Duke Realty Corp. and Industrial Parks and Real Estate & Retail

Duke Realty to unload local land holdings at auction

October 17, 2009

Duke Realty Corp. has assembled a self-styled SWAT team of local real estate brokers to auction off several of its land holdings across central Indiana.

The locally based company plans to raise millions of dollars by selling nine undeveloped tracts in Indianapolis, Fishers, Plainfield and Lebanon on Nov. 10 at the Renaissance Indianapolis North Hotel in Carmel. All told, the roughly 60 acres of properties have room for up to 600,000 square feet of industrial space and about 150,000 square feet of office space.

The auction, which sets a minimum bid on only two properties, is an unusual approach designed to prod potential buyers to act after months of cautious waiting.

Few tracts of raw land have changed hands in the past year as companies instead hoarded cash and banks stopped financing the purchase of just about any real estate that doesn’t produce income. Market observers are eager to see how much the parcels fetch, in part because sales could establish some precedent on price.

Fewer than 5 percent of listed parcels are selling within 12 to 18 months, said G. Ross Reller, a land broker with locally based Resource Commercial Real Estate.

“We don’t know what the right price is anymore,” he said. “We don’t know if free is the right price.”

Duke wants to sell dozens of what it now sees as surplus properties across the country in a bid to strengthen its balance sheet and pay down some of its roughly $3.7 billion in debt. The company, which owns 140 million square feet of office, industrial and health care properties in 20 U.S. cities, also is making progress raising new cash from investors: It sold $500 million in notes in August.

If the auction in Carmel goes well, Duke may launch similar efforts elsewhere, said Wes Podell, the company’s manager of land disposition.

Reller sees the company’s decision to unload land it had banked for future development as an unfortunate nod to a fickle Wall Street. The markets want Duke and every other publicly traded developer to raise cash and pay down debt at the same time—leaving few active buyers.

“When a company of Duke’s stature decides they need to raise capital at the worst possible time to sell land, in my mind it raises some red flags about the nature of being a public company,” Reller said.

But Podell says the property sale is far from an everything-must-go event. The sites Duke is selling don’t match its short-term focus on leasing up existing properties and in general are more appropriate for owner-occupants or smaller developers.

“For us, this is purely about getting activity and momentum in these parks and hopefully getting some new tenants,” he said. “It’s a tactical way of accomplishing our financial goals.”

The company is keeping larger land holdings, including at the Parkwood office complex at Meridian and 96th streets and the AllPoints Midwest and AllPoints Anson projects, which are joint ventures with locally based Browning Investments.

The offerings for sale include four parcels ranging from about four acres to 12 acres at the Lebanon Business Park, a 6.5-acre spread behind Deflecto Corp. at the Exit 5 Business Park in Fishers, and a seven-acre site in the heart of Plainfield’s industrial alley. It also includes an industrial site in Park Fletcher and a 13-acre office site in Woodland Corporate Park.

The properties could be particularly compelling for small and midsize business owners who can buy land and construct their own buildings in parks that traditionally were controlled by a developer, said Patrick B. Lindley, an executive vice president in the local office of Colliers Turley Martin Tucker who is coordinating the industrial portion of the sale.

The property sale could benefit Duke beyond the sum the land fetches. The company expects to compete for construction business from buyers. And adding growing companies to its business parks could result in new leasing opportunities down the road as the firms expand.

“It’s our own way of stimulating the industrial marketplace,” Lindley said.

Other brokers working on the offering are Gus Miller of NAI Olympia Partners and Bryan Chandler of Eclipse Real Estate, both locally based. The auctioneer is the local office of Irvine, Calif.-based Sperry Van Ness.

“It’s a good group we have helping us,” Podell said. “Their networks are large and their buyer pools are vast.”

And Duke plans to compensate them well—the company is offering commission rates up to 4 percent to brokers representing buyers, even for properties that sell at auction.•

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