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Mack-Cali Realty Corp. (NYSE:CLI)

Q1 2012 Earnings Conference Call

April 26, 2012 10:00 ET

Executives

Mitchell Hersh – President and CEO

Barry Lefkowitz – EVP and CFO

Analysts

Jamie Feldman – Bank of America Merrill Lynch

Sheila McGrath – KBW

Michael Knott – Green Street Advisors

Ross Nussbaum – UBS

Craig Melman – KeyBanc Capital Markets

Jim Sullivan – Cowen and Company

Operator

Thank you for joining Mack Cali's first quarter 2012 earnings conference call. With me today is Barry Lefkowitz, Executive Vice President and Chief Financial Officer. On a legal note, I must remind everyone that certain information discussed on this call may constitute forward-looking statements within the meaning of the Federal Securities Law. Although we believe the estimates reflected in these statements are based on reasonable assumptions, we cannot give assurance that the anticipated results will be achieved. We refer you to our press release and annual and quarterly reports filed with the SEC for risk factors that could impact the company.

Truthfully not much has changed in the macroeconomic environment since our last earnings call. Economic recovery and job creation remains at painfully slow pace. There is a general lack of clarity emanating from Washington concerning tax policy, healthcare reform and other entitlement programs and of course the partial of European contingent. And so as I have said before, we'll probably be in a relatively holding pattern with respect to seeing substantial gains in the macroeconomic environment until the election. Hopefully at that point we will have clarity and we’ll be in a much stronger growth mode in our economy.

Concerning our results for the quarter, FFO for the first quarter of 2012 was $0.74 per diluted share. We had solid leasing activity totaling almost 1.1 million square feet of lease transactions including almost 3,000 square feet of new leases. Tenant retention was 61.5% of outgoing space. And we ended the quarter at 87.9% leased compared to last quarter's 88.3%. Rents rolled down in the quarter by 5.4% cash compared to last quarter's 7.2% cash and so we obviously saw an improvement there. Remaining lease for all of us for 2012 are 7.3% of base rent or roughly $45 million.

Our leasing cost for the quarter were approximately $3.85 per square foot compared to last quarter's $3.33 per square foot per year but obviously this figure varies depending on the type of deal, the length of the lease etcetera.

Relative to our activities, as previously announced during the quarter Mack Cali entered into a joint venture with Winthrop Realty Trust and we acquired a senior mezzanine loan position in the capital stack of a very high quality 1.7 million square foot office portfolio in Stanford Connecticut. We paid $40 million or $0.80 on a dollar. The loan has a face value of $50 million and is secured by the equity interest in a premier seven building portfolio containing almost 1.7 million square feet of class A office and 106 residential units totaling about 70,000 square feet. All of the assets are located in the Stanford Central Business district. We believe that this transaction will yield an attractive return while providing the opportunity to work with an exceptional partner in a significant portfolio. A portfolio that's right within our footprint in Fairfield County Connecticut.

Now turning to the leasing front, some notable transactions that we've outlined in our quarterly filings include the tower insurance company of New York, signing a new lease for 77,000 square feet at Harbor Financial Center Plaza II in Jersey City, Metropolitan Life Insurance Company signing three transactions totaling about 47,000 square feet. Those transactions encompass our tax corporate park in Harmsworth, 65 Jackson in Cranford and Mack Cali Center 4 in Paramus. We did another interesting transaction with a global engineering company that included an entire building at 228 Strawbridge Drive in Morristown and approximately 40,000 square feet at our Horizon Center in Hamilton New Jersey. Again in Jersey City, Lehman Brothers Holdings, the new global financial services firm, signed a lease for 33,000 square feet at our 101 Hudson Street, magnificent trophy building in Jersey City. This asset is now just under 90% leased. The (inaudible) County financial service firm Wells Fargo Advisors, signed a new lease for 29,000 feet in change at Mack Cali Center 6 in Paramus.

