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Duke Realty Repositioning Portfolio

12/02/2011 | By Matthew Bechard

Duke Realty Corp. (NYSE: DRE) has made "tremendous progress" towards its goal in repositioning its commercial real estate portfolio, according to Denny Oklak, the company's chairman and CEO.

In a video interview with at REITWorld 2011: NAREIT's Annual Convention For All Things REIT in Dallas at the Hilton Anatole hotel, Oklak noted that Duke Realty is approaching its goal of a portfolio that consists of 60 percent bulk industrial assets, 25 percent suburban office properties and the remaining 15 percent in medical office assets. That has spurred the company to sell off some of its suburban office portfolio and acquire industrial and medical office properties. Recently, the company sold approximately $1 billion in suburban office assets to Blackstone Real Estate Group.

In terms of the latest real estate cycle, Oklak said the recovery has been surprisingly slow.

"When we look at where we are in the cycle, I'd say we're a little bit behind in what we've typically seen in some of the other recoveries," he said. Lease rates in the company's industrial portfolio are improving, but not as strongly as expected, according to Oklak.

On the office side of the company's portfolio, the pace of the recovery remains restrained, said Oklak, attributing the slow growth to high unemployment.

"It really isn't surprising when you look at where our economy is today with 9 percent unemployment," he said. "A lot of that is in the office-using space, so that has been slower."

Looking ahead, however, Oklak said Duke Realty is actually more optimistic than the general consensus about the prospects for growth in 2012. He noted that the company is projecting GDP growth roughly half of a percentage point higher than most analysts.

Duke Realty's property development business slowed significantly during the market downturn in 2009 and 2010, two of the company's slowest years in terms of development in its history. The company has already announced two major development projects in 2011, including an industrial facility in Atlanta and medical offices in Indianapolis.

"We're starting to see more interest in build-to-suit projects," Oklak said. "I think we'll see a few of those projects get off the ground here shortly."