Mack-Cali Realty Corp

F:WY4

Earnings Call Transcript 2018-Q4

[Operator]

Good day, everyone, and welcome to the Mack-Cali Realty Corporation fourth quarter 2018 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Michael J. DeMarco, Chief Executive Officer. Please go ahead, sir.

[Michael DeMarco, executive]

Morning, everyone, and thank you for joining the Mack-Cali fourth quarter 2018 earnings call. This is Mike DeMarco, CEO of Mack-Cali. I'm joined today by my partners, Marshall Tycher, Chairman of Roseland, our multi-family operation; David Smetana, our CFO; and Nick Hilton, our EVP of Leasing. On a legal note, I must remind everyone that certain information discussed in this call may constitute forward-looking statements within the meaning of the federal securities law. Although we believe the estimates reflected in any statements [Audio Gap] assumptions [Audio Gap] refer you to our press release, annual and quarterly reports filed with the SEC [Audio Gap]. We have filed last night our supplemental for this quarter, and we issued a revamped investor deck last month for our Investor Day. The combined presentations will reflect the ongoing [Audio Gap] related NOI composition [Audio Gap] David with any further suggestions of [Audio Gap]. We look forward to seeing many of you at the upcoming Citi conference in a few weeks. As we have done before, we're going to break our call down into the following sections. I will make [Audio Gap] comments, Nick will discuss our office leasing [Audio Gap] forward, Marshall will provide insight into our multi-family operations, David will [Audio Gap] had another successful operating quarter, as we delivered very positive [Audio Gap] quarter, all of 2018, in our opinion. We finished 2018 with [Audio Gap] up the waterfront [Audio Gap]. Office leasing results for 2018 were greater than expected with [Audio Gap] total amount of square feet leased [Audio Gap] indicating the [Audio Gap] renewals at excellent rates [Audio Gap] suburbs and the waterfront were greater than expected [Audio Gap] relaxed in 2018 [Audio Gap] so far seems to [Audio Gap] may have. So far, 2019 is shaping up well, as tenants have really come to accept the new product that we delivered for the suburbs and waterfront [Audio Gap] the new cafeterias, the lobbies, the amenity packets. Most of the improvements were made to our waterfront properties [Audio Gap]. We have more things upcoming, which we'll discuss in detail. In fact, next quarter [Audio Gap]. Our view as a whole for 2019 is [Audio Gap] 2020 for a moment, we expect to deliver quite a bit of new products [Audio Gap] 25% of [Audio Gap]. We have some planned retail changes [Audio Gap] hopefully change the way they operate [Audio Gap] 3-year plan of selling the bottom of our portfolio has been completed. [Audio Gap] now in the process of [Audio Gap] focus this period is in the fine-tuning stage [Audio Gap] the flex business [Audio Gap]. Moving forward, we have very, very low aspirations for [Audio Gap] focus the portfolio [Audio Gap]. Regarding multi-family [indiscernible] points, we had a very, very good quarter for leasing up all our projects, especially in the second phase of [Audio Gap] all projects I think delivered [Audio Gap] fully stabilized [Audio Gap]. Marshall is in the process of creating some truly superb projects [Audio Gap] really complete [Audio Gap] especially we're adding to the area a fine-arts movie theater and a substantial public space. Port Imperial, for example, [indiscernible] opened in November, and the second phase, which [Audio Gap]. Later, we'll discuss the leverage is going to come down, mostly for the flex business [Audio Gap].

[Nicholas Hilton, executive]

Thank you, Mike. We posted another good quarter to close out 2018, signing just over 358,000 square feet of transactions, resulting in our core waterfront flex portfolio finishing at 83.2% leased at year-end. Of these transactions, approximately 40%, or 141,000 square feet, were new leases and 60%, or 217,000 square feet, were in-place renewals. Across all markets, our rents on Q4 deals rolled up 2.9% on a cash basis and 15.1% on a GAAP basis, and we committed $2.99 per square foot per year of lease term. Looking back at 2018 as a whole, our portfolio saw over 1.9 million square feet of transactions signed, with overall cash and GAAP roll-ups at 7.3% and 22.5%, respectively. This beat our initial 2018 guidance of 1.3 million square feet by over 40%. Further, it is important to note that the majority of these transactions were in-place renewals and were completed well in advance of the tenant's natural lease expiration. Focusing on our results by market, in the fourth quarter, the waterfront completed just over 43,000 square feet of transactions, with a cash roll-up of 15.9% and a GAAP roll-up of 22.7%. In addition, we currently have approximately 120,000 square feet of new transactions that are in the final stages of lease negotiations, which carried over from the end of last year, so look for us to make some exciting announcements in the very near future as we bring these to a close. Our suburban portfolio also remained active in the fourth quarter. Specifically, we executed just over 221,000 square feet of transactions. One of the most significant included the renewal of PBF Energy for over 57,000 square feet in Parsippany. We're also in active negotiations with approximately 150,000 square feet of new transactions across our suburban portfolio. As previously reported, we are excited about the acquisition of 99 Wood Ave in Iselin, which increases our market share to over 30% in the Metropark submarket, a market where our holdings finished the year at over 98% leased. Focusing on the next 24 months, the percentage of our core portfolio or expiring will be in the single digits annually, and as we continue to focus on delivering highly amenitized and upgraded assets, we believe we will continue to outperform the outdated product as corporations compete for highly-skilled workers in a tight labor market. To that end, our activity level continues to be strong, especially on the waterfront, where we are in active discussions with over 800,000 square feet of new tenants, with a strong and varied industry mix, including technology for 200,000 square feet, media for 50,000 square feet, consumer products for 100,000 square feet, financial services for 400,000 square feet, and co-working for 100,000 square feet. So with our largest struggles behind us, this activity should lead to further pure net absorption in the market. With that, I'd like to turn the call over to Marshall.

