Q2 2020 Mack-Cali Realty Corp Earnings Call

Earnings Conference call, Yeah, I plan to provide a few opening remarks, and we'll then have to call to our leadership team Marshall Tycher Chairman as our multifamily platform Roseland walk us through some performance highlights you killed in her executive Vice President of using will discuss our office operations and decent kind of our chief financial Officer will discuss.

Our key financial metrics and then we'll open up the call for questions.

We've also filed a supplemental this quarter and that is located on the Investor Relations section on our website. Please contact Davidson.

Any further questions.

I was recently appointed to my role as interim CEO by the board of directors and with just a few weeks on the job I will keep my remarks brief, but let me start by thinking like Demarco for his years of service to Mack Cali.

I'm extremely excited to have enhanced by my fellow board members to step in to lead Mack Cali has the board works to identifying new permanent CEO.

Certainly these are unprecedented times and I recognize that there remains an Arab uncertainty with an executive change amid a challenging health care crisis, and what that membrane I do not take that lately I.

I joined Mack Cali Board following the 2019th annual meeting was appointed Board Chair in June I spent the entirety of my career developing an operating innovative mixed use real estate projects and in New York Region, I Love real estate and believe in importance our sector. Please in the lives of Americans every day.

Well my tenure as CEO was only temporary I'm deeply committed to ensure we continued to execute on the plans currently in place, which remain highly focused on collecting rent you see our property and completing the asset sales that are underway I also plans to continue in my role as chair after the board select seniors.

Over the coming months I will complete a tour of older assets will be spending time with all of our team members in the field I'm committed to providing stability continuity and empowerment within the organization to be accountable and aligned with reaching her strategic objectives.

The board chair I have direct insight into the priorities of the board from an overall strategic per se.

I've spent a considerable amount of time listening to our shareholders and evaluating the business what are the significant takeaways and the board isn't clear alignment with shareholders is that the company is unlikely to realize maximum value in its current structure.

Consequently, the board is actively continuing to pursue value maximization strategies in fact, even over the short six weeks since they've been in place cells of the company suburban assets, which are continuing had been among the highest priorities. However, given the pandemic we are not in a position to provide a definitive timeline.

So when they will be completed the board is committed to unlocking value squarely focused on the pursuit of the right strategic alternatives for the company were to accomplish this objective. It was efforts are well underway and does not require nor are we waiting for the hiring of a new CEO.

I'm excited to build upon Mack Cali is accomplishments support or operational excellence and paves the way for success at every level.

I work with uterine due to meet our shareholders analysts and look forward to reporting on our progress each quarter with that I will turn the call over to Marshall to discuss our multifamily operations.

Thanks, Marissa and the second quarter Rose last percentage lease finished at 92.6% as compared to 95.7% last quarter reduction was primarily result of a dramatic decline in new lease traffic in the quarter due to koby 19, we believe the decline often seen reduction movies traffic is consistent with other northeast focused portfolio.

His answers to answer a portion of our comps.

I can travel production our portfolio experienced a 58% retention rate 300 basis points higher than 2019 and renewal rates on retain leases grew 2.8% in July that leasing activity turn positive. We believe the worst is behind us in the quarter or same store portfolio experienced a 10.2% decrease in Hawaii.

We generated by a 5.2% Lawson revenue on a year to date basis. The same store NOI as negative 0.6% quarterly loss includes a one time $944000 write down from a single quarter provider in Jersey City absent that write off our same store portfolio would be negative 5% for the quarter and Paul.

Was it a 2.1% for the year subsequent to quarter and we reached a settlement with that provider and retrieve 71 of their furnace units were evaluating alternatives to capitalize on these furnace units now.

We continue to deliver a high level of service to our residents during the cold period or establishment onsite unresponsive, we've increased the quality and quantity of daily cleanings across the portfolio, we've enhanced our resins lifestyle I scheduling virtual programming implementing door to door deliveries introducing additional dining options in regard for hotel properties at Port Imperial.

Ill Yaki was close at the end of March and remains closed today. However, the residents and continue to operate and finished the quarter with an average occupancy of 70% in late June reactivated I've used 15000 square foot patio for dining, which has been averaging $100000 and weekly sales and as comfortable rooftop setting.

