Good day, everyone, and welcome to the Mack-Cali Realty Corporation Fourth Quarter 2017 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael J. DeMarco, Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining the Mack-Cali Fourth Quarter 2017 Earnings Call. This is Mike DeMarco, CEO of Mack-Cali. I'm joined today by my partners, Marshall Tycher, Chairman of Roseland, our multifamily operation; and Tony Krug, our CFO. I'm also very pleased to welcome David Smetana, our new CFO; and Nick Hilton, our new EVP of Leasing. They will both be available to answer any questions at the end of the call. 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. And though we believe the estimates related -- 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, annual and quarterly reports filed with the SEC for risk factors that could impact the company. We filed an overhauled version of our supplemental this quarter and will be releasing a revamped investor deck next week. These combined presentations will reflect the significant transformation of Mack-Cali's portfolio and NOI composition. We'll be referring to key pages in our supplemental during the call. And please contact, going forward, David with any further suggestions as to the supplemental. As we have done before, we're going to break our call into the following sections. I will discuss our office leasing and performance and our view of the markets going forward. Next quarter and all the calls going forward, Nick Hilton will take over that section for us. Tony will recap our operating results. David, going forward, will take on that role in our next call and going forward. Marshall will then provide insight into our multifamily operations. As disclosed last night, we had…

Thanks, Mike. Net income available to common shareholders for the quarter ended December 31, 2017, was $2.6 million or a loss of $0.01 per share, as compared to $15.2 million or $0.17 per share for the quarter ended December 31, '16. For the year ended December 31, '17, net income available to common shareholders was $23.2 million or $0.06 per share, as compared to income of $117.2 million or $1.30 per share for the same period last year. Funds from operation for the quarter ended December 31, '17, amounted to $50 million or $0.50 a share, as compared to $32 million -- $32.8 million or $0.33 per share for the quarter ended December 31, '16. In the year ended December 31, '17, FFO equaled $224 million or $2.23 per share, as compared to $205 million or $2.04 per share for the same period last year. Core FFO for the quarter was $50.2 million or $0.50 per share, as compared to $56.1 million or $0.56 per share for the quarter ended December 31, '16. Same-store GAAP NOI for the quarter ended December 31, '17, was down 3.5% and down 5% on a cash basis. Same-store GAAP NOI for the year ended December 31, 2017, was up 2.6% and 5% on a cash basis. Total company G&A for the quarter was $13.7 million, with $10 million for the office public company and $3.5 million for Roseland. I'd like to highlight that, as part of the announced management changes and a very tough but necessary decision to downsize our overhead to fit our smaller footprint, we will incur approximately $5 million in severance costs in the first quarter 2018 relating to those personnel changes, which is not part of our core FFO guidance. Turning to our financial statistics. Our total indebtedness at quarter…

Thanks, Tony. Highlights from Roseland's strong fourth quarter included growth in operating property NOI, a stabilization of our 2017 deliveries, the advancement of our active construction portfolio and the preparation of our 2018 construction starts. Orders in Roseland's stabilized operating portfolio had a lease percentage of 96.6%. Roseland's same-store portfolio experienced fourth quarter 2017, over fourth quarter 2016, NOI growth of 4.2% on a GAAP basis, result of both revenue growth and expense reductions. Roseland had a successful leasing year. The 2017 deliveries of 1,162 market apartments were collectively 96.7% leased at year-end. The following 3 additions to our operating portfolio delivered approximately $13.7 million of incremental stabilized FFO to Roseland. Typically with Urby, our 762-apartment, 69-floor tower in the Jersey City waterfront completed the year at 97.2% leased, with average rents approaching $59 a square foot. Chase II, our 292-apartment project representing the most recent development in our master planned Overlook Ridge community, now shares its operation in the adjoining Chase I. And collectively, the Chase community was 97.6% leased at quarter end. Quarry Place, a 108-unit apartment in Tuckahoe in Lower Westchester, concluded the quarter at 84.3% leased and has now stabilized at 97.2%. Additionally, Roseland currently has 7 communities representing 1,944 units, inclusive of 372 hotels keys at Port Imperial under construction. Our construction portfolio is projected to generate $51 million of NOI and average development yield of approximately 7%, including the hotels. This portfolio includes the fourth quarter construction start of the 360-unit Riverwalk C and the Hudson River Waterfront in Port Imperial and a 60-40 joint venture with Prudential. The development in this cycle also allows to complete Port Imperial's Riverwalk neighborhood retail center. Significant 2018 deliveries from this construction portfolio include Signature Place, a 197-unit community in Morris Plains, New Jersey, representing the first…