[Marshall Tycher, executive]

Thanks, Nick. Roseland's stabilized operating portfolio finished 2018 at 95.9% leased, with same-store NOI down 0.7% for the year. This result was primarily a function of flat revenues, largely a result of lease-up products adjacent to our same-store inventory in our multi-phase communities and a new corporate leasing policy resulting from increased Airbnb abuse in our corporate tenants. In Washington, D.C., and Jersey City in particular, we have changed our operating strategy to reduce these corporate tenants who allow nightly stays that have eroded the lifestyle of our communities and replaced them now with longer-term residents. We expect restabilization of these same communities by the end of the first quarter. Operationally, 2018 was highlighted by the strong leasing success with 1,212 newly delivered apartments across 5 communities. 4 communities are now fully stabilized, including RiverHouse 11 at Port Imperial, Portside Phase 2 in the East Boston waterfront, Signature Place in Morris Plains, and the Met Lofts in Morristown. The fifth community, 145 Front Street in Worcester, delivered its second phase in mid-2018. Both phases combined are currently 65% leased and are expected to stabilize this summer. These 5 communities were delivered at a 6.5% yield on cost and are forecasted to produce stabilized NOI of $26 million. Looking ahead, and mostly from our 2017 deliveries, we expect our 2019 same-store stabilized pool to grow 79%, from 3,162 units to 5,673 units. We continue to transform the residential platform and forecast continued growth in earnings by these recent transactions. First, the third quarter acquisition of Prudential's majority ownership in the 412-unit Marbella in Jersey City, which eliminated Roseland's last significant legacy subordinate interest. Second, in January of this year, we closed on the assignment of Prudential's 50% membership interest in M2, a 311-unit high-rise that adjoins Marbella. The acquisition was based on gross asset valuation of $195 million, and after refinancing, was a net capital requirement of approximately $36.5 million. Third, and subsequent to quarter end, we entered into a contract to acquire Soho Lofts, a 377-unit community, for approximately $264 million. The recently stabilized asset is located in Jersey City's emerging Soho West neighborhood, near the Hoboken border. At closing, our Jersey City portfolio of stabilized units will be comprised of 2,385 apartments, and our average ownership will be 87.4%. In addition to our stabilized operations, Roseland's construction pipeline is comprised of 372 hotel keys and 1,949 apartments. These construction activities, representing total cost of $1.15 billion, are forecasted to generate NOI of $75 million. This portfolio includes 2 recent strategic starts -- 25 Christopher Columbus, a 750-unit signature development in Jersey City. This project includes a 36,000-square-foot onsite elementary school, which we believe will be a significant addition to the neighborhood. It'll also have a long-term, below market tax abatement fixed for 20 years at 7.5% to enhance its returns. We also started construction at 233 Canoe Brook in Short Hills, one of the premier suburban towns of New Jersey. The 200-unit repurposing project is located adjacent to Mack-Cali's 150 JFK, the Mall of Short Hills, and Canoe Brook Country Club. Whereas we don't expect any residential deliveries until year end 2020, we recently completed and commenced operations at Port Imperial of a 164-key resident inn. We anticipate a June opening of its dual-flag counterpart, the 208-key full-service Marriott Autograph collection. These hotels will serve as a cornerstone amenity for Port Imperial, offering excellent access to Hudson Yards, with exceptional views of the Manhattan skyline. Upon stabilization, the hotels are projected to generate $14 million in NOI. As highlighted at our recent Investor Day, and evident from our growth of our residential division, Mack-Cali continues its transformation into a dual-platform company with a waterfront focus. To that end, 64% of residential NAV is along the Hudson waterfront, a figure that will grow with the closing of Soho Lofts. Future supply in our waterfront submarkets is constrained, with only 2 substantial deliveries in Jersey City and 1 in Weehawken through 2020. Moreover, we control approximately 6,000 units in the most desirable construction and development sites in this corridor. Finally, we estimate a residential NAV of approximately $1.86 billion. After accounting for Rockpoint participation, Mack-Cali's share of NAV is approximately $1.58 billion, or $15.70 per outstanding Mack-Cali share. With that, I will now turn the call over to Dave.

