Car Agency's Chapter 11 May Disrupt REIT's Budget

Daytona Beach, FL-based Budget Rent-A-Car pays nearly $4.1 million a year in rent, making the car rental company Duke Realty's 13th-largest tenant. Lease expirations begin next year and continue through 2008, according to the REIT, including its 345,200-sf Central Park of Lisle at 4225 Naperville Rd.

"We do not have an indication of Budget's intentions, but we expect they will leave," says co-chief operating officer Dennis D. Oklak in Duke Realty's second-quarter earnings conference call.

Budget's bankruptcy filing comes shortly after a second quarter that saw occupancy in Duke Realty's 1.6-million-sf suburban Chicago properties settle at 83.24%, better only than the Nashville, Raleigh and South Florida markets in the REIT's office portfolio.

Direct vacancy in the East-West Corridor is 17.9% according to U.S. Equities Realty's second-quarter report, but the vacancy rate soars to 25.9% when more than 2.2 million sf of sublease space in the DuPage County submarket is added to the equation.

Corporate accounting issues and a sluggish economy have hampered an office portfolio that had displayed signs of renewed strength three months ago.

"I never would've thought Budget Rent-A-Car would've filed for bankruptcy," says chairman and chief executive officer Thomas L. Hefner. However, that bankruptcy filing along with soft markets have dragged office markets down in the second quarter, he notes.

Budget may not be Duke Realty's only big problem. Decimated Denver-based Qwest Communications is the REIT's third-largest tenant with rent payments of $6.89 million a year, nearly 1% of its total rent revenue. Space, primarily in Columbus, OH, begins rolling over next year through 2012, at least under the leases.

Duke Realty officials also are keeping an eye on Tekelek ($4.93 million a year in rent) and Nortel ($4.31 million a year), only because both companies who have the bulk of their space in the Raleigh market are in the stressed communications and equipment industry.