Thanks, Marshall. Before we take questions, I wanted to focus on guidance, capital markets and strategic objectives to give everyone an update. As Tony said, we're currently providing FFO guidance for 2018 in the range of $1.80 to $1.90 per share. This guidance is further expanded upon on Page 24 of the supplemental. We established what we felt was a conservative guidance with the intent of meeting or exceeding our guided expectations for 2018 and 2019. On a personal note, for anyone who ever wants to run a company is the question you have to ask yourself: "Are you self-correcting, or not?" I believe I am. From the beginning in 2015, we took an aggressive approach to objectives, and its personality with that fits mine. I have, we have met or exceeded a number of them but recently missed several. And we took note of that. Based on today's environment and our recent experience, we took a realistic look at the following 2 factors: the delivery, timing and absorption at our multifamily platform, combined with a very cautious approach to waterfront office leasing. Strategically, we've done a great deal of work in the last 33 months, and it's made a difference in our results and the operations that we operate today. We have sold all of the underperforming and noncore assets we inherited in June 2015, if you include the current dispositions that -- portfolio that's due to be sold by May. And we've retained the highest-quality buildings, improved them and added selected buildings. The office portfolio today has a real mark-to-market opportunity that we're harvesting on every lease every month, every week, on a portfolio that's considered the finest in New Jersey by our peers. At the same time, we created a meaningful and transparent class A multifamily portfolio…

[Operator Instructions] Our first question will come from John Guinee with Stifel.

Great. My blood pressure, Mike, is a lot lower than the last call. First, Tony, thank you very much. You've been wonderful. Second, this is your supplemental. And your reporting is a thing of beauty. Congratulations. There are so many questions to ask here. I don't even know where to start, but I'm going to kind of throw you a curveball. I'm going to rattle off a handful of dates, Mark. And you're going to -- Mike, and you're going to tell me what they are: 1999, 2004, 2005, 1999, 2004, 1997, 1994, 2016 and 1997.

All dates of major interest rate rises?

Close.

I have no idea...

Those are your 9 board members. And those are the dates they took position, they took the job. Excluding the person who came on in 2016, your average tenure on this board is 18 years. Any sense for a complete overhaul of this board in the next few quarters?

Well, John, it's not my job to overhaul the board, but I will give you the...

You don't even have to answer the question.

No, no, no. I want -- actually I do. I mean the board has a term limit of 80 years old. A number of my members are going to reach that term limit in the next upcoming quarters, maybe not this year but within the next 2 years. And I think on knowing how Bill Mack is as a person, he's going to work for the graceful exit for people who have been long serving. I think there's another question I would like to basically point out. I think the board is an energetic and engaged board even though they've been long serving, highly competent, filled with a bunch of people who've had very successful careers and not the easiest group of people I've ever dealt with in my professional career. So it's not a cupcake board in any manner, shape or form.

Great. And nice job, Tony and David.

Thanks, John.

Thank you.

Our next question will come from Manny Korchman with Citi.

It's Michael Bilerman. And so my questions, it's sort of reconciling guidance a little bit. Mike, you and I went back and forth in the last quarter call in sort of previewing the amount of moveouts that were coming; and a significant lost NOI that was coming relative to Street consensus that was in the 2.20s in our view, that it was going to be effectively where you put it out today. You were pretty confident of a number being at above $2, in a $2.05 to $2.10. What did you know then that made you make that statement relative to what you put out today, which arguably could have been projected back then?

Yes. I -- that's an excellent question, Michael. Then, I thought we would have leasing quarter by quarter. So I have a pipeline of deals that comes to me, and I participate in the negotiation. I had a number of renewals that were worth about $0.04 to $0.06 that are still ongoing. I thought I would have booked them by now. The companies are just taking a little longer. They're companies that have a '20 or '21 expiration, or a late '19; and they're taking their time. So that was part of the number. Two, when we, I made that statement about 3 to 4 months ago, we looked at the delivery time frames for the multifamily. And I was a little bit more aggressive on that. We've had a number of months of, let's say, tough weather, which has slowed us up. We had, for example, a sprinkler head break on one of our projects, and it cost us 3 months of the delivery, right? This is something I didn't know. And that's probably just $0.01, but it was indicative of what I felt was happening in the marketplace for delivery. Also, we had taken a view on how much leasing we could do. I had a number of tenants who came to me for expansions, and I thought they wouldn't be closed. If I had signed just 100,000 square feet at $45, it's $0.045. So you look at that $2.05 number and you look at the, let's assume, [ 1 85 ] on $0.20, part of it is, as I pointed out, renewals were $0.05. I've had 2 quarters now where I look at the pipeline and I don't see the deals hitting so quickly. And I was very candid in my comments and I'd like to sort…

And just a comment. I echo John Guinee's comment about the board and not -- I recognize there was a management change a number of years ago which was necessary at that point, but the stock is almost back to where the company went public in 1994. And so at some point, I think board oversight, board leadership, board composition has to change alongside management for the better of shareholders that own your stocks. So I would hope that it's a much more aggressive approach than waiting till most of these board members turn 80.