[David Smetana, executive]

Thank you, Marshall. I have a few brief highlights before turning the call back over to Mike for closing remarks. We reported core FFO per share for the quarter of $0.45, versus $0.50 in the prior year. The year-over-year decrease is due mainly to move-outs of tenants on the waterfront and lost NOI from asset sales executed as part of our disposition program. Same-store cash NOI declined by 2.1%, and GAAP same-store NOI declined for the fourth quarter by 4.5%, with the year-over-year declines, once again, driven by move-outs in our waterfront portfolio, offset by favorable adjustments to real estate tax expense. Jersey City completed its first tax revaluation since 1988 in the fall of 2018. Given our current vacancy in Jersey City as well as other successful tax appeals across the portfolio, our 2018 tax expense was reduced. The blended impact of these tax adjustments improved NOI by almost $3 million in the quarter. We see the real estate tax expense line item normalizing in Q1 2019 in the $16 million to $17 million range. Now, touching for a second on dispositions, as noted in the press release and in Mike's remarks, our 2018 disposition activity, combined with subsequent year-end activity, marks the formal end to our noncore disposition program. We sold 1 vacant office property and the land parcel from our former office site during the quarter for a total of $48.7 million of proceeds. We also executed the sale of the first of our 5 flex portfolios, called Elmsford distribution center, for $70.3 million in proceeds at a 4.5% cap rate. Subsequent to year end, we sold 2 office properties for $22 million, or $137 per square foot, and a 4.1% cap rate. We also disposed of a noncore multi-family asset for $35 million. This asset carried a $25 million mortgage balance. There are an additional 4 noncore assets totaling $83 million under contract to be sold. Our 2019 noncore disposition guidance range of $155 million to $180 million, therefore, only includes an additional $15 million to $40 million of sales on top of the $57 million of closed transactions and $83 million of assets under contract. These additional sales will be weighted towards the second half of the year. As Mike mentioned, we have the 4 remaining sub-portfolios of our flex division under contract to be sold for $487 million, with the closing expected early in the second quarter. As always, we will look to opportunistically prune or trade assets into our core markets, but have not budgeted for any of this activity in the guidance. I will shift now to the timing of some of our acquisitions that are part of 1031 exchanges and another joint venture consolidation. As previously announced at our Investor Day, we are under contract to buy Soho Lofts in Jersey City for $264 million, with the closing expected very early in the second quarter. On January 31, we closed on the acquisition of Prudential's 50% interest in M2 at an equity valuation of $78 million. This asset will be consolidated in the first quarter. Lastly, on February 6, as part of a 1031 exchange, we purchased a 272,000-square-foot office property, 99 Wood, which is adjacent to our 101 Wood property in Metropark. Turning to the balance sheet, during the quarter, we placed 2 permanent loans on our 2018 multi-family development deliveries. All-in rates average 4.5% and spreads the treasury's average to 135 basis points. Our net-debt-to-EBITDA was 9.3x in the quarter. This metric had a benefit in the quarter of approximately 0.4x due to sales timing and real estate tax adjustments. We used $70 million from the sale of our Elmsford flex portfolio on December 31 to repay outstanding balances on our line of credit. Current tax projections show that we will be able to pay down debt of approximately $230 million from the remaining flex transactions, with the balance of these proceeds expected to be exchanged mainly into Soho Lofts. Shifting to guidance, as we stated in the press release, we are reaffirming core FFO guidance given at our Investor day of $1.60 to $1.70 before Topic 842 impacts, and $1.57 to $1.67 after a $0.03 impact on both ends of the range for Topic 842. Going forward, the range of $1.57 to $1.67 will be our core FFO guidance range. We see same-store cash NOI coming in in a range of minus 14% to minus 10% on a cash basis and at minus 7% to minus 3% on a GAAP basis, with current projections showing GAAP same-store NOI turning positive in the fourth quarter of 2019. We are projecting a same-store NOI range for multi-family of 1% to 3% on an expanded pool of approximately 5,600 units. This expanded pool should give investors a better read-through on the performance of our multi-family business in 2019. All in all, we believe we have built in a guidance range that accounts for the current protracted lease negotiation process and also gives us a chance to outperform. As I look back at the company, its assets and its strategy from when I started over a year ago, the transformation is striking. The team now looks to execute on our waterfront strategy, whose hallmarks are simplicity and focus. Our core market, the waterfront, home to our headquarters, is only 73.2% leased. The 1 million-plus square feet of vacancy is an immense opportunity and has the daily focus of all senior management. The annual capital requirements to further enhance the buildings are modest and can be easily funded from current cash flow and disposition proceeds. The second avenue of growth is our multi-family development program. Our current construction pipeline of 5 assets has 80% of its spend concentrated in 3 assets on the waterfront, where we have recently experienced record lease-ups. We look at financing the multi-family development business through a self-funding lens. The remaining $45 million of equity commitment from Rockpoint will be drawn by the end of February, and we will look at asset recycling as well as additional equity raised at NAV at either the entity level or asset level to fund the next round of starts. With that, I turn it back over to Mike for closing comments.