Company has five projects, representing 1900 42 units in construction, which are projected to generate $62 million and stabilize in a lie on the development yield of 6.15%. Moreover, as of now we only have a $5 million capital obligation remaining to complete this portfolio.

The Emory in Massachusetts as Libertas initial 240 of 326 units as July 27, we at least 81% of delivered units at rents in excess of our initial pro forma balance the units will be completed by quarters end.

I was asked repairing lease up activities at three projects for initial deliveries in early 2021, including 673 units important period at both Capstone and Riverhouse nine any up in a short hills hundred 93 unit luxury community one in New Jersey Premier municipalities adjacent to the short Hills mall or fifth project. The Charlotte is scheduled to live.

During the first quarter 2022 distinct development as a 750 units our located in Jersey City waterfront Submarket of Christopher Columbus Drive, which will benefit from below market pilot picks at 7% for 20 years.

Construction activities are proceeding at a near standard pace as result of cobot related delays, we have revised our supplemental schedules to cap on average 90 day delivery delays.

I've spent a quarter end, we reached a green to refinance our largest 2021 maturity having lock the seven year interest only 165 million dollar mortgage at 2.9% for Monika.

Looking ahead, we're continuing predevelopment activities on three potential Hudson River starts, including Harborside, eight 607 that unit highly amenitized tower, which will be adjacent to our corporate headquarters here at Harborside three the park parcel at Port Imperial 300 to you to mid rise of element to be constructed overlooking a 17 bankruptcy park with unencumbered.

270 degree views of Manhattan, and the second phase of RV proposed 796 units our adjacent to our successful Irby project with the highest rents per square foot in Jersey City I will now turn the call over to Nick.

Thank you Marshall.

Before I get into our leasing results I'd like to quickly touch upon our continued response to the ongoing covert 19 pandemic.

All the protocol as discussed in my last quarter's remarks have been implemented portfolio wide.

Including increased an expanded cleaning procedures.

Mentored ingress and egress plans to limit crowding.

Limited elevator capacity.

And mandatory mask you some common areas, we take the health and safety of our tenants co workers and operation staff very seriously.

Together with our property management team, we continued to take all the necessary precautions to ensure a safe secure and clean environment.

The Tri state area begins to transition into the reentry phase.

We've also kept all of our buildings open an operational for our tenants throughout this crisis.

From a new leasing perspective, we continue to make progress portfolio wide signing just over 155000 square feet in the second quarter.

This resulted in our core and waterfront portfolio, finishing at 80.3% leased at quarter end of these transactions, approximately 6% or 10000 square feet, where new leases and 94% or 145000 square feet were in place renewals.

Across all core markets, our rents on second quarter leasing rolled up 3.6% on a cash basis and 12.9% on a GAAP basis.

So we turn our focus to the specific markets. The waterfront closed approximately 55000 square feet of transactions.

During the second quarter at 78.6% leased we were pleased to see increases of 8.5% on a cash basis, an 18.6% on a GAAP basis over these deals.

While the pandemic has paused many of our discussions we still have approximately 200000 square feet of transactions currently in negotiations across a diverse tenancy mix, including technology financial services and insurance.

Looking ahead, we have a limited amount of lease roll with just over 54000 square feet expiring on the water waterfront through the end of the year.

Turning to the performance of our suburban portfolio and the second quarter, we executed over 101000 square feet, while achieving positive rent increases of 1.2% on a cash basis and 10.3% on a GAAP basis.

For the remainder of the year, we have over 118000 square feet expiring in our suburban portfolio.

Of which approximately 91000 square feet pertain to assets that are under contract to be sold by years end subject to any unforeseen delays from the pandemic.

And the other the remaining 27000 square feet Rolling we expect to renew approximately 20000 square feet as we move ahead.

With that I'd like to turn the call over to David.

Thanks, Nick.

We reported core apropos per share for the quarter of 28 cents versus 40 cents in the prior year.

Right some perspective in the absence of formal guidance. The results of each division were roughly in line with heavily revise down expectations that we began to flow through our models in may.

We had inline off this results as we anticipated increase credit write downs and benefited again from having very low lease expirations and we had slightly lower than anticipated multifamily results that included a $944000 write off related to our corporate apartment operator.

In total there were $4.2 million of credit charges in the quarter or four cents per share, including the $944000 charge related to the corporate housing provider.