I will pass on your comment. I have a meeting with my board tomorrow morning actually. I will make that comment.

Our next question will come from Jed Reagan with Green Street Advisors.

Can you talk a little more about your leasing pipeline in the waterfront; just any changes you're seeing in your activity, overall market activity there? And then I guess, how many square feet of leasing is embedded in your 2018 guidance both overall and in waterfront?

We took the number and put the expectable part of it and put it in the fourth quarter for 150, which really has no effect on the year. So effectively the year has nothing, but I'm going to give Nick Hilton a chance to actually chat about the waterfront. Someone gets this chance to fire Nick. So you can go live. Meet Jed Reagan from Green Street.

On waterfront right now, I'm positive on it. And I think that there's a good opportunity right now to get this space back, seeing an increase in inquiries. My tour is just through the first few weeks of the year. It's encouraging. I think our ability to be able to make the investments that Mike mentioned earlier will further establish our dominance in the marketplace and be able to capture more of this activity as we move forward.

Yes, we're seeing -- just to embellish. We're seeing tours from a number of the companies that do benching. So there's a few of them in that space, so we tend to be more popular, as you know, because of some of the amenities we changed downstairs and adding the ferry and in Jersey City having an increased population base for all the deliveries. We've seen a couple of TAMI tenants come through recently, still some little back office. And then obviously we get the occasional creative firms. That's what we've been seeing of date.

Okay. And just to clarify: It sounds like 150,000 square feet you expecting, and that's back-end weighted this year.

Way back-end weighted, fourth quarter.

How about just overall portfolio? I know you talked about 500,000 square feet per quarter last year for the overall. What -- any sense to this year?

This year is going to be pretty good. We had relatively good GAAP numbers which, well, are probably getting lost in this message this morning but shouldn't be. We had good cash and good roll-up. We continue to have that. So the question about New Jersey performing at a level which is somewhat comparable to my peer group outside of New York City is being shown. We have the first quarter. We have similar type flow of deals at the same type of cash and GAAP within that range, kind of mid-single digits for cash and kind of low double digits for GAAP. The flow has been good. One of the things that maybe we should also embellish, Jed, is that we put $40 million into the suburbs and improvements, which is a market-leading number for us as a company. The brokers love it, right? Because when they show the space, it looks great. And it's easy for them to get the tenant to pay the higher rent that we're demanding because of the space. And the tenant feels like that landholders made a commitment. In New Jersey there's not a lot of commitment to excellence of a space because the rents weren't there. So we've done something that's been well received, and we expect it actually will help us on market share. But I also would like to ask one comment: If you back out the flex, which always tends to lease, and you move out the dispositions on the expiration schedule, my numbers rolling for '19 and '20, right, are very, very low. They're low in the waterfront. They're almost minuscule. And they're very low in the suburbs. The buildings we bought and the leases I've been signing, I've always pushed out term. We used to do 22%, 26% each year; have all the CapEx accordingly. We could be down to 7% roll, look more like Paramount or SL Green on a world schedule, then we're not a suburban company.

Okay, appreciate that, but it sounds like no sort of hard and fast quarterly leasing target, though, for this year.

No, I would think probably less than last year because the portfolio is smaller. So probably in that $400,000 -- 400,000-square-foot range versus 500,000 because we're probably about 15% small from when our target was set last year.

Okay, that's helpful. And just one more for me. It looks like you prepaid about $200 million of debt in early January. Can you just remind us what other pieces of debt you can pay down in the nearer term and generally just walk us through planned uses of proceeds for the $400 million of upcoming sales?

So ROI and for a company that we view as being over-levered, because we have a good view of ourselves, we have had the $150 million, as Marshall pointed out, for Rockpoint to do development and other things. Our line was undrawn at the end of the quarter, but effectively we did 2 things. We put in the bonds that we do, that were in December. And we prepaid the Plaza 5 mortgage in Jersey City. The line was -- went out to like 400 and change. Now it's been coming in as we do sales to 370, and this goes down every month as we do more and more sales. So the dispositions will go against the line, and we'll be down $400 million of debt by the end of, give or take, May, assuming we don't do anything else or we take on any construction financing. The second part of your question is what ability do we have to delever cheaply, which I think is what you were asking. We have a number of construction loans in the multifamily business that we could pay off. The unsecured term loans are all based to the swaps which we could pay off. The only piece of paper that we have going forward, could have a yield maintenance cost to it are the unsecured bonds that are due in '22 and '23. Everything else is free prepayable at little to no cost.

