Duke to Take JV Partner’s Interest in 20.8M-SF Industrial Portfolio for $298M

Duke Realty Corp., acting through its operating partnership, Duke Realty L.P., is about to become the sole owner of Dugan Realty L.L.C., a joint venture between the Indianapolis, Ind.-based company and an institutional real estate investor.

June 17, 2010
By: Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Omar Omar

Duke Realty Corp., acting through its operating partnership, Duke Realty L.P., is about to become the sole owner of Dugan Realty L.L.C., a joint venture between the Indianapolis, Ind.-based company and an institutional real estate investor. DRLP has agreed to a $298.2 million deal to acquire its joint venture partner’s 50 percent stake in Dugan Realty, which has a portfolio encompassing 20.8 million square feet of industrial space and 62.6 acres of undeveloped land in the Midwest and Southeast.

Duke and its investment partner formed the Dugan Realty joint venture in 1995, with Duke kicking off the 50/50 endeavor through its contribution of approximately 1.4 million square feet of industrial assets, 113 acres of developable land and nearly $17 million in cash in return for its ownership stake in the partnership. The group of assets, however, has since changed. Dugan Realty’s current portfolio consists of 116 industrial facilities containing an aggregate 20.8 million square feet, and does not come without its baggage. The purchase price includes the assumption of $283 million of outstanding debt consisting of a $195.4 million secured loan scheduled to mature in October of this year and an $87.6 million secured loan due in October 2012. DRLP plans to finance the Dugan Realty acquisition with proceeds from the impending sale of 23 million shares of Duke common stock in an underwritten public offering.

The U.S. industrial market continues its fight to emerge from the debilitating impact the recession and global financial crisis has had on commercial real estate. The industrial market’s average vacancy rate continued to climb for the 10th consecutive quarter, reaching 10.9 percent in the first quarter of this year, according to a report by commercial real estate services firm Grubb & Ellis Inc. Dugan Realty’s portfolio was 85.3 percent leased at the close of the first quarter.

However, the proverbial light at the end of the tunnel appears to be in sight for the industrial sector. While the vacancy rate has continued to increase, the pace of the upsurge has been on a consistent decline. And, the very nature of the industrial sector bodes well for a rebound sooner, rather than later. “Industrial product has a shorter construction timeline than office, retail or apartment product, meaning that the industrial market will hit bottom first,” Grubb & Ellis notes in the report. “Expect that to happen by the end of this year followed by a measured recovery beginning in 2011.”