[Michael DeMarco, executive]

Thanks, David. In closing, as my team has outlined, I think we're set up to have a good 2019, even though we have a great deal of work to do on the leasing front. I really, truly feel that our office strategy is being accepted by the tenants in a huge way and, equally important, by the brokers, who understand us to be the class-A provider of office space in New Jersey. We are creating a real sense of place on the waterfront. I'm confident that the total effect of our coordinated efforts of office, retail and multi-family will produce excellent returns in the short- and long-term horizon. And with that, I'd like to take some questions. Operator, our first question, please.

[Operator]

[Operator Instructions] We will now take our first question from John Guinee of Stifel.

[John Guinee, analyst]

Two questions -- with your levering up so much, your taxable income should be coming down, and you should have enough room within your taxable income parameters to not have to 1031 exchange. Is that correct or incorrect?

[Michael DeMarco, executive]

John, that's an excellent point. What we've done is used every dollar of taxable income the last several years in order to shield. This past year, for example, the flex business was done as an '18/'19 trade. So in '19, we've already used substantially all of the taxable income. So in 2020, as we lease up and have more income, and as the projects mature in the multi-family and get greater income, we will have more room. We only do 1031s, let's say, if there's a -- we only do 1031s reluctantly. We'd rather pay down debt or do something else with the money than buy an asset. But the deals that we've bought recently -- in particular, 99 Wood is going to be an excellent buy for us, because we bought it right. It sits right next to a project that we've had extremely excellent results in that submarket for the last 3 years.

[John Guinee, analyst]

Are you doing the 1031s to protect the taxable -- the re-tax status or to protect the OP unitholder level?

[Michael DeMarco, executive]

We'd only -- what happens, John, is the assets that we're selling have been held so long by this company -- as you like to point out, this company has been around for a long time, so those assets are 20, 23, 22 years old. We have gains that are significant, because they're fully depreciated, literally have no tax basis whatsoever. So when we sell something for $50 million to $100 million, even if it's only $175 a square foot, all $175 a square foot is actually taxable to us. So we're left with the quandary of paying the income tax and having really substantial proceeds that we can't use to shelter in the dividend. So our first game is to shelter the dividend. If we use it to shelter the dividend, we get to keep all the $180 and we pass on the tax benefits to our unitholders and shareholders, and they pay it from the dividend that we gave them. If not, then we do a 1031. But, as I said before, it's the last step of the process, not the first.

[John Guinee, analyst]

And then, David, I guess you said that net-debt-to-EBITDA is 9.3 with a 0.4 benefit, so really I think you're saying the net-debt-to-EBITDA is about 9.7. Could you do 2 things, split that between the office business and the multi-family business and then talk about how far it can come down versus how far it needs to come down to attract your core institutional investor base?

[David Smetana, executive]

Yes, John, thanks for the question. So the 0.4x benefit is going to be all on the office side, and so I wanted to highlight it for everyone because that's a rather large jump from 10x to 9.3x. As we outlined in the Investor Day, taken in isolation, we believe the flex transaction over both 2018 and '19 would reduce our net-debt-to-EBITDA by about 0.75x. So I think it's fair for the quarter to add back the 0.4x, but know we have the $230 million of debt paydown coming from the balance of the flex sale. That'll take us into the low 9's, and that'll be offset as we run our business and continue to fund residential construction and put a mortgage on a residential multi-family property that we're buying. So netted all together, I think we'll be right back down in the low 9's at the end of 2019. I think the second part of your question, on where we need to be to attract -- oh, and the split for the quarter would be the office portfolio 7.8x, so if you added the 0.4 there, it's 8.2, and the residential at 13.7 with all the debt, and 11.4 taking out our CIP activities. And then I think the last part of the question is where we need to be. As we outlined at the Investor Day, I think in 2020, as we get full quarter benefits of our lease commencements, we get below 9, and then we look at where the shares are, where we can raise equity, and then that's the next move to get below 8x net-debt-to-EBITDA. I think Mike has a couple comments as well.