2.2 million up the charges related to reserve allowances and 2 million related to straight line rent receivables.

The strength, we saw in rent collections. When we presented that May read in early June of 96% in our office portfolio and 97% in multifamily carried through other ROP averages for the quarter.

In July we have collected 98% up office rents and 99% on the multifamily side.

The slight increases in truck is attributable to the hard work, our leasing and operations teams.

I have done to appropriately give a limited number of modifications or deferrals, where needed and getting tenants back on a normal payment cadence.

Our exposure to hotel operations, which were 4% of revenues in Q1 and parking operations and parking operations, which are currently just 3% of revenues are modest.

They were disrupted inline with our expectations for parking we think the second quarter run rate of $3 million is a conservative way to think about the second half of the year, but remain hopeful that into fourth quarter as people return to work they will be more apt to drive in park with US Our hotel operations remain limited to the residents and.

Portion of our dual flag port Imperial hotel.

Tell contributed $960000 EBITDA loss in the second quarter. We continue to believe the hotel recovery will be slow and do not plan to reopen the on viewing port Imperial and the high in Jersey City until the fourth quarter at best and thus, we recommend using the current quarter as a run rate until further notice.

Our office cash same store NOI increased by 13.4% in the second quarter as we continue to receive the benefit of all of our major blend and extend leases at harborside now cash flowing over prior periods that still had free rent provisions. This well however, moderate in the second half.

GAAP same store NOI was down by 3.6% with $1.3 million a straight line rent reserves in our steam and our same store pool, creating a negative 5% drag on GAAP same store NOI.

We had $1 million, a credit reserve allowances and 1.8 million of straight line rent reserves across the entire office portfolio, including our discontinued operations.

And my office segments. We originally gave guidance that included 135000 square feet of waterfront leasing for the year to date, we have signed a 105000 square feet of transactions on the waterfront with another 18000 leases today.

Given the current operating environment, we do not assume any further speculative new leasing to take occupancy between now and the ended the year and our internal projections.

To reiterate what Nick said for the remainder of the year, we have over 118000 square feet expiring and our suburban portfolios of which 91000 square feet pertain to assets that are under contract to be sold this year of the 27000 square feet remaining in our suburban portfolio, we expect 20000 square feet.

To renew in the upcoming quarter.

Touching briefly on the multifamily results.

Residential same store NOI, which Marshall has already given great detail on was down 5% for the quarter when excluding the 944000 dollar write down related to our corporate housing provider, we expect incentives to remain elevated as we seek to rebuild occupancy.

Well the transaction side.

Our parsippany Andromeda portfolio has sale has been restructured for a gross price of $272 million, a 4% discount to the original purchase price of $285 million.

The first phase of 11 properties was contracted for $167 million in July the first property three draw the farms close for $8 million, leaving 10 of the 11 properties in phase one scheduled to close at the end the third quarter for the remaining 159 million.

The second phase under contract for $105 million as for further 15 remaining properties with these closings scheduled to take place in the fourth quarter.

For the Monolith short hills, and Metropark portfolios. We believe the timing of these sales is very hard to predict the closings taking place either late in the fourth quarter early in 2021.

In addition to the parsippany in draw the portfolio sale. We currently have three properties, including 111 River totaling 833000 square feet under contract for closing by yearend.

I think the schedule, which we publish squared away.

While we are cognizant of the fact that price discovery is challenging in this environment. We're trying to do our best to make sure. Our assumptions are reflective of what we are seeing operationally and where those buyer interest reflective of where pricing may end up.

We took a 3% discount to our multi family at Avi in the quarter, given the uncertainty about NOI growth.

Also reflective of healthy multifamily financing market at record low rates.

Notably, we took a 6% haircut to our unlevered waterfront asset value in some reductions in land value for 7.4% total had to office and maybe in a 7.1% hit to total I Navy.

Turning to the balance sheet.

No debt maturities in 2020 and in July as Marshall mentioned, we place a deposit in rate locked at 2.9% the refinancing of our only major 2021 property level maturity $165 million multifamily loan amount to go with that said with its existing lender.

We expect to close this mortgage in November avoiding prepayment penalties.

The net debt to EBITDA metric was 13.0 times at quarter end.

Patrick remains elevated as we carry all of the multifamily development that no EBITDA benefit.

