Dermody Properties wrapped up fundraising earlier this week for its first commingled vehicle, Dermody Properties Industrial Fund, the firm’s chief executive told PERE.
The Reno, Nevada-based firm beat its $400 million target for the value-added vehicle, corralling $442.4 million from public and corporate pension funds, insurance companies and other institutional investors. The firm had a $450 million hard-cap for the fund and a mid-teens gross return target.
The firm has invested in industrial real estate since its founding in 1960. CEO Michael Dermody told PERE that he started planning for a commingled vehicle in 2007 after selling a large portfolio. In the interim, the firm continued to do joint ventures with pension funds and international investors.
“The reason a commingled vehicle was so appropriate for us was that in the economy, you want to have the ability to invest when the economy is good and take advantage of the economy when it’s not so good,” Dermody said. “It’s a long-term, sustainable model based on what we’ve done for 40 years.”
With capital from the fund, Dermody Properties is investing in 15 markets where it has previously operated. The fund has a three-year investment period and is currently 35 percent invested. The firm typically invests between $20 million and $30 million per acquisition but will also buy portfolios.
Dermody said that investors have long been attracted to industrial real estate but have struggled, particularly in a more heated market, to invest at scale.
“You couple that compelling reason that industrial is such a good sector with the fact that the industrial market is changing in a very good way, with e-commerce and online – retailing affecting us all,” he said. “Customers are required to reconfigure their supply chains, which goes right to our core business and strength.”
He pointed to one recent acquisition, a 2-building, 406,000 square foot property in Libertyville, Illinois that the firm purchased last month, as exemplifying his investment strategy. The Class A industrial property was 50 percent leased last month, and the firm is leasing up the balance.
Park Hill Real Estate was the fund’s placement agent, and Kirkland & Ellis was the legal advisor.
Dermody Properties has $850 million in assets under management including legacy assets, Dermody said.