[Michael DeMarco, executive]

So, John, if you're looking at what we're aiming for, maybe multi-family business, the way we're currently running it, will always likely be between 8.5x to 10x, but we're like to get the office business, where we find there's more risk in the rollover, to get below, around 6, maybe even slightly below that, and the 2 of them together should blend below 8, which is our threshold. We may have to raise equity in order to get there. But to answer your last question, where do I think you need to be in order to attract more funds, I think we need to, first of all, be leased, because I don't think, even if we were low levered, we would get that much core interest. I think you need to be leased in the upper 80s, 88 to 89 [Audio Gap] where we were 2 years ago, and I think your average level should be around 7.5 blended between [Audio Gap].

[John Guinee, analyst]

Just so you know, Mike, I think few people can hear you speaking into your microphone, while David and Marshall were loud and clear.

[Michael DeMarco, executive]

I've got to change mics, then, because I'm sitting at the same table with them. Thank you, John.

[John Guinee, analyst]

Okay.

[Michael DeMarco, executive]

John, does this come in better now?

[John Guinee, analyst]

We just love it. It comes in much better.

[Operator]

We will now take our next question from Emmanuel Korchman of Citi.

[Emmanuel Korchman, analyst]

Nick, you talked about 800,000 of tenant discussions on the waterfront. Can you -- and thanks for breaking that down for us. Can you compare that to where it's been over the last few months or quarters, just to give us an idea of whether that's sort of increased, decreased, same? Thanks.

[Nicholas Hilton, executive]

Well, we saw from the first quarter of last year, it's a significant increase, just not only in volume but in the tenant mix. Quite frankly, as the year progressed last year, we saw more and more momentum, a good amount of tours, inquiries, proposals, and it continued. Now, there were dips just because of time of year, right, summer and then over the holidays, but I would say if you compare this quarter to 1 year ago, it's probably twice as high at least.

[Emmanuel Korchman, analyst]

Mike, there's been some discussions of Grow NJ being phased out this summer, replaced by some other programs. Have any tenants made mention of that or are waiting for that to sort of finalize before making a move?

[Michael DeMarco, executive]

No. We've seen people come in a little earlier if they want to get in while the program is still there, but no one's made any comment. Everyone knows -- I think everyone's convinced that the governor -- how she's for it. The Speaker of the Senate, Steve Sweeney, was the other equal part in the transaction. He's always been for that program. I think it'll just go through the summer and then gets finalized, is what most of the legislative views are. The governor is not backing away from it. Neither is the Speaker of the Senate. I think it's a question of the quality of the program and the amount. I think there will be a consistent theory between both of them that you wouldn't pay for -- you'd pay for interstate, but not intrastate moves, so you won't pay for someone moving from Hasbrouck Heights to Hanover, but you'd pay for someone moving from Manhattan to Jersey City.

[Michael Bilerman, analyst]

Mike, it's Michael Bilerman. Just a question on the leverage point. I mean, you talked about -- you said the multi-family is always going to have the 9.5. I mean, if you look at the multi-family REITs, a number of which are active developers, they all keep their balance sheets 4x to 5x levered. Why should Roseland have the 9.5?

[Michael DeMarco, executive]

Well, we started out with more leverage to begin with. We've been building this thing inside of a transformation process. So if we were starting fresh, I would agree to do 100%, but looking at where we are, we basically said to ourselves what can we do, how can we sell fund, how can we create value, and we've done a very good job of creating true NAV, and we've had some great projects that we delivered. Over time, we know if we want to raise equity or, over time, to have a sustainable business, we're going to have to get delevered over time. We've taken in equity from Rockpoint. We believe we can joint venture other sales if we need to. We've already started the process of trimming the bottom. We sold a deal last year, and we'll probably sell a few deals this year. We'll probably sell some land. So it's on our mechanism. The first risk that we had was the office business, which was probably overlevered at 8.5x. So this quarter, we're getting it down lower, and we've got a shot into really getting it into the 5's, Michael, which I think would be bulletproof. The multi-family is going to follow it to suit. But in the interim, if you start a new project which are excellent deals and you get great returns, you're putting on leverage. In the whole consolidation phase -- and we were a little disguised when we took over, because we had basically hidden leverage in the sense of we had partial ownership of joint ventures that weren't fully consolidated. Green Street was one that used to consolidate us all the way through. And all we've really done in a lot of our moves is basically own the other piece of a building that we already owned a piece of. As an example, our leverage went up this quarter by consolidating M2 and Marbella. I would tell you the options of owning those assets is greatly enhanced from anything we do, from raising equity to whatever, because now we really own 80% of each project.

[Operator]

We will now take our next question from Derek Johnston of Deutsche Bank.

[Derek Johnston, analyst]

Mike, can you discuss where the flex portfolio sale sits? I know we saw a small piece, but I kind of feel like the timing has been pushed back a little bit and we've been talking about it for a while. Any color there?