Moving on to some of our financial activities. We recently completed the sale of $300 million in 10 year senior unsecured notes at a very favorable interest rate of 4.5%, a benchmark rate certainly for Mack Cali. The net proceeds of almost $297 million were used primarily to repay outstanding borrowings. Certainly this successful execution enhances the financial flexibility of our balance sheet. We also just yesterday announced the redemption of our $94 million in December 15th of '12, 6.15% notes and our $26 million of 5.82% notes that come due March 15th of 2013. Both of these redemptions will occur on May 25th of 2012.

Mack Cali also continues to be recognized for its superior property management and superior energy performance within our assets. Earlier in the quarter we announced that our Liberty Corner Corporate Center at 106 Allen Road, Bernard's township New Jersey was announced the existing building silver certification. And just yesterday at this great asset, Epson Pharmaceutical celebrated a ribbon cutting opening its 33,000 square foot United States headquarters and so we wish great success for this European pharmaceutical company as they expand and grow in our portfolio in the United States.

In addition, earlier in the week, we announced that Eisenhower 280 Corporate Center in Roseland New Jersey received the outstanding building of the year, the Toby award in the suburban office park will raise category and this is awarded by the Burma Organization.

We also restated our guidance in our press release this morning and in our filings through a range for the full year of 2012 of $2.50 to $2.60 reflecting the debt issuance and the redemptions that I spoke of a moment ago. As you've noted in our filings this morning in our supplemental, our same store NOI on both a GAAP and a cash basis was positive for the quarter 3.8% on GAAP, 4.8% on cash. We had of course a moderate operating expense. We had a mild winter which reflected very favorably on our utility costs and our snow removal costs. And that all reflected well in our performance for the quarter.

As far as the leasing spreads are concerned in the first quarter, again on a cash basis, we were down 5.4% in on a GAAP basis, we were down 7%. Again 166 deals done. Almost 1.1 million square feet of which 300,000 square feet approximately were in new transactions. With that I'll turn the call over to Barry who will further review our financial results. Barry?

Barry Lefkowitz

Thanks Mitchell. For the first quarter of 2012 net income available of common shareholders amounted to $25.8 million or $0.29 a share as compared to 15.7 million or $0.19 a share for the same quarter last year. Funds from operations for the quarter amounted to 74.5 million or $0.74 a share versus 67.3 million or $0.70 a share in 2011. Other income in the quarter included 6.8 million in lease termination fees as compared to 2.2 million for the same quarter last year. Included in the 6.8 million is 5.4 million related to the early termination of the Toys-R-Us lease in Paramus, New Jersey which had been scheduled to expire at the end of the year.

Same store net operating income which excludes lease termination fees increased by 3.8% on a GAAP basis and 4.8 on a cash basis for the first quarter. The same store increase was primarily due to lower than normal seasonal expenses in 2012 as compared to much higher costs in '11. Our same store portfolio for the quarter was 30.6 million square feet. Our unencumbered portfolio at quarter end totaled 237 properties aggregating 24.5 million square feet of space which represents 79% of our portfolio.

At March 31st, Mack Cali's total unpredictable assets equaled 5.7 billion and our debt to underappreciated asset ratio was 34.2%. The company had interest coverage of 3.4 times and fixed charge coverage of 3.3 times for the first quarter of '12.

We ended the quarter with approximately 1.9 billion in debt which had a weighted average interest rate of 6.15%. On April 10th, 2012 the company sold 300 million of 4.5% 10 year senior unsecured notes. The proceeds will primarily use to pay down our line in full. We have cash on hand of approximately $80 million. Yesterday we called our 6.15% bonds due December 15th of '12 as well as our 5.82 bonds due March 15th of '13. The 120 million of bonds will be redeemed on May 25th. The company expects to recognize a charge of approximately 4.5 million related to the early repayment of these bonds. We have adjusted the range of our FFO guidance for 2012 to $2.50 to $2.60 per share to reflect first quarter actual results and recent financing activity.