And do you plan to get at that stuff? I'm just kind of curious where you think debt-to-EBITDA finishes 2018. And just kind of remind us what your longer-term targets are.

So yes. So for your last question, because you got it, the goal is to basically multifamily gives you $0.24. You also get some benefit for the new assets you put on last year which are still performing well. So let's assume you were at $1.85, for example, and you did $0.25, because it's easier math. You wind up, all things being equal, looking into the run rate of '19 putting those 2 pieces together. Then the question comes up, "What have you done on your waterfront leasing?" So if you got back to 1 million square feet and if you did it at $45 in cash and then $50-some-odd in GAAP, you'd wind up with $45 million of FFO, which will then really meaningfully change your EBITDA targets, right? Your net debt-to-EBITDA was -- would change. Then you have to make the determination of whether you do, and we wait this out. And this is a strategic thing. The company, and Michael Bilerman is correct, is round-tripped to where we started 3 years ago but a totally different portfolio that are being difficult to understand. You can look at it and say, "Halt. These are easier moves to get to. You could spin out or sell Roseland portfolio. You could combine it with your waterfront office and then sell your flex and remaining office and pay down debt with that. There's a number of options that are now available to us because we did all the hard work over the last 33 months.

[Operator Instructions] Our next question will come from Michael Lewis with SunTrust.

My first question. You mentioned the pushback in some of the multifamily deliveries. I actually asked a question about that on the last call because there was some pushback in 3Q, which happens. And then this quarter, it looks like it happened again. And 3 projects actually moved from in construction to the future pipeline. The yield on Urby looks like it came down a little bit. I just pulled up the CBRE brokerage report, and they're calling for rent declines in the market. So my question is just kind of are you seeing a slowdown in the multifamily fundamentals. Or are -- these kind of delays, are they really all of them project specific, I guess?

Let's look at Jersey City as a whole, and I can play catch-up with my partner Marshall on this. Jersey City delivered around 4,500, maybe close to 5,000 units if you did some of the small projects. And they're basically all absorbed. We had a number of people that were close to who we compete with, and they were all in the mid to high 90s and are cheap performers and are loving their projects. So Jersey City, if you talk to people who compete with us in other markets, may be one of the best markets in the country from an absorption and performance rate. There is a project at 4 cities undergoing now. When I chat with them -- they're absorbing at a very high rate, which we're not experiencing in other places in the country. And when we felt the same thing when we did Urby. Urby came in slightly lower but then we're getting the benefit of as now we're 98% leased and we're getting upticks. And we're about to go through the re-leasing, so the concession, hopefully, goes away. So we really feel great about that project. What we did, and this is about capital allocation, and this is the follow-up to Jed's question, which is we looked hard and fast at our ambitions and said, "Hey, what projects do we really want to start with available capital? And which has the highest returns?" We took a couple of deals and said, you know what, including Short Hills -- which is a great deal but has a hotel component which we are wary about and wanted to make sure that we get it exactly right. That the 2/3 of your projects, we split and said, you know what, we're going to sell these as land, hold them. "Let's work through what with our best allocation of dollars are and deal with it accordingly." As far as deliveries, as everyone knows, the weather this winter has been abysmal, all right? Freezing temperature, which hurts construction even if you have been closed the building. And just dead snow and everything else, which affects construction sites. So you lose time. It's not been an easy winter. Marshall, do you want to add?

Sure. I had a couple comments on some of the deliveries. Signature Place, which Mike made a comment on earlier, a project in Morris Plains, actually we're delivering on time in November. And then we had a very unfortunate over-the-weekend pipe break, which set us back 4, 5 months. We wiped out a completed leasing and marketing center; as well as about 1/4 of the units; and the life safety system, which had to be replaced. So we've been rebuilding a job that was really opened in November. And we've just -- as I mentioned earlier, have just had a first opening without even TCOs yet in hand. TCOs will be in hand another couple of weeks, for the first round of units. So that delay was purely a cataclysmic event. Portside 5, 6, we moved back a quarter. Just had a tough winter. That's our waterfront project in East Boston. We have a very good market there, a very stable phase 1. It's done spectacularly well, and we are now going to be opening up phase 2. We just missed probably a couple of months. It's just what just happens in greater Boston. So most of these things are either project specific like that. Or as Mike said, we've been looking at the capital allocations. Actually in Short Hills we'll be looking at some of our design issues, and that's pushed back a little bit of time as well. But it's a combination of both project-specific items or reconsideration of use of capital for 2018.

Could I ask one more on the office side? Or make me go back in the queue. Or...

Sure. [ Go ahead ]...