Expect this metric to improve as we have for multifamily development properties that will begin contributing to EBITDA within the next 12 to 24 months, including the Emery, which opened in Q1 2020.

Additionally, the metric was negatively affected an increased by 1.3 turns from negative hotel in parking impacts.

Lastly, I'm pleased to say today as we sit here today, we only a $5 million of equity left to fund at our currency IP pipeline all relating to our six 750 unit project called the Charlotte In Jersey City.

With that won't be into the construction loan portion of all five development projects totaling $1 billion in construction costs with the projected 6.2% stabilized yield.

With that I will turn the call back to the operator to open it up for questions.

Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow yourself to reach our equipment.

Again, Please press star one to ask a question we will now take our first question from 90 Kretchman from Citi. Your line is open. Please go ahead.

Hey, good morning, everyone.

Right and realizing that you've been on the C. O C for just a couple of weeks, but but in the board room for longer.

Did you get a sure current views as to how the board thinking about.

Yeah, we're hitting on strategic alternatives or think about strategic alternatives right now beyond the suburban asset sales, which sounds like the current strategic focus.

Thanks, Manny sure. So clearly the focus on the suburban dispositions isn't clear priority that's been reaffirmed by the newly reconstituted board of Directors. In addition, there was a feeling that the lease up strategy on the waterfront is critical and that we are going to be focused on wins there in the coming months.

And then with the board, we're going to be working as management to develop strategic alternatives.

In the in the coming months clearly given the environment, we find ourselves in there are challenges around.

Sure and whether it's the right time to make any strategic moves, but the board of directors.

Focused on this and we'll be ready should there be an opportunity.

And in that light, how do you or how should we think about multifamily portfolio versus office holdings.

As I said earlier in my remarks, the thinking is that there's a decoupling needed. These two.

And so as we review strategic alternatives without in mind, we'll be giving further direction.

I already is related to the residential portfolio.

And Nick maybe a quick one for you.

Realizing that you guys trying not to change that I read too much because a couple of it but it doesn't look like there were any market rent adjustments for the for the waterfront in that Navy was that just to keep consistency from from not not including has spoken impacts or do you really think the market rents haven't changed.

Well I would say that if you look at the broader market right now, it's a little too early to tell.

You know fundamentals within the broader market just even outside of our portfolio haven't changed much haven't changed much rather.

Maybe availability rate is really hovered around 20% in a market and average asking rents are probably tick down about 3%.

As you look at our our portfolio I do think that we're going to reevaluate what our rents are everything from rents the concession packages I just think it's a little bit early right now to give you.

From feedback in terms of percentages what have you.

Hi, Thanks, everyone.

We will now take or next question from Derrick Johnson from Deutsche Bank. Please go ahead.

Hi, everyone. Good morning, and thank you.

Hi, Hi, Marianne good good to meet you.

So it sounds actually like strategy hasn't shifted that much at this time is it just that you're on the job it's too early or is the.

Strategic.

Focus on suburban dispositions and getting to 60 40 and waterfront focus is that still what we should be thinking about or will there be adjustments to the strategy or what is the difference in the strategy under new leadership.

<unk>.

Thanks, I think just the way for you to think about the near term strategies to stabilize and empower the management team here at Mack Cali sells the suburban assets and we saw.

And then inside of that strategy, there's just a broader thinking around where does the company go and what strategic alternatives are available to the company and again, just given where we are in the middle of the pandemic it's difficult for us.

Any sense of how opportunistic we can be we're not going to do is is you know sell the company on fire sale and we need to be strategic and that's the work of today.

Okay. Thank you.

You know just interestingly on the Hoboken Office building sale I think $432 per square foot is an interesting price discovery.

At least for your water front office portfolio. This when did this go into contracted to go into contract before the pandemic or or after just a discovery standpoint. Please.

As I understand it the pricing was the price discovery occurred before the pandemic and were working hard to to close on <unk> on the Sal and things that we can hold pricing pretty firm, obviously coming we will tell but it's a great asset and obviously, we think it's a very strong.

Separately.

Okay, and look clearly residential quarter over quarter, losing 310 bips of leased occupancy is top so.

On the certainly expecting that you do have some concessions in there has there been any evidence of folks moving out of Manhattan.