Please note that under SEC Regulation G concerning non-GAAP financial measures such as FFO, we are required to provide an explanation of why we believe such financial measures are relevant and reconcile them to net income. Available at our website at www.mack-cali.com are our supplemental package and earnings release which include the information required by Regulation G as well as our 10-Q.

Mitchell?

Mitchell Hersh

Thank you Barry. As I professed my earlier comments, the economic recovery and employment gains have been slow to materialize, we all know that. Despite the continued pressure on economic fundamentals, we continue to do our business out there in the marketplace and the leasing results speak for themselves again. Again almost 1.1 million square feet. Notwithstanding the challenging environment, we continue to be landlord of choice in the markets that we operate in, we offer tenants stability, high asset quality and the highest level of service.

In the recent days, we've announced that we are holding four assets for sale. Down in South Jersey, where I talked about a global engineering company, securing a lease on one of the three 74,000 square foot buildings at our Moors Town corporate center, in Moors Town, New Jersey, we are marketing those three assets for sale. We don't feel that they are important from a strategic perspective to us and a rather turbulent South Jersey market; we are primarily a high grade flux operator in that market. We intend to keep those assets and they are well leased and we've just gone to market through a broker on the three buildings.

Up in Bourbon County in (inaudible) at 95 Chestnut Ridge road, we're under contract to sell a 47,000 square foot office building that's 37 years old that has been empty for a while after the expiration of a lease with Baeyer Pharmaceutical Company. Selling this building again, it's in due diligence under contract with a small public company that will use the building; upgrade the building for use as its corporate headquarters. They Bourbon County base currently.

We are continuing our efforts to get our multi-family project underway. Fascinating exciting project. We pass the appeal period in our municipal approvals. We are advancing on all fronts with respect to the development of working drawings, construction documents in all of the various disciplines for Phase 1 which are the two towers totaling 66 story in height from the ground and we're also examining a variety of different financings with our partner and have had a recent meetings with lending sorts and we are confident that we will have a financing package for Phase 1 put together in the coming days. Again Phase 1 is a proximately a $380 million project. We are continuing our efforts to finalize the conversion of one of our sites in Mars County to retail use where we are under a letter of intent and I expect quite imminently under a signed lease hopefully with a major retailer to deliver to them a pact on a 25 year ground lease. We have been engaged in discussions in a variety of opportunities including at least 1 bill to suite in the Princeton market then direct discussions with principals of major company and we continue to meet with perspective tenants for office usage down in Jersey city looking at consolidation in the urban fabric of a great location down in Jersey city only to be enhanced with a multi-family project that we are undertaking there. Our several New Jersey companies and several New York City companies that continue to be active in exploring a built to suite opportunity in Jersey City and taking advantage of as of write incentive programs that are being offered under the urban transit hub tax benefit. Given the fact that we have a fortress balance sheet in the company, we feel quite comfortable in having dialogue at least and hopefully we'll become more than dialogue in a number of acquisition opportunities in the markets that we have identified as places that we want to continue to grow the company that being the metropolitan Washington area, and that might include some joint venture activity and the new York city metroplex. So too early to say, but we are in active discussion in what could be some sizable transaction.

So with that I hope that's been informative and now we'll take your questions. Operator would you open it to questions?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We'll go first to Jamie Feldman with Bank of America Merrill Lynch.

Jamie Feldman – Bank of America Merrill Lynch

Can you talk a little bit more about tour mezzanine investment in Stanford, what's your basis? How are you thinking about the investment and what you think of long term profile will be?

