Dermody, flush with cash, goes shopping
December 10, 2007
Dermody Properties finds itself in an enviable position as it reinvents itself in the midst of a severe credit crunch, and it’s moving quickly to take advantage.
ProLogis, the world’s largest industrial developer, paid $1.85 billion this summer to buy a portfolio of industrial properties developed by Reno-based Dermody and its equity partner, the California State Teachers’ Retirement Fund.
While the pension fund walked away with by far the largest piece of the proceeds nobody is saying exactly how much Dermody Properties got enough hard cash out of the deal to go shopping.
“The cash allows us to be opportunistic,” says Michael Dermody, chairman and chief executive officer of the development company. “We have the dry powder to take advantage of situations.”
Lenders often require that developers put more of their own money into projects as credit tightens, but Dermody Properties’ cash stake allows it to look at projects that are beyond the reach of some of its competitors.
Dermody bought land this autumn at Stead, for instance, to develop 1.4 million square feet of industrial and distribution space. The first 545,000-square-foot building will be ready this summer.
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And Dermody has big industrial buildings under way in four other markets across the country Savannah, Ga.; Portland, Ore.; the New Jersey suburbs of Philadelphia and the southern suburbs of Chicago.
Par Tolles, who just took the reins as president of Dermody Properties after a long career with Trammell Crow Co. and CB Richard Ellis in Reno, says Dermody Properties is shopping for more land both in markets where it already has an established presence as well as new locations and it is looking to buy existing buildings as well.
“We’re looking for buildings with an upside,” Tolles says. “We want to make good real estate better.”
The company is paying much attention to regions that have ports nearby Reno, for instance, is near the Port of Oakland and strong transportation infrastructure.
But the key consideration for any project, Dermody says, is the desires of the company’s tenants. Its deal with ProLogis doesn’t limit Dermody Properties from developing projects for longstanding clients.
Alphabetically, that list of clients stretches from Amazon to Xerox, with stops for other nationally known companies at almost every letter of the alphabet.
While Dermody Properties made its name as a developer of industrial buildings, Tolles says a development of office projects maybe even retail is likely as the company moves into a new incarnation after the sale of its industrial buildings to ProLogis.
That wider approach marries the experience of Tolles, who developed a varied portfolio of projects for Trammell Crow, with the predominately industrial experience of Dermody and John Atwell, newly named chief operating officer of the company. Atwell previously served as western director of development of First Industrial Realty Trust.
Another change: Dermody Properties, which historically had a reputation for hardly ever selling anything, might even look at some buy-and-sell strategies, Dermody says.
That’s partly a reflection of a new structure in which partners in Dermody offices across the country will take an equity stake in projects and look for faster payoffs.
On the other hand, Dermody says nobody should expect the historically conservative company to go on a buying spree especially for land.
“You can have too much of it,” he says, noting that the company tries to keep land available to meet its development needs for about three years in the future.
The company isn’t looking for a single equity partner to finance all of its developments, the structure that brought it success when it teamed with the California teachers pension fund.
Instead, Tolles says, the company will develop equity partnerships and joint ventures on a project-by-project basis.
The new incarnation of Dermody Properties also gives a strong footing to the Dermody Foundation, the nonprofit created in 1988 that’s made grants to more than 200 community organizations in the past 20 years.
The foundation now holds a 10 percent ownership stake in the company, providing it a steady stream of the company’s profits to distribute in the communities in which it’s working.