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First Industrial’s Bruce Duncan Steers REIT Through Some Painful Times

With a portfolio of 100 million sq. ft. of industrial space in North America, First Industrial Realty Trust is the nation’s third largest industrial REIT (NYSE: FR). But when the Chicago company announced in January it was hiring a new CEO, it chose a veteran with broad experience in hotel, retail and apartments.

The new man is Bruce Duncan, 57, who took the titles of president and CEO. For now, he’ll also serve part-time as the non-executive chairman of Starwood Hotels & Resorts Worldwide, a position he’s held since 2005. Prior to that, Duncan served as CEO of Equity Residential and Cadillac Fairview Corp.

Duncan maintains that his lack of recent experience in the industrial sector is not a serious shortcoming. “The fact is that the whole commercial real estate world is deteriorating,” he says. “My job will be to get our team to fill up our properties with more tenants. I had the same kind of challenge at the other companies I worked for.”

Vacancies in many of First Industrial’s biggest markets have been soaring while lease rates have stalled and even declined. In metro Chicago, 10.3% of industrial property is currently vacant, up from 8.6% a year ago. The market hasn’t been so bad since the recession of 1991.

First Industrial’s stock price closed at $3.43 on Feb. 17, down from its 52-week high of $33.17 in mid-September.

The company has shut down its European operations, pared back its payroll and cut its dividend. New development planning has gone into hibernation. Of its roughly $2 billion in debt, just $135 million matures before 2011.

Duncan believes that more investors view industrial real estate as a safe harbor. Institutional investors are under-allocated in industrial and eager to invest. “Industrial assets are very financeable. You can take individual buildings or small pieces of a portfolio and offer them up to investors in bite-sized chunks.”

Many markets are experiencing negative absorption, driving down lease rates and valuations. That has got Duncan’s attention. His joint-venture partners, including the California State Teachers’ Retirement System, are looking for a market bottom as a signal to buy assets. “This will soon be a great time to be looking for new assets.”

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