Mitchell Hersh

Well a lot of the investment is within our control in terms of having to ensure that we are in the senior most position with the highest level of collateral behind our loans. We are 80-20 with Winthrop. We paid 40 million or a $50 million par or face piece of paper. So we have 32 million, they have 8. We are happy to be repaid. It’s a current pay right now and the borrower is current. The first trigger date is August 6th where the borrower has two one year asset write extensions on the first mortgage which is $400 million and our senior mezzanine based on a debt service coverage which basically is a 6.75% debt yield on the subordinated debt. I don't know at this point whether the borrower will meet that test. I know that they have been engaged preliminarily with the senior mortgage holder and the mortgagee and we'll see. So we're happy to get paid in full, repaid with interest and get back our principal or alternatively we are happy to at some point be part of a restructured capital stack and participate in the portfolio or we'll have to wait and see. I am not trying to be vague. It's just that these the various tests and benchmarks that need to be met for the borrower to continue in its current position.

Jamie Feldman – Bank of America Merrill Lynch

And then what's your current yield?

Mitchell Hersh

Current yield is approximately 3%.

Jamie Feldman – Bank of America Merrill Lynch

Plus you are getting paid 3% today on your capital.

Mitchell Hersh

That's right.

Jamie Feldman – Bank of America Merrill Lynch

Okay. You did a pretty competitive bid. It seems kind of low.

Mitchell Hersh

No, the current pay on the note was stated in the original mezzanine documents that were sold to us through major private equity shops that go on loan. There's also obviously an accreting of the gain that we will realize if we get repaid in full. So there is a $7 million minimum accreting that you have to couple with the current pay. So effectively the Stanford meds position represents about $0.025 of earnings to us between those two elements. As far as competitive bid, I'll tell you that it was a marketed transaction but the ultimate decision as to who the purchaser would be was made that decision was completely within the purview of the two rather successful and significant that I am not going to name them but I am sure they are in the filings of private equity shops that for a variety of reasons wanted to sell their position. The acquirer needed to be a qualified transferee which generally means that needed to be a REIT and so it fit well for us and for Winthrop. I think that between Michael Ashner and I and particularly Michael's experience in buying debt, and our experience in operating platform in the geography of the portfolio gave the seller of the senior note the confidence that we were the right buyer. We didn’t move much in terms of the pricing. Obviously our first foray was slightly less than 40 million but not materially and we knew where we had to be to be successful and that's how the deal evolved.

Jamie Feldman – Bank of America Merrill Lynch

Okay and then just for Barry, in terms of the guidance change, are there any changes to your underlying assumptions for the operating portfolio?

Barry Lefkowitz

No. As I said, it's principally to reflect results in the first quarter including the investment activity that we have with the note and the recently announced financing transactions and corporate bond.

Operator

We'll go next to Sheila McGrath with KBW.

Sheila McGrath – KBW

Yes good morning. Mitch you had a really active leasing quarter. Wondering if there are any signs of concessions coming down or any evidence firming our improving conditions?

Mitchell Hersh

I would say that the market is bouncing around the bottom Sheila. I think that it really varies depending on the type of deal it is and the particular location. I mean obviously downtown New York we only have a floor left. I won't say a bidding war but a lot of highly interested parties for the remaining space that we have and so we're able to push back on what was a very expensive concession package. And generally here and there we can push back but I think on average we're seeing, rolling along the bottom, free rent is still on the order of magnitude of between half a month or month per year of term. Again depending on location. Leasing expenses are in that 3.5 to $4 average, you take renewals and new transactions per square foot per year. So I would say that truthfully in the suburban markets in general there is not much pricing power but I don't sense that there is further denigration or degrading of the economics in the marketplace at this point.

Sheila McGrath – KBW

Okay, and could you give us an idea of any acquisitions in your market that you may have recently looked at a may not have pursued, where did pricing shake out in your view?

Mitchell Hersh

We haven't pursued anything particularly in our current markets other than some strategic discussions that involve potential joint ventures and potential acquisitions in the two markets that I have identified before. But in terms of our suburban markets, we have not been active in bidding for anything.

Operator

We'll go next to Michael Knott with Green Street Advisors.

