Top executives of Duke Realty had a popular saying about Cincinnati in the early 1980s.

        Printed on T-shirts, chatted up in boardrooms and bantered about at the gym, “We own this town” served as a reminder of the small, growing company's expectations from Cincinnati.

Bob Fessler (left) oversees industrial development and Ken Schuermann heads office development. ([name of photographer] photo) | ZOOM |

        Two decades and a major merger later, Duke-Weeks Realty Corp. is one of the largest real estate firms in the United States and a major player in Cincinnati. But observers say its once-dominant grip of Cincinnati's industrial and office development is no longer enough to intimidate other developers out of the market.

        “You have a major commitment in terms of assets,” said Dan Staton, the company's former chief operating officer and a major stockholder. “But I don't think there is a conscious effort in maintaining the role.”

        With 16.6 million square feet of office, industrial and retail space and an additional 2.1 million square feet planned, Duke-Weeks Realty certainly has the right more than anyone to claim that it owns Greater Cincinnati's commercial real estate market.

        But the Indianapolis-based firm is enamored with its new stomping grounds in the Southeast that will likely command a majority of the firm's investment in new projects.

DUKE-WEEKS REALTY

Office: 6.3 million square feet     Industrial: 8.8 million square feet     Retail: 1.5 million square feet     Under development:     Office: 507,923 square feet     Industrial: 1,571,000 square feet     Retail: 34,180 square feet

        “The office market in Cincinnati is growing, but it's not growing at the rate of some other markets that Duke is in,” said Jim Neyer, vice president of real estate development for local developer Al Neyer Inc. “And Cincinnati has seen more viable office developers in the last couple of years. Duke does not enjoy the dominant share of new projects they once did.”

Duke adds Weeks

        The new territory opened up for Duke Realty Investments a year and a half ago when it completed a $1.7 billion merger with Atlanta-based Weeks Corp., a major Georgia developer.

        The merger allowed Duke to move beyond the staid Midwest market, where it devoured competitors and was left hungry for more. The new territory is growing faster and offers more opportunities for profit.

        Duke-Weeks shares took a drubbing at the time of the merger, sinking below $17. The price rebounded to the mid-$20s amid an industry rally this spring and summer.

        A driving force for Wall Street's open-arms reception for Duke-Weeks rests with the company's fiscal discipline and profitability. For 20 consecutive quarters, the firm has posted double-digit gains in funds from operations, a key profitability measure for real estate investment trusts. The firm's per-share funds from operations increased 10.5 percent in the third quarter ended Sept. 30, the latest earnings figures available.

        “This has truly been a case where 1 plus 1 is synergistic,” said Pat Hickey, a real estate investment trust analyst for Robertson Humphrey Co. in Atlanta. ""It combined a (Weeks') weaker balance sheet with the positive effect of opening up Duke to new markets in the Southeast.”

"Recycling' money

        It's also prompted the company to tap new sources of capital. Duke-Weeks launched a program to “recycle” its money by selling stakes in properties that bring in less money and reinvesting in properties expected to generate higher returns.

        That means Duke-Weeks will shed some properties that earn less than 9 percent. And Duke-Weeks won't turn a shovel of dirt on a new speculative building if it expects a return of less than 11 percent. The company hasn't identified which properties it plans to sell, but in October, it sold half of its stake in 21.8 million square feet of industrial land — including more than 6 million square feet in Greater Cincinnati. The deal netted Duke-Weeks $370 million to invest in future projects expected to get a higher return.

        What that means for Duke-Weeks' four downtown Cincinnati office buildings is anybody's guess. Cincinnati is the only city where Duke-Weeks owns and manages buildings in a central business district. Its office developments in other markets are in the suburbs, but Duke-Weeks might develop downtown offices in other markets as it tries to raise its profile, Mr. Hickey said.

        Ken Schuermann, who oversees Duke-Weeks' Greater Cincinnati office development, said the company's commitment to office development is as strong as ever.

        Not only has it spent millions renovating an office building at 311 Elm St., it has plunged into the frenzied Blue Ash market with plans for a 160,000-square-foot Pfeiffer Place office and a complex at the old Whiting Manufacturing Co. warehouse on Carver Road.

        And it retains its swagger as Cincinnati industrial real estate's top dog, beating out competitors to develop a $55 million, 675,000-square-foot distribution center for Liz Claiborne Inc. in southern Butler County and launching plans for a speculative, 316,800-square-foot warehouse nearby. Nipping at its tail are developers such as Prologis, an industrial powerhouse nationwide.

Office competition

        The office market also is no longer a free ride for Duke-Weeks. In Blue Ash, it must scrap with Al Neyer Inc., Hines Inc. of Houston and other developers to attract tenants.

        ""There is definitely more office development competition,” Mr. Schuermann said. ""On the other hand, we had one of our largest (office) development years ever in 2000.”

        Office competition downtown has been equally tough. Duke's buildings at 311 Elm, 312 Elm, 312 Plum and 312 Walnut offer a snapshot view of Northern Kentucky's bustling riverfront, the handiwork of Corporex Cos. chairman Bill Butler and the only significant office development along the Ohio River put up in the 1990s.

        Mr. Schuermann said a new office tower in downtown Cincinnati anytime soon is a “long shot” because flat rents don't justify the costs of buying land and building a parking lot and garage for an office.

        The last building was 312 Elm St., the Enquirer building built by Duke-Weeks and opened in 1992.

        Mr. Staton, now a partner in Walnut Capital, a venture capital fund, remembers that deal vividly.

        He met with several executives of the Gannett Co., which owns the Enquirer, to negotiate the terms of the lease for the Enquirer, the building's anchor tenant. Mr. Staton and the newspaper executives were locked in a room for 12 hours.

        “My theory was, "I'm not leaving this room until I get a deal that is good for everyone,'” Mr. Staton said. “They needed the space, and at the end of the day, I got a great deal.”

        That's the kind of panache that illustrated Duke-Weeks' dominance of the Cincinnati market. Now the main question is how much more does Duke-Weeks want to prove that Cincinnati is its market.

        “We still say until we get every deal, we're not happy,” said Bob Fessler, Duke-Weeks' senior vice president overseeing industrial development.

        But Mr. Fessler admits that the company doesn't want to become bogged down in Cincinnati or other Midwest markets by owning too much of a type of property, whether industrial or office.

        “We talk about that internally a lot,” Mr. Fessler said. “We don't want to be too weighted in any one market.”

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