Duke Realty sent shockwaves through the South Florida real estate market when it paid $450 million for Premier Commercial Realty’s portfolio at the end of 2010. Duke is now seen as the largest commercial property owner in both Broward and Palm Beach counties, with more than 7 million square feet of industrial, office and retail space. The Premier deal involved 56 properties, all of which could be closed by the end of this month. The Real Deal talked to Ed Mitchell, senior vice president of the South Florida region at Duke, about the way the Premier deal went down, the company’s plans for its newly-acquired 170 acres of undeveloped land and its outlook on the South Florida commercial real estate market.
How did the Premier deal come about?
Back in June, we did a deal with Premier where we purchased a property they call Premier Turnpike Park in Pompano Beach. They had built a project and it got its Certificate of Occupancy in 2010. It didn’t have any tenants in it and they probably figured it was a good time to sell it; I don’t think it fit into what they wanted. We came in, and the purchase came through smoothly. They hadn’t sold anything in years and years. We basically stayed in touch with them — I used to work for them years ago. Move forward three months, and they called and said, “we might be interested in selling the entire portfolio, would you be interested?” And of course, the answer was yes. I basically got the call and probed [the portfolio], and about two weeks later or so, [Duke CEO] Denny Oklak and Sam O’Briant [the southeast regional executive vice president] come down, and we have a lunch and start going over how we would structure the deal. We closed 36 of the buildings by year-end, out of a total of 56. As early as the end of this month, we should have everything closed.
What was the motivation to make the Premier deal?
If you look at our strategy nationally, it’s to do more industrial. But South Florida is also one of the markets [in which Duke] wants to grow both office and industrial. It was absolutely in the sweet spot, and the properties themselves are the kinds of properties Duke has developed over the years.
Duke is now seen as the largest commercial real estate owner in both Broward and Palm Beach counties. Does the company have plans in Miami-Dade?
If the right opportunity is there, we absolutely will look at it. That happens in any of the markets we’re looking to grow. But if those opportunities were there, and it’s the right thing, it’s a possibility.
What are Duke’s plans for its 170 acres of undeveloped land?
I think it’s going to work out very well, because that land is in an area where the buildings are, especially the industrial [properties]. As we lease up in all the buildings we bought, it will provide tremendous build-to-suit opportunities, and if tenants grow, we have the opportunity to build new buildings for them. It gives us the raw materials necessary for development when development returns in a big way. [South Florida] is probably a year or two away from starting to see people develop — and at the point where tenants can’t find space, we can say, “here we are, we’re the people with space.”
What is Duke’s outlook for South Florida’s commercial market?
The fundamentals never really changed here [during the downturn]. The fact [is] that there’s such limited land that you can develop. Obviously the whole economy went down like it did everywhere. The second thing is that South America never went through the Great Recession the way that the U.S. and Europe did. Brazil’s economy continues to boom — Chile, Colombia, Argentina, all those countries have done well, and they feed so much into South Florida. The company could see that this was the market you want to own in. We’re seeing rates starting to really take jumps up, and tenants are saying “oh my God, I thought it was a recession!” We’re hearing words like that constantly. It’s good stuff in the real estate market.