Michael Knott – Green Street Advisors

Hey Mitchell, obviously there is a large media tenant renewal in midtown, Manhattan announced last night. Just curious if that was one point, any prospect for some of the build the suite in Jersey City that you were talking about? And then Barry I believe your same store guidance before was down 3 to 5% on a cash basis. Just curious if the reduced FFO guidance reflects any further reduction in that number or if it was mostly or all related to the financing.

Mitchell Hersh

Michael let me respond to that. The answer is, the guidance reduction which was net effectively a nickel was a reflection of approximately $0.075 to financing costs between bond, between the issuance of 300 million of the 4.5% and the redemption and the yield maintenance if you will on the redemption of the two notes. We offset that by roughly $0.025 of positive earnings on the Stanford note that's how we came to a nickel. Beyond that from a core operations perspective, it really is not adjustment, our sentiment and our tone is still down three to five on same store NOI. We see obviously how it goes in terms of weather related issues. There are a few packs (ph) appeals that could benefit us but they take longer to get done these days because so many of the municipalities are broke and they are lost to settle tax appeals but generally we would have to tell you that we're still in that three to five zone.

Michael Knott – Green Street Advisors

And then last question would be, I missed some of your commentary; I thought I heard transactions in DC, New York potentially. Just curious how you think about that opportunity as compared to, or why allocate capital in a major way when your stock trades 15% 20% below what we at least perceive the NAV of your company today?

Mitchell Hersh

We are looking at growth opportunities Michael. We are more than cognizant of the fact that the issuance of equity at this point would not be prudent, given its dilutive nature to net asset value at the huge discount under which we trade today. We have a powerful balance sheet. We have access certainly to lots of forms of debt capital and we're going to use the resources that we have to carefully deliberately grow in places that we think are contiguous with our markets in some instances or all instances actually. We are already in those markets and in some instances deal with partners that have even more experience than we do in those markets. We're not going to buy back stock. So if that's the direction of the question, that's the answer to the question.

Michael Knott – Green Street Advisors

Okay. And then just how do you define sizable maybe in terms of, I know you can't give a specific number but what sort of order of magnitude?

Mitchell Hersh

Aggregate order of magnitude could be $1 billion

Operator

We'll take our next question from Ross Nussbaum with UBS.

Ross Nussbaum – UBS

Just back to the guidance, had you previously contemplated the toys lease expiring in Q1?

Mitchell Hersh

No.

Ross Nussbaum – UBS

Did that have any net impact on the full year guidance or was it just really a

Mitchell Hersh

It was a Q1 lease termination. So it was part of $0. 60 some odd of projected earnings accreting if you will to $0.74. It was a $6 million termination, plus or minus termination fee in Q1. That was unanticipated but as it turned out, a very smart thing for us to do for a variety of reasons.

Ross Nussbaum – UBS

But at the end of the day it didn’t really have an impact on the full-year guidance?

Mitchell Hersh

No.

Ross Nussbaum – UBS

In effect the pre-payment of the rent they owe you anyway.

Mitchell Hersh

It's exactly what it was Ross. They paid a $0.100 on the dollar. They wanted to be rid of the liability. They're going through their own sort of capital planning and so forth and for us it was somewhat strategic and being able to evolve longer-term leases with a few of the subtenants and avoid any lease end issues if you follow me.

Ross Nussbaum – UBS

Makes sense. What kind of condition is that building in? Do you need to?

Mitchell Hersh

Exceptional condition, it's truly classic.

Ross Nussbaum – UBS

So you don't envision any material TI's to get it to release?

Mitchell Hersh

We'll have to put TIs into it, typical package if you will that I referred to before, the $3.5 to $4 per year type of thing but the no capital expenses in that regard.

Ross Nussbaum – UBS

If I go back to the standard portfolio which I'm staring out of my window right now, is the capital stack, just to be clear, there is a 400 first. There is 400 million of mez (ph), of which year, the senior 50?

