.69 on the news in afterhours trading in New York on Thursday.

Mack-Cali has a property portfolio across six states in the northeastern United States, but has been shedding many suburban properties to focus on Jersey City’s waterfront area overlooking New York City, where it owns luxury apartments and offices. It is betting this prime location will shield it from the high vacancy and low rents seen in suburban markets.

Mack-Cali said on Thursday it had approved the sale of two suburban office portfolios, encompassing 2.4 million square feet in Parsippany, New Jersey and Madison, New Jersey, to Onyx Equities LLC and other investment firms for about $285 million in cash and $3.5 million of assumed lease obligations.

In March, Mack-Cali turned down an offer of between $2.4 billion and $2.6 billion for its suburban and waterfront office assets, hotel joint venture interests and retail assets from invest firms Bow Street and David Werner Real Estate Investments. It argued such a deal would shortchange Mack-Cali shareholders at a time when its turnaround strategy had not been fully implemented.

Bow Street subsequently succeeded in installing four independent directors to Mack-Cali’s board, expanding it to 11 members.

UDR owned 52,070 apartment homes as of the end of September, including 658 homes under development. It has a market capitalization of about $14 billion.

Reporting by Greg Roumeliotis in New York; editing by Grant McCool and Diane Craft