This Page 28 is really helpful with the '18 expirations. You mentioned AIG, which is a big slug of this 101 Hudson. The ICap lease, we knew about, but when I look at these waterfront ones, the large amount of square footage at Harborside 5, at 111 River, is there just nothing else sizable in there to talk about? Or it seems like maybe there would be 1 or 2 more that would stand out to add up to those numbers.

No. I -- actually the thing that's been evolving is the waterfront was always a broad set of market. You had big banks that came in and occupied space and -- or companies moved out New York, in the case of John Wiley, which is a book publisher, which is one of our major tenants in 111 River. Or you have an AIG which had one of its insurance subsidiaries based here. Allergan had Forest labs, which was a major subsidiary based here for a long period of time. So we have been adding on 16 leasing. It was all 50,000- and 75,000- and 25,000-square-foot tenants, which we did deals with Omnicom and Zurich, C2. Brown Brothers Harriman was an 80,000-square-foot deal, but we didn't do any over hundreds. So we felt the market was shifting toward a more large tenant but not super large tenant market. So you're correct. This is what we have, and this is what we're dealing with. There's no other really significant tenants to talk about.

Our next question will come from Rob Simone with Evercore ISI.

I was wondering if you could just share the total anticipated construction cost for 25 Christopher Columbus, which I think is slated to commence construction later this year? And then I have a quick follow-up after that.

We're still doing construction estimates now because we're going to be building the schools we haven't done in the past, as well as updating all of our costs, but the project is going to be somewhere in around $500,000 a unit, though we're still finalizing a number of our system successions.

Got it. And then just I was looking at the uses and sources page on 42, which is also very useful, by the way. And just a quick question on the dispositions: It looks like you guys have budgeted in there maybe $160 plus or minus million of disposition proceeds. And I just want to understand that. That's a subset of the $400 million or so you guys are planning on selling, but is that $160 million at -- coming at such a low basis that it basically requires a 1031 to avoid taxes? Just wanted to understand that, if it's similar to like some of the dispositions you executed late last year.

No, it's actually the opposite. So it's not in the $400 million. It's not a subset. It's an additional. So we looked at the Roseland platform in itself and said, "How do we allocate capital and the stringent returns?" to use the -- to pay homage to Green Street. And we said to ourselves, "You know what, what projects do we want to build? What project do we want to own, that we will be doing a couple years?" There are some deals that were bought early on by my predecessor in a bulk-up phase that probably don't make the cut. They've been good, productive deals. They don't have the same growth profile. And since we're in a -- definitely an NAV business, we have a few of those slided. We have some JVs where we have some money in that we think we'll be exiting because the planner want to exit. We get that capital back. Our tax implications are very light in this scenario, like extremely light, so that money comes back. And it's available to us at probably 95% to 100% usage ratios, not a question on [ incentive ].

We'll take our next question from Jamie Feldman with Merrill Lynch.

I thought it a little premature, but I'm trying to get some visibility on '19 just in terms of, if kind of everything plays out the way you expect in '18, what do we have to look forward to in terms of numbers improving then? Can you walk through the big pieces? And I guess, along those lines, can you talk about how conservative is the '18 number? Can like -- and then also just any thoughts on what this means for the dividend and your coverage in '18 and even beyond.

And so dividend, it's perfectly fine. One of the benefits we have on this platform obviously is, when you cut it down to so many square feet, the multifamily division, because it's so new, it's mostly new buildings, it's where -- and someone pointed out that we have bespoke acquisitions. We build them, which means the CapEx for new buildings are really, really light. So we don't have the same drag that other companies do about top dollar to bottom dollar. We have less in between. We've put a lot of money into the suburbs. We don't have really a lot of CapEx spend to do. We walked our numbers down to a base level, though. We felt that, if nothing else happen on the waterfront, this is what we'll produce. We don't have a lot of disposition activity coming up. We finished that program so there'd be less noise, so you can look at our run rate as basically being a baseline. I think you say what's the upside from that. There is really 3 things to look forward to. One, if my talented partner delivers his units without more act of god, weather, we will get about $0.20 to $0.25: $0.25 on the wide end, $0.20 on the low end incoming and in various pieces through '18, which will be available in '19. So you take the baseline and add it in. If -- like I mentioned before, if we got back the square footage -- I will remind everyone that, when we took over as a team, the waterfront was 82% leased. We took it to 94%. Now we're actually around tripping it again. We're going from 94%, dropping down. But if we get that square footage back, and we've made a lot of improvements to this…

And just a follow-up. The -- so you didn't talk about selling the flex. What's the impact of future asset sales beyond the '18 guidance?