Maybe stepping stone in your two Jersey city, a little bit or or is it basically just you know the mass exodus that we're seeing in New York kind of is it sweeping you guys up at least in the near term.

Good morning, as Marshall Tycher I think the latter a a comment is probably more consistent clearly is a lot of dislocation of jobs and lot of uncertainty in New York is a big job driver for this entire North Jersey market. So people are leaving Manhattan, and they're making new decisions are making them you know quick.

Really.

So we would have to wait to see how settles down, but we're certainly being impacted by people who is a job dislocation and a indecision.

I will thank you everyone exciting times congrats Marianne.

Thank you.

We've done that take or next question from Steve Sakwa from Evercore. Please go ahead.

Thanks, Good morning, Nick I was wondering if you could comment a little bit on the competition that youre facing from a you know 30 Hudson Street I know there were a couple of large leases that got done which might have slipped through your fingers. I mean, how competitive was that leasing situation and I guess would that building now leased up I guess, how do you feel of.

About leasing up harborside at this point.

Thanks, Steve.

Yes, so I'll address both deals right. So.

We were we were one of two in both instances.

For the Merck transaction also sometimes referred to as the we work transaction.

The tenant really had a from occupancy timing.

And that was just really based on their own add some things happening within their own business.

And 30 US an offer to build solution for them.

Well, our beside five was I was going to be built from all condition.

We offered solutions to mitigate the cost differential I.

I think.

At the end of the day, though the execution risk, we still too great to Miss any of their timing.

Due to any unforeseen delays from coven.

As we look at the AI Jie deal again, we were one of two.

We had a perfect block right in the middle of the stack.

You know they were and are a tenant within our portfolio. So negotiations.

We're moving quite well.

Midway those midway through the through the lease the requirement group.

Grew out of that block and to accommodate accommodate them in the building a we split them over to elevator banks.

And it just wasn't favorable favorable.

So they focus their efforts at 30, Hudson and and wrapped up the deal there.

As that.

As you look over it at 30 Hutson again, it's a it's a owner occupied building you know Dave leased up roughly half of the building is 1.4 million square foot tower.

And they've done about 700000 square feet of leasing there right. So to say that building is for sure wrapped up.

I'm not going to say that out right.

Anything's possible, but for right now I am happy to to at least consider that building, having a bow on it I think that that it does speak to our ability to be in front of the right tenants.

Again, we we were one of two in both sentences, but for right now I think.

Your top three building in the market like Plaza five will speak to those tenants those future tenants in the future and given the fact that we have a lot of different types of product right in the same area different size floor plates different pricing structures.

I like our odds moving forward.

Okay. Thanks, and then I guess, just moving to the suburban sales Ah you know the small Harris tied on the first set.

And surprising, but maybe Dave or Marianne just talk about the balance the mom that the short hills the Metro Park.

Just remind us where those being pushed out more for tax consideration purposes or is it just kind of a lack of lack or bid a pool or just inability to kinda handle it all at once just trying to sort of understand the timing of these and whether those could be pulled forward in any way maybe with an uptick in so.

Burden leasing activity.

Thanks, Steve I'll try to handle that one so.

As we've talked about before these.

All of these sub portfolios.

Number of buyers in New Jersey, usually local operators teaming up with private equity or hedge fund money up taking a look at these properties I'd say that delay really is really just a function of the cobot environment, where were in our experience with parsippany Andromeda what seem to push it out would always be the lenders needing to get in.

And then specifically that second piece of debt, which got more expensive, but now we're seeing firming up so.

We're trying to get best execution, we've done tax planning.

To fit these portfolios both into this year in next year. So it I would not say it is tax planning holding it up and we want the best execution possible and we want to pay down all of our corporate debt as soon as possible with the proceeds.

Okay. So maybe Dave just maybe elaborate a little further just in terms of the demand or appetite for those other portfolios is are there kind of one one group looking at each of those portfolios multiple groups just trying to get a sense for the demand and pricing levels.

So Steve it has multiple groups looking there all now listed with brokers.

I would say kind of notably our CIO and myself I'm on Metro Park, we are starting to see more institutional names and we typically see in new Jersey, starting to look at that product, but I think Monmouth in short Hills again, we'll go to kind of local operator, guys with some more hedge.

Fund their private equity money backing them, but.

We feel good about our prospects.