Mitchell Hersh

No they are 400 behind us.

Ross Nussbaum – UBS

So there is 400 first, then your 50, then another 400 behind you?

Mitchell Hersh

Right, right.

Ross Nussbaum – UBS

Is it still RFR who is really in control of a 400 behind you?

Mitchell Hersh

Yes, as far as I'm aware, yes.

Ross Nussbaum – UBS

Okay, and then last question. As you might know, Bill was at the NYU re-conference last week and he made an interesting comment where he basically said he had seen a few leasing deals recently where the density was substantially lower per employee where you had some deals where it was maybe, call a 100 square feet per employee versus let's say historically a number that would have been double that. Is that something you've been seeing lately and how much of an issue do you think that is secular trend wise?

Mitchell Hersh

He had mentioned that to me, some project that area is involved in in Boston, development project but we see densities and these are not sort of aberrations, call center type densities or five six per 1000, people per 1000. We have seen some evidence and have about it on calls previously where for instance the accounting firms, particularly the big four will do hotelling of space and that sort of thing which in a manner of speaking is densification and reduction of space needs. Less so on the law firm front. I have not seen any indication that there is a real shift. Everybody is trying to do more with less, clearly but a lot of that's a result of downsizing and so forth. I have not seen a new paradigm where people are being jammed into spaces.

Now technology could be different. We have technology companies in our portfolio but they are high-end research oriented and administrative. They're not a bunch of new millennium workers sitting at a desk with a fireplace at the end of the desk and everybody just has a laptop. There may be industries that are evolving as part of the growth of our macro economy that will require less space and use higher densities as I guess his comment was alluding to but we really have not seen a paradigm shift and we can judge that really well because of our parking lots, having a surface lot parking generally or even, structured parking in some instances but primarily surface lots and we don't see the demand where buildings are full. We don't see excessive increases in demand and we monitor it very closely because of the HVAC systems than the fact that we are required to deliver enough specified temperate controls to our tenants based upon ashray (ph) standards and that's based on occupancy. So no paradigm shift from what we're seeing.

Operator

We'll take our next question from Jordan Sadler with KeyBanc Capital Markets.

Craig Melman – KeyBanc Capital Markets

Its Craig Melman here with Jordan. Can you guys maybe just give a little bit more color on the decision to redeem the maturing unsecured early, pay the make whole, instead of maybe just investing the proceeds from the $300 million offering and some short-term bonds or some other yielding assets?

Mitchell Hersh

Those two notes are very high rate of interest notes, worth $94 million in change. Its roughly a $3 million yield maintenance and for the 26 its roughly $1 million. It washes out at worst-case where the cost of being along the cash would wash out against the prepayment. So from our perspective it was the right thing to do, more efficient and gives us more opportunity to use our line, which is a much lower cost facility than retaining those bonds to maturity.

Craig Melman – KeyBanc Capital Markets

And did you guys have this, you guys needed to an unsecured at some point during the year. Did you guys just get really good pricing on the 4.5 and decided to pull the trigger early or had that been contemplated maybe later in the year to….

Mitchell Hersh

We contemplated in our initial guidance doing something later in the year but there has been a lot of fluctuation in the interest rates in the tenure in particular. Obviously it's come back in. We see a lot of fear about Europe right now and Spain and every other part of Western Europe but we saw a 25, 30 basis point rise in a very short period of time in the 10 year, maybe signaling that there is a lot more inflation tension than there is concern about economic growth and then the fear in the market came back in and so we saw a compression.

The spreads have been tight. Right now we did this deal a couple of weeks ago. As a matter of fact, the European Markets were closed the day before. It was Easter Monday in Europe, so we didn't know how those markets would open but then early Tuesday morning treasuries were rallying, there has huge global concerns about Europe. We had feed up our due diligence, we were ready to go on a deal and we felt that the execution along with our advisors, the co-managers on the book that we would get tight spread pricing on the deal. We were in a declining interest rate environment for that few hour period, which that as far as you can have an outlook these days and what started out as a $250 million offering has $900 change on the book, a good book, all institutional quality holders.

