Dermody Properties steps up its pace with U.S. projects
June 23, 2014
After sitting on the sidelines while the Great Recession played itself out, Dermody Properties is back in the game in a big way.
The Reno-based developer of industrial properties — most of them intended for distribution operations — last week said it's starting construction on a 750,000-square-foot distribution center near Philadelphia.
It's the second major project announced in this month alone by Dermody Properties, which has undertaken construction of more than 3 million square feet of industrial projects in six markets nationwide in the past year.
Near its home in northern Nevada, the company is developing a 624,000-square-foot distribution center at Stead.
In early June, Dermody broke ground on a 351,900-square-foot industrial building in the Chicago suburb of McCook, Ill.
That came on the heels of the May groundbreaking on a 315,147-square-foot project near Louisville International Airport in Kentucky.
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The company had gotten busy in the northern Kentucky market about a year ago with construction of a 624,000-square-foot industrial development at Shepherdsville.
And in central Pennsylvania, Dermody Properties is working to lease a 1.3 million-square-foot project — 700,000 square feet of existing space, 602,000 square feet on the drawing board — in a distribution center that's within a one-day drive of 40 percent of the American population.
There's no secret about the factors driving the company's busy schedule of development. As demand from potential tenants dried up during the recession, developers and the financial companies that provide their capital headed for the sidelines.
Demand for space rebounded with the economic recovery, few new distribution centers had been built in key markets, and developers now can command the rents that allow new projects to pencil out.
"We're having a nice run," acknowledges Douglas Kiersey Jr., president of Dermody Properties. "Customer demand has returned, and there has been limited supply. We think these conditions are going to persist for a period of time."
The company's current round of development is financed by three partners.
California-based Pacific Coast Capital Partners put up the money for the project at Stead as well as the projects at Carlisle, Pa., and Louisville. Granite REIT of Toronto has financed the Shephardsville, Ky., project as well as the newly announced work in the Philadelphia area. And AEW Capital Management of Boston is Dermody's financial partner on the Chicago-area project.
Great Point Investors, an adviser to the Ohio Public Employees Retirement System, continues a relationship with Dermody Properties that dates from 2007.
Michael Dermody, chairman and chief executive officer of the development company, notes that while the financial partnerships may be new, they have their roots in longstanding personal relationships developed by the Dermody Properties' management team.
"This is a very small, relationship-based business with a very long memory," he says.
Dermody, for instance, joined the firm in 1976 and became CEO in 1976. Kiersey worked 17 years with ProLogis, a national development firm, before joining Dermody Properties. C. Douglas Lanning, its chief financial officer, worked for a regional land developer and for a national accounting firm before he joined the Reno company.
Much of Dermody's last big growth run — it's developed more than 35 million square feet of industrial space since its beginnings in 1960 — was financed by the California Public Employees Retirement System, Lazard Freres & Co. and the California State Teachers' Retirement System.
In 2007, shortly before the commercial real estate market cratered, Dermody and CalSTERS headed for the sidelines and sold a 25-million-square-foot portfolio to ProLogis for $1.8 billion.
But Dermody says the company isn't looking to cash out its current development holdings. Intead, its strategy calls for development and long-term ownership of top-quality industrial spaces in about 12-15 markets across the country.
In those selected markets, Kiersey says that Dermody will make substantial investments and looks to develop deep relationships with tenants, brokers and others with understanding of individual markets.
"If we're going to achieve the types of returns we want to achieve, those local relationships are vital," he says.
The company is keeping a close eye on the course of the national economy as it makes development plans for the next 18-24 months, and it's always working to stay ahead of its competitors.
But Kiersey says the company's busy schedule also presents some more-mundane challenges.
"There just aren't enough hours in the day to get any more done," he says.