Getting that getting the executions done within a 12 month timeframe and we're in we're looking to maximize price, but taxes should not get in our way and and we feel good about or just trying to be conservative given given the pandemic in the environment.

Okay, and then last question I noticed on a kind of the add back a you know there was an impairment charges you had obviously some proxy costs in the quarter.

There were some severance costs just youre I assume some of those are one time, but anything that kind of spills over into Q3 or I guess, a with the CEO change you know what should we be looking for.

In terms of kind of costs moving forward.

Yes, it there shouldn't be much spillover with any of those each quarter. We look at impairments. We had some land impairments and we had the purchase price adjustment on Parsippany under auto is the was the biggest one there on the $11 million of operating properties.

And with the CEO I think we have a note in our in our 10-Q.

So leaving.

Absolutely without cause pursuant to its contract. So I think the proxy is gonna be the best guide there.

It was a third quarter event, so look for that at a third quarter.

Great. Thanks, that's it for me.

We will now take or next question from Anthony Pillow from JP Morgan. Please go ahead.

Okay. Thanks, good morning.

On the 200000 square feet of leasing I guess and the pipeline or deals that are out there there was that all incremental or some of that.

To replace any.

Exits.

So it's.

The 200000 square feet I I mentioned, it's slightly higher than ads is probably a.

In terms of leases, we've got about 185000 square feet that we're kind of talking through.

Everything is moving extremely slowly proposals another 80000 square feet for new deals I would split in almost 50 50, so call. It about 130000 square feet of new deals and 135000 square feet of of existing tenants, either a renewal or expansion.

Okay, and then I think you'd mentioned I think a little over 100000 square feet expiring in the remainder of the year in those properties that are teed up for sale does.

Does the outcome of whether those tenants renew or not have a bearing on whether the sales go through or or to back it in a way of things.

No.

Okay, and then a question I guess for Marianne on on the board side.

Prior to the recall institution I think there was a general board advisor or there was a committee. The committee had an adviser can you just have reset on is there an actual process is there a committee running a processor is this just.

You know open tied Dsos any board would be a at this point.

Thank you as you might recall there was a shareholder value committee that was created in 2019.

And the work is that committee will continue with a similar committee often new board I will focus on strategic alternatives and inbounds and so the board will operate with maximum efficiency. If your committee structures that do much heavy lifting so that is the current thinking and as you know we have a lead director.

As well to compliment.

Management.

Yeah.

Okay, great. Thank you.

We will now take or next question from Jamie Feldman from Bank of America. Please go ahead.

Thank you and good morning, I guess for Nick can you just talk about any change on the demand side for suburban office leasing.

Seeing interest in suburban satellite offices, and if so what Submarkets and also a is it co working type tenants.

<unk> for shorter term leases or more direct.

Yes, no problem I would say for the suburban portfolio, absolutely I think we are seeing a bit of an uptick.

Primary markets, we're seeing the uptick would be like a metro park.

Some activity in short hills.

Anything that's really centrally located by multiple highways.

And also some you know access to to mass transit.

Yeah, if you look at it.

Mystically, though right I mean, if you're if you want to.

Just look at the entire market itself, we're talking about the second largest.

[noise] suburban office market outside of Los Angeles, right, So anyway, and I kind of sort of a strict structural vacancy problem with about 20% market wide right. So you the real product that's going to that's going to perform wells the true class a and trophy.

So I mean, I think we're going to still continue to fall that strategy to capitalize on this activity and continue to execute the strategy disposing the assets.

Jamie if I might also say about the waterfront leasing strategy on the commercial side, we're seeing a movement toward de centralization and de Densification or companies that are close in the urban core of Manhattan looking at strategies, even this vaccine.

Centralized and I think that bodes well for the waterfront I think there's potential for refresh strategy I'm definitely look to capitalize on the world we find ourselves in the changing trends.

How to keep telling Tom Ses engaged and content.

Okay. Thank you.

Do you think about the types of interest you're seeing what what's the typical lease structure is this.

Very short term one two years short term deals just to kind of get through this or people really thinking about longer term plans.

Well right now its intermediate term you know, it's it's didnt a three year, it's either hopping in a sublease or doing something thats three years primary looking for something that's built.

Furnished if possible.

And then in terms of the type of tenant it's just what I've seen so far has really been in the fire sector.

And the service office space, not really not as much we are working with service office providers.