[Michael DeMarco, executive]

No. I think we would have liked to get both pieces done like December, January, but the second piece was 4x larger than the first piece. So we did a quarter of it, maybe 20%, just before year-end. The other piece is really under contract. We'll close, as David said, early second quarter, early like just after St. Patty's Day, like literally just after March Madness, and maybe the national champion won't be picked by that night. And probably given the nature of -- if you look at that sale, it's several million square feet and has numerous buildings, and that probably made it a little longer, the number of title reports, environmental reports. We can't close until it's all buttoned up, but it hasn't really slipped in our mind. We always thought it would be done maybe March, and maybe now it'll be an April close, so maybe 30 days, Derrick, but no more than that.

[Derek Johnston, analyst]

And just another one, on Amazon's pullout of Long Island City. Do you think that affected the Whole Foods lease and really what was a beautiful space that you had via Investor Day? Is there any update on that?

[Michael DeMarco, executive]

That should be done -- literally, we're literally at the 1-foot line. It's 2 deals. It's a store and a lease of office space for the Northeast headquarters. We should be announcing that, hopefully. I can't guarantee anything, but they haven't pulled back. If anything, they've moved forward with it. We'd also like to discuss with Amazon after the dust settles and we have extra space lying around. It'd be on the waterfront on the Hudson River versus the East River. But, no, no question about that, we think the -- I think the commitment, once that deal is announced, we'll be announcing there is some incubator space for the food tenant industry. One of the things that we're envious of is if you go to Brooklyn today, they have a number of incubator companies that are prominently growing in the food business. Jersey City probably has a better location for distribution, and the state of New Jersey is the home of most of the major food corporations that are on the East Coast, including Campbell [Audio Gap] Nabisco [Audio Gap] number of divisions in the space. A lot of them [indiscernible].

[Derek Johnston, analyst]

And then just lastly, so the Whole Foods space, would that have been in the 120,000 square foot pipeline of new transactions? Is that baked into that number or in addition?

[Michael DeMarco, executive]

Yes, it is.

[Operator]

We will now take the next question from Daniel Ismail of Green Street Advisors.

[Daniel Ismail, analyst]

I saw the announcement about some changes to the board earlier this month. I'm curious as to will there be any other board changes coming later this year, or any other corporate governance changes as well?

[Michael DeMarco, executive]

Well, we've taken an active view towards board structure and board organization. We've added -- just for a refresh, [Indiscernible] was added about 4 years ago. When Rick came off, we replaced him with Rebecca Robertson. We had a gentleman retire, and we didn't replace him. This year, we're putting 2 people on. 1 of our gentlemen is retiring. So we basically list 3 women in a row. I don't count myself, because I was added after a directive. That's pretty much normal for a CEO to be on the board. We expect, as we said in the press release, to have further changes over the next coming years. Maybe something will happen in like '20 and early '21. We look to have the board reflect the society that we live in. We're taking a very active look towards -- obviously, we've done gender, but we're also looking at racial diversification and other qualities as we can find them in the right board members. Regarding the board structure, we adopted some rules last year that made ourselves a little bit more in line with our best practices. We reconsider those things annually.

[Daniel Ismail, analyst]

And just maybe staying on some Amazon news, you guys have some properties and land in Crystal City. Is it safe to assume, perhaps with the lack of tax protection on this asset or the tax consequences on this asset, that this would not be 2019 dispositions?

[Michael DeMarco, executive]

We're trying to move those, to be honest with you. We like to sell on -- like I said, we'll sell on the avenues. Actually, it's called sell on [indiscernible], right, so now Amazon is coming. It's been -- we've gotten a lot of inquiries, a lot of inbound. We're working with our partner to exit that investment. We will have some taxable gain, which we will be able to I think shelter at the end of the year. Maybe we'll put it into '20, but it's an asset that we've done a good job on, and we can take a few dollars and use that to pay down debt in the multi-family division. That, and that's also the 1 in Station House, which is [indiscernible].

[Daniel Ismail, analyst]

And just a last 1 for me, on the land impairments on the Pennsylvania assets. Any color to share on the change in plans on those assets and the impairment itself?

[Michael DeMarco, executive]

We went through and -- to Michael Bilerman's point, we realized the leverage that we have in the multi-family business, and we're looking to trim it up, so we sold an asset that we had in Rahway. We're looking at selling land throughout the portfolio that we have in some suburban locations, and only really focusing, Daniel, on what we've put into the [indiscernible], which is the 10 sites on the waterfront. These are 2 sites that we had acquired, put some money in, but when you go to flip them to the next guy, you're going to take a haircut, right, because you bought them at X. You're going to make a few dollars on our purchase, so we took the impairment charge and discipline. We just looked at said it's something we want to build. It takes 31s to build. You have to own it for a period of time afterwards. Would you rather take the money out today and put it in something [indiscernible].