Well, I think the -- we look at the flex business as being very stable, but we have a leverage concern. So we'll look and monitor how we produce revenue during the course of the year. And the board will take a picture. I have a little bit of cap gains issue there, but I think we could play with it at the end of the year and do what's called a split. You do it over '18 and '19, and so you can put it into 2 tax years. But we're going to monitor that. But the baseline we gave you today doesn't have any more disposition activity in it other than the $400 million which has already been contracted for and is about to close in various stages between now and May. So we're back to this steady state, right? We've become an operational versus a transactional company. The lawyers and brokers will be upset, but I think I'll be happier.

And Tony, thanks for all your help over the years. And best of luck down the road.

Yes, thanks, Jamie. You're welcome. Thank you.

Our next question will come from Tom Catherwood with BTIG.

Let's talk a bit about joint ventures. And Mike, you mentioned working with SJP on the Harborside renovation. You guys have also talked about a JV with them if you do one of the new office buildings. In addition, on Page 42 you mentioned $141-plus million of new project-level joint ventures in the resi platform. Kind of what is the strategy with joint ventures going forward? And how can we see these relationships grow?

We'd rather do things ourselves because then the control element is within your own programs, but we're very rational about it. On Urby, for example, to use one of the ones we started with, it's a unique project, as you know, as because people may not know you're a resident of the -- of Jersey City. It changed the skyline. It's got an interesting marketing element to it. It had great reception. As Michael Lewis pointed out, the returns weren't exactly what we wanted but were very, very good in anyone's scale. The recent rents that we've gotten there are like in the 70s for some of the studios; and the 60s for the one bedrooms, which are unparalleled in Jersey City; and still has obviously great occupancy. So we look at that situation and say, "Do we do the second phase ourselves? Or are we not egotistical enough to basically assume that someone can work with us?" They'll probably bring in a little bit more capital. We'll do it as a joint venture. It'll lay off development risk. We feel very comfortable about that. We feel the same way about working with SJP on a new office tower. We don't have the capability in house to actually design a 1.2 million-square-foot building. They've been brilliant in executing build-to-suits in the State of New Jersey for several decades, unparalleled and probably the best company to work with on that subject. They recently built the Panasonic headquarters in Newark and also the Prudential headquarters in Newark and a number of other singles -- single-tenant buildings in the state. If we find the right tenant and New Jersey becomes their place that they want to occupy, then we have a developer that we work with that we -- when we do the pitch. We're now looking very competitive. So the ego again is in check. Going forward, the other projects is capital allocation, right? So look at the model. You can't do everything with everyone with a balance sheet that -- of the size we have. We already own the land. We have the sites. The 25 Christopher Columbus is the perfect example. We did it. It's a 1031. We're in the deal. It's going to work out well, going to work out extremely well. The school and the bottoms are going to be a killer. We're probably going to put a leading daycare also with it. As you know, it sits halfway between the 2 pass stops Grove and Exchange Place. It's adjacent to Paulus Hook and a lot of other activity. And we have some ideas to change the retail in the bottom of the building across the street from it. This is an example where we're smart and we will get great terms, where we'll get to promote. People will pay us, so basically the development fees. And it's so the right use of capital. So we don't have to stretch the balance sheet anymore.

Got it. And just to clarify, Mike: When you say -- for those project-level joint ventures on the resi side, when you say capital source identified, are these done deals? You have agreements. Whenever you start, that partner is there. Or are these you'll use it as you see that you need it when you need to put capital into the buildings?

So what we did was we went to the pawner. And they were worried about cherrypicking and said, "Listen. These are the 4 or 5 deals we're going to do, all right? And you can participate in all of them or some of them at some level and what your house account." The house account for them was 2 50, which we don't think we need. So we'll -- we had it booked in our books for 1 50, but the 2 50 is readily available, which they would want to put the money out. There is a scarcity of these type of deals which could produce these types of returns. I was not being -- overstating the fact that, from everyone I know, including my Chairman who has a very extensive development experience, Jersey City is probably the best development market in the country today for returns. So people look at the product, the closeness to the New York City. I mean I use this example all the time. We do the math. You rent an Avalon or equity residentials project in New York City. You rent an all projects in Jersey City. You need to make $125,000 more in income for the same square footage across the river. We have a great market share. We don't lack for any type of absorption. This city delivered almost 5,000 units, and we'll be -- you're hard-pressed to find anyone who's struggling to fill them, as a matter of fact this year, the brokers consider this the year of the landlord versus last year being the year of the tenant.

And we will now take a follow-up question from John Guinee with Stifel.

John, is your blood pressure still okay?

Great. It's all relative -- no. Clearly the waterfront moveouts have got to take your net debt-to-EBITDA over 10. How are your lenders, your unsecured lenders? And how are the rating agencies looking at your company, your business? Are they bifurcating out the Roseland, Rockpoint assets; and looking at the office flex portfolio in a vacuum? Are they continuing to merge the businesses together? How is that all coming together? And then what's the additional impact on your EBITDA margins if you sell $400 million of office and can pay off debt at a much more dilutive situation?

