$1.8-billion transaction

The money has been spent on developing some of the 717 acres of land it held onto, taking down some of the additional 700 acres it had under option, and acquiring existing assets for cash flow and value-add conversions. Since selling the 24.7 million-sf portfolio it had created in partnership with CalSTRS in July 2007, the company has developed seven new speculative industrial buildings totaling 2.9 million sf, acquired 70 acres of additional land and 323,000 sf of existing properties.

"Michael's plan was to recapitalize the company, keep all the offices open, bring the company's employees into the fold as partners and hold back or buy enough land to continue to develop while also acquiring existing assets for cash flow," Tolles says. "He hired me as president to oversee the initial development and expansion of the company going forward."

Tolles is using a hub and spoke strategy, with traditional institutional-grade industrial playing the role of hub and flex, self-storage and office as the more entrepreneurial, value-add spokes. The goal is to hit an IRR in the mid-teens on average, he says.

While the additional land it has acquired will house traditional warehouse and distribution buildings, only one of the five existing assets it has acquired in the past year is traditional warehouse space. Two of the properties are pure office properties in Reno, one of which came with excess land for additional development. The two other properties, both in Harrisburg, PA, include a vacant 100,000-sf office/industrial building that it is renovating and releasing, and a small retail property with a future in self storage.

Most recently, according to county records, it paid approximately $9.3 million for 19.89 acres of pad-ready land at the southwest corner of the Cheyenne Avenue and Lincoln Road in the North Las Vegas industrial corridor, where Dermody has built the majority of its Vegas-area industrial in the past. The plan is to simultaneously develop three speculative buildings totaling 408,750 sf in the near term. "We're in design now and will be in for permits in the coming days," Tolles says.

The plan includes a 75,000-sf rear-loaded facility; a 210,000-sf cross-docked facility and a 123,750-sf rear-loaded facility that likely will be broken up into 15,000-sf to 50,000-sf chunks. Asking rates will range from $0.52 to $0.70 per sf per month, NNN, depending on the size of the lease, the tenant improvements and the tenant's credit rating. "Vegas may be becoming a little bit more of a regional distribution hub but the majority of the industrial product will continue to serve the local market," Tolles says.

Up in its home base of Reno, right after the portfolio sale, the company bought 50 acres of land within the Tahoe-Reno Industrial Center located 10 miles east of the city. There, the company is awaiting build-to-suit deals before moving forward.

For its office investments, the company acquired this year a 17,000-sf building on 1.5 acres in Downtown Reno as well as a 78,000-sf building in the South Meadows commercial area that includes 8.5 acres of developable land. The excess land will support two more office buildings totaling 170,000 sf.

The retail property in Harrisburg, which it acquired in June, includes a 32,000-sf building that is 90% vacant and 3.4 acres of excess developable land. Dermody is renovating the existing structure and building a new, stand-alone, three-story self-storage building totaling 42,000 sf that will be called StorHouse @ Paxson St.

"We are branching out beyond big box industrial but it will continue to be our bread and butter," Tolles says.

Instant Insights /

Dermody Busy Rebuilding, Reshaping Portfolio

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