Within our own portfolio.

But in terms of new activity now.

If the Westside story of Manhattan, the migration West.

You think about what that might mean for an ability to again de centralized you densify and have a better cost alternatives for lots of the corporate migration last on the island Manhattan again, it could bode well for the Jersey waterfront, we think about in terms of.

In coming years, and I think some of this could be temporary but equally.

Okay.

Approach to Uh huh.

And that doesn't change your view on Super selling suburban I mean, you guys kind of rethinking at all or it's already going down that path.

No we're committed to the go forward strategy on sale of suburban and again it gets to this idea that we want to focus on our knitting and the core competency on them where front, we think that that's the why strategy and again I'm just based on price discovery and where we think the suburban.

This does that.

Approach give any other objectives.

Okay.

And then I guess just thinking about their objectives can you maybe I can you talk about any new views on leverage or de levering or is there anyway, you can get there faster than the prior plan just how do we think about your views of the balance sheet and what can be done to fix it.

Yeah, David I spent a lot of time talking about that I'm going to throw that over to Dave cancer. It's clearly something that we're super focused on.

Thanks, Hi, Jamie so listen to it depends really how you define de leveraging I know everybody points. The net debt to EBITDA metrics. So as I pointed out there listened to manage expectations over the next coming quarters in years until we really get our multifamily.

Online and cash flowing them, we get some traction here and get some net absorption and lease up on the waterfront, it's going to remain elevated in the low teens, but I do consider selling our suburbs and paying off our corporate debt de levering. It makes a safe it gets rid of our covenants and more focused on our multi.

Family analyze which have better dropdowns to cash flow and so we're excited to get going on the suburban sales and finish those off and get the company more focused as as Mary Anne said on its core competencies.

Okay. Thank you.

And then one from Marshall.

You know with the pandemic with more people working from home you mentioned three projects that you could get started on I mean any change in your view of what apartment design should look like or what construction going on what it might need for construction costs, Sir your underwriting of future deals.

Oh, let's go to all of those are some interesting topic, Jamie so everybody's talking about the re look at the product itself and it's interesting, though our industry with a from a certain size unit to smaller units and increased our commentary amenities with the idea that people wanted to socialize and spend more time and those.

As amenity spaces and to use can be smaller. So the question is is this mentality going to change. It's really short term is going to change. The question is long term right and we're studying it now are we looking at our units. We've historically built larger unit averages in most of the industry. So we are definitely the larger side of almost all of our comps as it is.

I don't think when I look at building offices again in apartments, a are fixed office base. Most people work when I pad from their tabletop. So so we are looking at unit sizes, and we are trying to determine or is there some changes to make their on these future starch as far as construction cost and materials.

Materially the commodity materials have been fairly static I mean, we're not primarily were not wood frame builders. So those numbers going on for Matt to do the home construction, but the our products are pretty much flat.

The interesting part of the whether the labor trades start coming down price because they're not as busy as they were and we should see a little bit of help there. Historically construction has a normal inflation rate of 3% to 5% and maybe that will maybe that will pull back a little bit due to labor I don't think the wheel on commodities.

Okay, and then from a residential perspective do you think differently about the best Submarkets to be in going forward. If you do see a more of an urban exodus.

Our different markets.

Well the question because you look at the urban market that is our waterfront as an exit from Manhattan in the density of Manhattan or do you think people go further further west into the suburbs I mean at this immediate moment clearly the suburbs are doing a little bit better than even new Jersey urban markets. They had less move outs than we've had in the waterfront we think.

Thats a short term a concept, we only going to be long term I think people still want to gravitate to waterfront for price and access to New York when a covances pass. So I think short term for sure Jamie as the suburbs are faring better than the urban locations, but we don't think thats when the long term.

Right.

Okay all right. Thank you.

You bet you will.

We now have a follow up question from Manny Korchman from Citi. Please go ahead.

Hey, it's Michael Bilerman here with Manny.

Marianne previously Bank of America, and Goldman we're acting as advisors to the board and to the CEO in terms of running some processes.

Our either of them still engaged with the company or if you selected other banks or is there no. Thanks currently involved.

Thanks, Michael currently there are no banks involved as you point out we've had the involvement of BAML and.

Bankers, we advise the special committee that may not be the case going forward, but there's been no decision maker.