Yes. So John, let's look at this. One of the things we've done and proven over the last 33 months is we have a plethora of capital sources, right? So we've done everything from Rockpoint to obviously new joint ventures, to unsecured -- sorry. I apologize. Term loans with banks, Fannie and Freddie, construction loans, insurance company loans, CMBS loans, right? So breaking up your question: The bonds stay outstanding until '22 and '23. We're not going to break any covenants. We're not close to breaking any covenants. Actually, we have a lot of latitude in those. The unsecured term loans are with a group of banks that we've been dealing with. They're actually quite happy with us. We are what we consider to be an excellent borrower, and I'll explain the following. The line goes up. We pay it off. We finds the way to basically make it happen. What you don't want to do in a credit business is have a guy come to you and you're the only source of repayment, where you have to roll it over. So as you know, the line has gone up and we've sold. So we've proven we can sell. We've proven that we can borrow from other financial sources. We've proven we can borrow from the CDS market, Fannie, Freddie, insurance companies. And obviously we've done, be able to do joint ventures. So the rating agencies take solace in the fact that we have multiple credit sources because they hate people who can only borrow from them and then with deteriorating credit statistics. They are totally aware of what our statistics are because we meet with them relatively often. And we're obviously very open and honest with them, as we should be, about where the numbers are going. The market…

So asking the question a different way. Rockpoint probably is looking at this as more of a 5-year-hold merchant building mentality, lever it up a little more than the people on this call would like or would look at. Can you run your Rockland portfolio your -- with Rockpoint as your JV partner at a higher degree of leverage and not have your lenders get upset with that? Or how does that all come together? And that you really are -- you have 2 very different businesses under one roof here.

Yes, I'm aware of that, totally, not of my choosing, as we've talked in the past. The Roseland operation, through Rockpoint, the lenders are actually very comfortable with us. They love Rockpoint's equity because it's a balancing act to ours. They understand the NAV story that we have. We can run that leverage as we've done, but I would point out the leverage picked up because of the need and the ability to be transparent. So when we bought in the Monaco deal, which we felt we needed in order to establish our base of operations, that put that on our balance sheet. Effectively, the other means of what we have is construction loans, right, which as you pointed out, or one who has the questions, our capital needs to finish the remaining construction loans is like $22 million. It's a minuscule amount. The question now is what do we do going forward, right? We're at that point now, and you form up this disclosure where you can look at 2 different silos, right, an office business and a multifamily business coexisting in one space. Maybe it shouldn't, right, but what's the valuation for each? And how do you actually put the 2 pieces together? Or how do you dismember the 2 pieces in order to get to the right valuation? That's the next steps.

Okay. And then just a curiosity question, the 41 -- on Page 41, Marshall. Are all of your 2018 and '19 probable and possible starts within the Rockpoint JV? Or are some of these outside of the Rockpoint JV?

All the multifamily business, John, is inside the Rockpoint JV, so we don't have anything that's outside as a -- [indiscernible] for you...

Okay, great.

I would point out one comment you made to Mike. And that is that on the -- on Rockpoint being added as a partner and the go-forward starts and your issue on leverage. We're not changing our leverage ratio on the new construction loans. We borrowed a nonrecourse on principle, so those loans are always -- historically in the 60% to 65% range.

We'll take our next follow-up question from Manny Korchman with Citi.

Nick, maybe a question for you. Just if you look at the demand pipeline for leasing, especially on the waterfront, what types of tenants are those? Where are they coming from? What sort of decisions are they weighing? And maybe more specifically, what's the competing asset or geography that they're looking at?

The tenant base, as Mike mentioned before, is always historically large financial services. I would say right now you are seeing still financial services being a primary driver for the market. I'd also argue that there is a technology element to almost every industry that we see right now. So being able to cater to that user group, technology specifically, and that kind of runs the gamut of a lot of different industries. In terms of competition that we see here, it really depends on the origin of the tenant. A lot of the times, the origin of the tenant is coming from Manhattan. So that's the case. We would compete with Brooklyn, Long Island City, various parts of Manhattan. If they are coming from New Jersey or from the suburban markets, moving east, we would be competing with other CBD, transit-oriented communities, which we also have a very nice take in throughout the state. I hope that answers your question.

So if you have to classify, do you think that the issue is pricing? Is it timing? Is it demand? Is it something else that sort of precluded you from getting to the leasing levels that you thought you'd be at?

Well, I will remind you that I'm 1 week in, so the...

You -- it didn't happen...

The projections coming in were not mine. However, from a macro perspective looking at the market itself, it's through a mixed bag, but I would not point to pricing as an obstacle. People have been successful in delivering -- people that have been successful in delivering quality space have commanded price, and tenants are willing to pay for that. As long as the space is equipped appropriately with the amenities that companies are looking for to retain and attract employees, it is -- pricing does not become an issue. And that's not really the case that we're making.