So we upsized the deal by 50, the 300 and everybody got their allocation and were very pleased with that execution, again a benchmark execution. But the reality is that we thought we'd be doing that deal later in the year. We didn't think we'd see as much volatility in the treasury market as we had been seeing over the over the month or so that preceded that period and frankly all of the meetings that we had at Citi, et cetera, with the analytic community and the investment community, we sent the signal, or I did that I was very concerned about the volatility and we probably go sooner rather than later, but it naturally reflected in a slight pressure on our earnings.

Craig Melman – KeyBanc Capital Markets

That makes sense. And just separately, I guess there is some talk out in the market about Goldman Sachs basically pulling employees back to Lower Manhattan from their Jersey City Building. Now the abatement is up and they are trying to figure out, potentially are they going to put up for sale? I know it's early and this is basically just conjuncture.

Barry Lefkowitz

Yes, let me comment since everything is anecdotal on this. The article was in Steve Quazo's (ph) New York Post column and I saw it early in the morning and I sent it to Governor's Office who had not seen it, the Governor of New Jersey and I said that this is the situation that they should get out in front on. We subsequently had an audit committee meeting that was Tuesday and I mentioned that on the audit committee call where one of our directors was formerly the Vice Chairman of Goldman Sachs and is still a stockholder and a limited partner in Goldman Sachs and he laughed at that because he spends a fair amount of time at 200 West Street and he's been in the Jersey building on many occasions which he claims and he knows better than I that the building is probably two thirds full and that there is virtually no space in 200 West.

So my view is based on, this is complete conjecture on my part and its anecdotal but my view is that this recognition that the deep grant is coming to an expiration in 2014 and unfortunately today because of the limited growth that's occurring, not only in financial services but certainly in financial services. These companies are incentive shopping and they are in my opinion realizing that they need to start talking to New York and New Jersey about the future and what kind of benefits they might derive from keeping and or relocating the workforce.

Craig Melman – KeyBanc Capital Markets

That's helpful. And just one quick one if I could. On the Stanford portfolio, I know the outcome is still in flux but just curious if you guys are contemplating or holding back any capital to maybe participate in the recapitalization and maybe your thoughts on how much you would need to contribute possibly.

Mitchell Hersh

Again this is all sort of our view of the world that $400 million first in today's environment with the lease up and so forth would probably require an equity infusion if you will. In other words refinancing at a lower par number of probably 100 less more or less. So worst case we're 80-20 on the deal Ashner and Winthrop and so that's what we would need.

Operator

We'll take our next question from Joshua Attie with Citi.

Unidentified Analyst

Hey, its David (inaudible) with Josh. On the asset sales you talked about a few assets that you put on the market in Jersey. What exactly are your pricing expectations and how's the demand going for those assets?

Mitchell Hersh

I don’t want to give away my pricing expectations because some of the buyers could be on this call, or perspective buyers but I'm going to be realistic about it. I would say that assets have traded in those markets or somewhere in the vicinity of nine caps on in place NOI and so somewhere in that zone is what my expectation would be.

Unidentified Analyst

Okay, and what exactly is factored into your guidance regarding the asset sales?

Mitchell Hersh

Nothing.

Operator

We'll go next to Jim Sullivan with Cowen and Company.

Jim Sullivan – Cowen and Company

Following on from the earlier question regarding the incentives and the competition in the Metro New York market, clearly there was a lot of press surrounding some of the initiatives in the Governor's office in New Jersey in January. I'm just curious what your opinion is of a meaningful those incentives are, number one and number two whether you've seen any increase in requirements from tenants in light of the incentives that were provided?