[Operator]

We will now take our next question from Jamie Feldman of Bank of America Merrill Lynch.

[James Feldman, analyst]

I just wanted to ask on the cap rate on the remaining flex sale. Did you guys provide -- is it going to be the same cap rate as what you've announced so far, or is it different for the remainder?

[Michael DeMarco, executive]

David is going to do that 1. David?

[David Smetana, executive]

So, Jaime, I think we announced for the entire portfolio it'd be a cash cap rate of 6.2 before EBITDA savings. Of course, now we think we'll get that down to a 6 flat or below. But, no, it'll be slightly higher. It'll be in the mid- to high-6s. The purest industrial piece of that portfolio already traded at Elmsford at 4.5, so to get to the 6.2, you have to average in the mid- to high-6's on the balance.

[James Feldman, analyst]

And then the 800,000 square feet of potential leasing on the waterfront, I know you mentioned some of that was Amazon. I know when we were there for the Investor Day, you talked about the build-to-suit site near the hotel. Can you just break out what's in that 800,000 and how much of it is purely for some of the vacancy you have in the office space and how much is for some of these other projects?

[Michael DeMarco, executive]

The 800,000 didn't include the build-to-suit site, so it's really just activity in Jersey City or in Hoboken, per se, not anything that we would construct any new building. And as Nick pointed out, it's about 7 to 8 tenants across 5 industry groups, whose size ranges from 50 on the low end, probably 400 on the high end. We probably have 1 200, 3 75's or 125's, and [indiscernible] was everything from a cosmetic company, a consumer product company, bank, advertising. To get very specific, most of the industry groups are money managers, so on and so forth.

[James Feldman, analyst]

And then in your prepared remarks, you talked about -- I mean, you sounded very enthusiastic about leasing, but then when David talked about guidance, he talked about protracted leasing. Can you just kind of balance those 2 conflicting comments on just what's realistic here?

[Michael DeMarco, executive]

To be very candid, if you look at last year versus this year, last year when we did this call in February, the cupboard was somewhat bare. We didn't have a lot of activity. We were thinking about some deals that were coming on. We really didn't start getting going until like March Madness. Remember, we started -- Nick and I started feeling good after St. Patty's Day. Today, in February and in January, the tour activity has been much higher, so I'm more optimistic. I also -- last year, there were a few big deals, a few things running around. This year, the quality is better, the inbound is better. I think the product does well on the tour. We've done some things that helps show it better. I mean, the tenant makes the -- the tenant gains probably 90% of their impression in the first 5 minutes of the tour, is our opinion, so the better we can do on showing our assets in the right light in that first 5 minutes, then the story being formulated is our best term, and we think we've done some things. So the brokers have come back -- and we constantly monitor the feedback. They feel like both in the suburbs and what we've completed -- what we did in the waterfront, they like the deal, like the product. There's really no new construction. It isn't like you're competing against a brand new building they haven't even had. Just for reference, in order to have a new building in New Jersey in the suburbs, along the waterfront, with parking built into the structure, the rent, as we calculate it -- we do this over time -- is around $55, if not higher. If you did a typical suburban building, which was flat and the parking was in a normal field and maybe a few spots under the building, the number is probably $44 or $45. We have a lot of room in our markets before we ever get to new supply. That's the bad news and the good news.

[James Feldman, analyst]

So what do you think the delay, if there is any delay -- what are these tenants waiting for to make their final decision?

[Michael DeMarco, executive]

Some of them come out -- we've had this conversation before. Like a 50 comes out, and they're moving within 9 to 12 months. If they know the buildout is relatively easy and the decision-making is somebody moving out of 1 building to another. When it's close to 100,000, you would add about 6 months to the lead time. If it's a several division move and it's with divisions coming out of New York City or New Jersey, it's going to consolidate it. Anything with a 2-handle or more, it's a 24-month move, or greater when someone is coming out and saying, "We're doing a complete corporate relocation. Let's get it right," and we're talking about everything. I think we're doing a really solid job on selling the amenities and lifestyle that we can offer. And the point I made earlier about every building we add to the waterfront creates a sense of place, if you look at this market pre- and post-Urby, which is across the street from us, it totally changes. The streetscape is more active. The number of people in our residential -- sorry, marketplace changed over. And we think the projects that Marshall is planning -- we have 2 of them that include preschools to third grade. We have a theater we're putting in another building. And some of the improvements we made to the base of Harborside is really boding well for us as far as attracting tenants. I mean, the world's gone, as we all know, to self-entitlement max, so we have to deal with it accordingly.

[James Feldman, analyst]

So based on those lead times, I mean, is it safe to assume some of these larger ones may not hit until late this year, at the earliest?

[Michael DeMarco, executive]

That's a very good assumption. That's where the conservative comes in. That's why I have David around to balance me out.