And as you think about the strategic review Committee and.

You know you're on your web it looks like it.

Akiva federally a novel would and Tammy.

What's your thought of putting someone who's the previously being on the board like yourself.

On that committee.

Versus all new on new and cut that people coming from.

It's a great question I Am advisors, you that committee does Frederic <unk> both of US out on the original 27 2019 Committee and have participated in discussions within that early on you Committee and we would expect to continue to do that.

Okay, and then Dave mentioned per the Q that there was a note about Mike is that agreement now been finalized and find where both parties have agreed to the terms or is it still outstanding.

As of yet it's not been executed.

Is there any reason why that hasn't been done yet and how should we think about that.

This is a day five on the job for me. So I think it's really just about the fact that these matters to take a little bit of time I would expect that it will conclude in short order.

Okay.

Is the nominating and corporate governance Committee.

Members of the board, who are running the CEO search or is it other people.

There is a separate committee a search for many set up within the board and that Ford has already gone to work that committee within the board has already gone down to work.

And who formed that the CEO search committee.

The board.

Which members of the board.

Were discussed the creation of the committee and populated with I believe.

The cash.

John Fredrickson mile incentive comp.

And I believe that's the committee.

And how is the company thinking about the back of the CEO role for a company.

That has been through a number of Ceos already.

Two it's got some strategic alternatives and processing fees that they're going by has two primary asset types.

How do you I guess get someone to want to take that role and incentivize them to do it but also what are you looking for in terms of the.

Characteristics of that individual to come lead Mack Cali units next chapter.

I want to get ahead of the the search committee because clearly their job is to create the specification for the new CEO, but when I will say is that I think it's a greig I think that there are really strong executives in the real estate industry that have a command of the material and would be fantastic in a rule I want to.

Say that we're focused on finding a driven leader, but not one that's interesting being a long time.

CEO within a week and I'd also say that the work of the day, Oh started already and will continue and so the absence of a permanent CEO would not impede our efforts or interest in engaging in strategic alternatives should we decide that there's any treating opportunity before us.

It's not holding anything up but again in the midst of the pandemic, it's appropriate to recognize that the longer term leadership, maybe may take a while to identify and secure but my interim role now for us to transact.

The effective on execution anymore.

And it sounds like you've removed yourself from.

Potentially making yourself permanent in this role that you viewed as purely as an interim role and you go back to board chair once all seven done.

Right.

Okay. Thank you.

Asked there no further questions a niche.

I apologize if there were no further questions in the queue I'd like to hand, the call back to Maryanne Gilmartin CEO for any closing remarks.

Thank you operator, I'd like to conclude with I'm a comment on leadership through change in challenge. Many of my career milestones have been amid and through crises. After 911 I, let the construction leasing up the first two new office building in New York too right. After the attacks 911, one in Brooklyn, France High Blue Cross Blue Shield.

Which has seen significant loss of life and space that World Trade Center in times Square Post 911, I went to construction lease up of the New York Times Tower thesis, what the industry deemed to be in undesirable locations marked as a terrorist target across from the point is already sitting a top 11 subway lines, yes, we achieved record breaking rents in record.

Time on the high power floors, which the industry said would be Sean after the attacks lower Manhattan I like to Tina finance built in leased over 900 rental units that New York like Uri through the 2007 banking crisis. When experts wrote off the multifamily market New York City on the yielded a great recession I stepped in to lead the restructuring.

And recapitalization of Pacific Park, Brooklyn at least thousands of units. After it was played by delay in litigation.

Oh Superstorm Sandy my leasing team in Brooklyn was able to capitalize on downtown Brooklyn separate power grid quality infrastructure and high sea level coordinates ensure I'm getting a crisis and while in modern times, we have never been through anything quite like a global pandemic I will leave with my strengths, which including empowerment problems.

Having an execution issue.

In closing for short today, we find ourselves in an exceptionally challenging in line is fraught with change and uncertainty, but hemostasis at all what will remain constant if the team's focus suburban disposition waterfront meeting and strengthening the balance sheet.

The team and I are fully engaged.

And we will look forward to continuing to speak to you all in the coming weeks you stay safe and healthy. Thank you and had a great day.

Thank you that's what concludes today's conference call. Thank for your participation ladies and gentlemen, you may now disconnect.