Denver group snares assets of Dermody

Denver-based ProLogis has acquired the industrial real estate assets of Dermody Properties, including 20 buildings and 3.9 million square feet in Las Vegas, for $1.85 billion, the companies announced Thursday.

The entire portfolio, held jointly by Dermody and California State Teachers Retirement System, consists of 114 properties totaling nearly 25 million square feet of distribution space in Las Vegas, Reno, eastern Pennsylvania, Chicago and Southern California.

ProLogis also picked up more than 500 acres for future commercial development. The company has $28.6 billion in assets, owning or managing 437 million square feet of commercial real estate in North America, Europe and Asia.

Dermody Properties will maintain a strong presence in each of the markets with a development platform of 3 million square feet a year going forward, said Michael Dermody, president and chief executive officer of the Reno-based firm.

"The real estate business is you sow and you harvest and at this time in the evolution, it's time to harvest," Dermody said from Reno. "We can grow our foundation better as a private developer rather than as an institutional developer."

The transaction was driven by a joint decision to take advantage of the strong real estate market and economic times, Dermody said.

Dan Doherty, an industrial broker with Colliers International in Las Vegas, said ProLogis just became the dominant player in the industrial market and lease rates that were 37 cents to 38 cents a square foot are probably headed for 40 cents.

"It's probably a positive for developers and owners in town," Doherty said of the deal. "As far as tenants, it's going to make it a little more challenging, but I think prices were headed there anyway. We're just going over 40 cents quicker."

About half of Dermody's properties are located in Reno, a regional distribution hub that can serve markets in California, Nevada and throughout the Pacific Northwest.

ProLogis President and Chief Operating Officer Walter Rakowich said both companies' buildings are similar in construction, building size and office finish, with an average age of eight years.

More than 50 percent of the total square footage is occupied by shared customers such as Office Max and Home Depot and 40 percent is leased to large enterprises on the company's list of targeted global customers, he said.

ProLogis will expand its portfolio in Las Vegas from 2.8 million square feet to more than 7 million square feet, market officer Pat Welsh said.

"Obviously it's a market we're committed to," he said. "It's a good quality product for customers we serve. Las Vegas is an important distribution market in the Western region. This expands our footprint in Las Vegas and gives us 7 million square feet to accommodate the needs of our customers."

The acquisition includes 28 acres of vacant land in North Las Vegas and a 2 million-square-foot project under construction on Cheyenne Avenue, Welsh said.

North Las Vegas has 26.2 million square feet of industrial space, about 30 percent of the total market, with a vacancy rate of 6.45 percent, according to a second-quarter report from CB Richard Ellis.

Dermody Properties, parent company of DP Partners, entered the Las Vegas market with the $40 million, 2 million-square-foot Dermody Business Center at Cheyenne Avenue and Lamb Boulevard.

The company built its portfolio on excellent customer service and this acquisition process will be transparent to customers, Dermody said.

"The second part of this is the opportunity to go back to our roots," he said. "Real estate changes and convenient development may not be what it was, but there's still industrial opportunity as well as office and commercial."