[James Feldman, analyst]

And then some of the smaller ones might be more first half leases?

[Michael DeMarco, executive]

The small ones -- we get some 20's in, which are meaningful, right? So if you get 20,000 square feet in at a $50 average rent, which is what you would have over a 10-year term, with a $47 start and 2% growth, that's $1 million, right? 20x $50 is $1 million. $1 million can hit partially in -- if we get them in -- if we do the deal and we sign them up now, which we have 1 or 2 that we're doing, you get some of that in the fourth quarter, after the first period of purchase. You definitely get it in early '20, though, right? If you get a guy who's 50,000 square feet and he takes until June or July to make the decision, the construction period is longer and everything just gets more late.

[James Feldman, analyst]

Do you need some of these larger leases to hit for that GAAP same-store to turn positive in the fourth quarter, or that's pretty much baked in?

[Michael DeMarco, executive]

It's pretty much baked in. We always need a little bit of help.

[David Smetana, executive]

I mean, that's baked in, Jamie. When I talk about that, I talk about that at the midpoint of our range. We understand the tenants we're dealing with, and the sizes and how long it takes to build out 100,000 square-foot space versus 40 and 20, so that's all baked in at the midpoint.

[James Feldman, analyst]

And then just a last question from me. In the past, Mike, you've talked about Roseland as being too small to spin. At what point do you think it has enough critical mass to spin it off?

[Michael DeMarco, executive]

I think in about 18 months, to be honest with you, maybe 24. There are some things we're going to do, just to be candid, so you can see the strategy. We're going to exit D.C. and Philadelphia. We're going to probably exit all the suburban land as it becomes entitled. We'll take those cash, and we'll accumulate it and put it into Jersey City and the waterfront assets. We have a good Boston asset. If we could trade those into something in our marketplace, and then we could trade a really more cohesive waterfront strategy, we believe we're just easier to operate, better results. But Jersey City is noted among people we talk to as being 1 of the best multi-family markets in the country. I mean, the supply/demand builds up, right? We rent up relatively well. We achieved 6.5% on our development deals, right? I think a lot of our competitors would take those numbers. So at the end of the day, at some point, you can spin it, sell it, sell the whole thing. We work for the shareholders. It's all about creating the right value and getting the stock to react, or, more importantly, have what we sell creating new NAV, because at the end of the day, that's what really bullies your stock one way or the other, right? You've got to have the value to the people.

[James Feldman, analyst]

All right. Great. Thank you.

[Michael DeMarco, executive]

One thing, Jamie. God forbid we ever sell at a premium to NAV. It would be a really nice number, by the way.

[Operator]

We will now take our next question from Steve Sakwa of Evercore.

[Steve Sakwa, analyst]

You touched on it with Jamie a little bit, Mike, but I guess as we're just thinking about the lease-up of the roughly 1 million feet in Jersey City, it sounds like it's probably a good 3-year, kind of 2021, '22, in terms of getting the economics to kind of really start to hit from kind of a gap and certainly a cash perspective. Is that a kind of fair timetable to think about?

[Michael DeMarco, executive]

I think it builds up. I think if you -- we'll have a better view by the third quarter of this year, because some things that we're working on, if they do hit, will make '20 a better year. But if they're delayed, then '20 will become a good year, but not an excellent year. You're actually right, if you look at it -- if you did 300,000 square feet this year, 300,000 next, that's 600,000 that hits in '20, [indiscernible] fully in '21, and if you could do all of it at the end of '20, you really wind up with '21 having the bulk of the [indiscernible].

[Steve Sakwa, analyst]

And again, circling back to kind of the discussion you had with Jamie, even if you signed 300,000 feet of leasing, even if it happened tomorrow, the GAAP impact of those leases probably takes a while, and so I guess there's getting the lease signed and then there's getting kind of the economics to hit both GAAP and cash.

[Michael DeMarco, executive]

100%, but I would point out, as a balancing, if you look at what we achieved on the renewals and new deals of last year, we had very, very good numbers compared to our peer group. Cash was excellent, and GAAP was really, really excellent numbers, so we're getting the right results. It's a matter of when it comes in. We know it's been long, but we feel like we're chipping away at it. I'd rather have this scenario than a scenario where there's 1 million square feet that leases and we're leasing flat to what the deal expired at or even negative, which is where we were 4 years ago. So right now, we have significant roll-up. We have a lot of deals that people come to us, early renewals that are at $34, and we're renewing in the mid- to high-$40's, so the cash and GAAP will look good for us. It's a question of when, not if.

[Operator]

It appears there are no further questions at this time.

[Michael DeMarco, executive]

Then I look forward to seeing many of you at the Citibank conference, where we will listen to Michael Bilerman's playlist, and hopefully Michael has got a nice playlist this year. Have a wonderful weekend. Talk to you soon.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.