For years Duke Realty Corp. has been best known as a developer and owner of office and industrial buildings, mostly in the Midwest. Under chairman and CEO Dennis Oklak, Duke is trying to expand its portfolio into government and health care.
Before Christmas, Duke (NYSE: DRE) completed a 120,000 sq. ft. medical office building for St. Vincent Hospital in Indianapolis. It’s 80% leased and the company, which has just 5% of its 130 million sq. ft. portfolio in health care, is looking for similar opportunities.
Two years ago Duke entered the Washington, D.C. market, acquiring a 16-acre tract in Alexandria, Va., adjacent to Interstate 395. Now the company is building a 1.7 million sq. ft. office complex on the site for the Department of Defense, which is consolidating Army personnel there that had been spread among multiple bases. The value of the project, slated for completion in late 2011, is $1 billion.
An accountant by training, Oklak, 55, is resigned to a couple of difficult years ahead for the REIT. He’s been scrambling to cut costs where he can, terminating 19% of the workforce last year, freezing top executives’ pay and closing operations in new markets such as Seattle, San Antonio and Newport Beach, Calif. The company raised $265 million in asset dispositions late last year to help pay off debt. On Feb. 20, the company’s stock price closed at $7.40, well below its 52-week high of $27.21.
“We’ve been a net seller of assets since 2005, and last year we concentrated our dispositions on the industrial side,” says Oklak. He became CEO in 2004 and joined Duke in 1986, when he arrived as a tax manager before moving over to property acquisitions. He isn’t afraid to make hard choices. Last year, Duke dumped its small retail development business when the sector turned soft.
Duke hasn’t given up on speculative development altogether. It will finish construction on a 500,000 sq. ft. bulk shipping warehouse in Indianapolis this spring. Warehouses built on a speculative basis in Chicago and Columbus, Ohio, also will deliver this year. “We were 100% leased up in both Indianapolis and Columbus and had no product to show,” Oklak says. “So even in a tough market we have to keep building.”