Mitchell Hersh

We continue to do the dance if you will with a number of New York companies that are looking at the waterfront number one, because it’s a very viable collectible market with a lot of amenities and a real lifestyle and a sense of community and all and great public transportation and all of those other elements but clearly the urban transit of tax credit is substantial and if you look at the effective rents that companies like Pearson for example are paying, call $25 a square foot gross for a 10 year on a brand new building, that ordinarily on a market rate basis would be $48 or $50 a square foot and they're $25, $26 with this incentive again for a 10 year period and then they get kind of sticker shock which is I guess what Goldman Sachs is looking at now under a different but similar program with the beep.

The World Trade Center is at least advertising $70 to $80 rents and that gives you a sense of differential at least between those two markets. So I think clearly the UTC is a major driver of kind of moving deck chairs around. I'm not sure that organically there's a huge amount of growth anywhere in the economy, maybe media a little bit, maybe technology a little bit but certainly not wide scale.

With respect to New Jersey, there is a bill in the legislature advanced actually by the democrats by Leslie (inaudible) to expand the funding by $1.1 billion in September for the UTC, replenish the capital available. I know that the governor is looking at it. I don't know whether they are in agreement with that number but they are certainly going to continue to be very proactive to retain and attract new companies using that program.

Jim Sullivan – Cowen and Company

A couple of other minor questions here. On Phase 1 of the residential in Jersey City, the amount of that phase is $380 million. Just to be clear, does that $380 include an allocation of value for land?

Mitchell Hersh

Yes, it includes an allocation of value of $30 and FAR. If you recall our partner is effectively, our capital account is receiving credit for $30 in FAR. Phase 1 is 1.1 million square feet of FAR. So we are getting $31 million in change in our capital account and therefore reducing our out of pocket equity requirement for the project.

Jim Sullivan – Cowen and Company

Okay. And you had talked in your prepared comments about I think a build to suit discussion possibly in Princeton and you indicated in your supplement three different puzzles there, the Mac Alley Princeton Executive Park and then 60 acres and then two 10 acre sites and above that in West Windsor. Which one of these sites is involved in this?

Mitchell Hersh

Put Princeton Executive Park.

Jim Sullivan – Cowen and Company

Okay, and then you talked about a retail ground lease. Is that beside in Hanover?

Mitchell Hersh

Yes

Jim Sullivan – Cowen and Company

And the total site there is 64 acres. How many acres are involved in that current lease?

Mitchell Hersh

The total site in the ground lease is about 29 acres but I should point out that the ground lease portion, let me say that half of that more or less or 60% is the ground lease portion to this one particular retailer. We're going to be able put more density, another 30,000 feet on the site. So we'll have additional income from either, from one or more additional retailers. We'll do the same thing. We'll ground lease it and one of more, either it will be pads or restaurants or some other retailer. We're not going to build it. We're just going to deliver the pad.

Jim Sullivan – Cowen and Company

Okay fine. And then the final question from me. Could you just give us an upside on what's happening on the downtown crossing site in Boston?

Mitchell Hersh

Yes, my friends (inaudible). We were waiting for final documents. We meaning JPMorgan and us to sign agreements for NATO to buy back our interest or to have an option to buy back our interest they have to do some other stuff that they're doing with Millennium, some zoning efforts and so forth. Millennium is their partner and they have agreed to buy back our 50% between us and JPMorgan at the current land basis.

Jim Sullivan – Cowen and Company

And just for our information, your original cost here was what? Investment there?

Mitchell Hersh

The original land investment was what it is today, more or less and percent, like it's around $92 million.

Operator

That concludes today's question-and-answer session. Mr. Hersh, I'll turn the conference back to you for any additional or closing remarks.

Mitchell Hersh

Thank you operator. I would just like to thank everybody for joining in today's call and we look forward to reporting to you again next quarter. Thank you very much.

Operator

Thank you for your participation. That concludes today's conference.

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