Our last, final follow-up question will come from Jed Reagan with Green Street Advisors.

Maybe just to follow up on that. I mean, if you had to kind of estimate the mix of the leasing pipeline in the waterfront, what percent of those tenants are New Jersey domiciled versus Manhattan looking to come over?

Jed, I'm going to go first, then I'm going to pass over to Nick. What we've seen is a combination of tour activity that goes both ways. You see a lot of things coming out of New York City, right? You have somebody downtown. The population base is in Brooklyn. David Smetana has the luxury of having the closest commute of any one on the executive staff by a factor of a great deal. And he lives in Dumbo. So he gets to the office in what we call 2 handle, all right? He pops in every morning, smiling; and says, "This is a great." That workforce, if you're looking coming out of Chelsea or Tribeca or Lower Manhattan, coming to Jersey City is easy, logical. And it doesn't change your commuting pattern. You get tenants coming out of Midtown too. They can come with the same thing, just a little slightly different pattern. They might be joining from Westchester, Connecticut. The New Jersey companies look at it a little differently. They look at it and say, "I've traditionally drawn from the suburbs. I'm going to lose some of my population base who won't want to drive 1 hour and 20 to get to Jersey City, but I'm going to pick up that customer or that employee who can come out of Hoboken or Jersey City or downtown or Brooklyn." For example, when I walked the halls this morning, I've noticed and I took a count, I have 8 employees that are under the age of 30 that I had hired since I moved to Jersey City that I would not have been able to hire if I were still in Edison or Metropark, as the case would be. And I'll turn over to Nick for his comments.

I agree with everything that Mike said. I would add too that the New Jersey transit infrastructure here coming into Hoboken and the access to Jersey City and specifically Exchange Place is quite seamless. So also -- and not only tapping the labor pool within Manhattan and other regions, you're also able to maintain the connectivity with your labor base in New Jersey and the greater area.

And the mix between those 2 groups you kind of identified, Mike, is that 50-50 of sort of tour activity? Is it 75% New Jersey based? I mean just trying to get a feel for that.

You've had some big tenants coming out of the suburbs who are facing the dilemma, Jed, of what do we do with the global headquarters, right, based in Warren, for example. Or they're based in Bridgewater. And they're looking and saying -- I had this conversation with a CEO recently. And like he goes, "Most of my employees are 55 and male, and I want to change that mix going forward. And I don't think I can do that in a location I'm in." They come in, in size, but traditionally Manhattan is a much bigger market to be next to, right? New York City is a $300 million-plus market. New Jersey in its entirety is $150 million, like a big metro area, so I would argue it's 2/3, 1/3 New York versus New Jersey, but some of the New Jersey guys coming in are real quality names. As you know, we competed for the [ MOS ] application, which were coming out of Western New Jersey. They took a hard look at us. They even went to a letter of intent, but then their Board of Directors felt that they would lose too many of those 55-and-over employees. And they went to Newark instead for that application. I don't know if they loved that experience, but it was an interesting one.

Okay, that's helpful. And then the 150,000 square feet of waterfront leasing you mentioned in the '18 guidance, I just want to understand. Is that how much you expect to sign in the waterfront in all of this year? Is that how much you expect to sign and actually commence GAAP rents before the end of the year?

I think it will be used as a placeholder. It has very little GAAP rent effect versus in a fourth quarter. So we're trying to get down to where we could exceed expectations by not promising something that we didn't deliver, right? We hope to do a number of renewals, which will have immediate effect in this year because we'll be able to book them. We hope to basically do -- we have a few deals out for tenants that want to come. They may come and say, "I want occupancy in '19 and rent my spot." This is why we looked and had the conversation. If we didn't have -- already have extensive negotiation ongoing to a lease about to sign, you've got to take a somber look and say not anchored here in '18, you really got to look toward as '19.

Okay. And then just last one from me. I appreciate you taking all the questions today. Just curious how you're thinking about acquisitions for this year. Are there any additional land purchases or maybe 1031 deals that you expect to do?

What, are you trying to give poor John Guinee a cardiac arrest? Seriously now. No, we're not looking at anything on the screen. I have blinders on. It's lease delivery; hopefully, work on a debt-reduction plan; maybe something strategic to basically get the company to be -- look at little differently from a silo point of view, but no. There's no ax to grind for anything indeed, right? That doesn't mean -- I move this way. I may change, but there's really nothing.

There are no further questions at this time.

Thank you, everyone. We look forward to seeing you at the Citibank conference in a few weeks. Thank you. Talk to you soon. Bye-bye.

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