Big Builders

Panattoni Development Company

Panattoni Development Company is one of the largest privately owned industrial real estate developers in North America. The Company has offices throughout the United States and is active in Canada and Europe.

Since commencing operations in Canada in 2005, Panattoni has developed in excess of 8.5 million square feet of industrial and suburban office space. Panattoni Canada enjoys strong name recognition throughout its target markets which include the Greater Toronto Area, Edmonton and Calgary, and has earned a reputation for developing efficient, high quality buildings.

Strategies for Success

Panattoni Canada has been able to build on the success of its American counterpart, which was founded in 1986 by Carl Panattoni. By the time the Canadian company was launched in 2005, the U.S. operations had grown from a single office to an organization with over 20 offices throughout the United States. Panattoni had earned an excellent reputation in the industry and had established strong relationships with financial institutions.

“During those 20 years in the U.S., Panattoni became one of the premier industrial real estate developers and developers of suburban office space,” partner Wade Dobbin reports. “They were well known for large industrial properties for corporate America.” Typical clients included industry leaders like Amazon and Whirlpool. “We spring-boarded off of the success of the U.S. [based company],” Mr. Dobbin explains. “So a big part of our strategy was being part of the Panattoni International company.”

Another winning strategy for Panattoni was to focus on the right space. The team immediately zeroed in on a burgeoning area of industrial real estate in Canada, while simultaneously maintaining enough diversity to spread the risk and remain ahead. “In the industrial real estate market there has been a trend over the last 20 years,” Mr. Dobbin says. “We’ve moved away from manufacturing in North America into warehousing and distribution.” The team made a conscious decision to hitch its star to that specific type of industrial development and quickly developed a stellar reputation for building high quality industrial warehouses for corporate North America. Major companies like Canadian Tire and BMW needed larger and more efficient warehouses to store and distribute their product, Mr. Dobbin explains. “And we built really good ones at a reasonable price.”

In addition to creating much needed new facilities, Panattoni has been successful in repositioning existing properties. The team regularly reworks existing structures to fit a new need in the marketplace. For instance, the company transformed an old steel manufacturing plant located in Brampton, Ontario into a large warehouse and distribution center. The $4 million upgrades and renovations included the re-cladding of the entire facility, the creation of a five acre trailer parking lot, the addition of 30 shipping doors, and extensive office renovations. The efforts earned the company the NAIOP’s Industrial Development of the Year award.

The location of these new and existing projects has been just as important as the size and quality of the finished products. “One part of our strategy is that we decided to focus in on Ontario and Alberta,” Mr. Dobbin reports. “We found that being in both markets [gives us] a bit of diversification.” Typically, the markets are quite different so the strategy of diversification enhances success and at the same time reduces risk.

A local touch has also been important to the Company’s success. Indeed, being plugged into the local community and local market is so critical that the Company motto is “International Vision. Local Focus.” Mr. Dobbin and business partner Andy Smele live and work in Toronto, which gives them valuable insight into the Ontario market. Panattoni also boasts an office in Edmonton which is managed by Brad Hoffman and, as a result, the team has insight into the Alberta market as well. In fact, Mr. Dobbin says that local knowledge played a key role in dealing with the severe market downturn in 2008. Many competitors were not able to survive the market meltdown.

“The Toronto market is either the second or third largest industrial market in North America, depending on who you ask,” Mr. Dobbin says. “It’s a huge market.” As a result, a large number of U.S. developers jumped into the Toronto market in the early and mid-2000s, eager to cash in on Toronto’s vast potential. “And obviously, in 2008, some of them went bankrupt and a lot of them left,” Mr. Dobbin recalls. “There have only been a select few that have stayed. We’re one of them. And I think one of the reasons that we were successful here is that we have local partners that knew the markets here in Canada. We managed to weather the storm.”

Substantial Projects

Panattoni builds big. The company specializes in massive industrial warehouses, some of which top out at over one million square feet. The team sells about two thirds of the structures that it builds, typically to an industrial REIT, pension fund or insurance company. “The real estate business is a very capital intensive business,” Mr. Dobbin explains. “To build buildings you need a lot of capital.” As a private developer, Panattoni doesn’t have “an infinite amount of capital.” The solution is, of course, to sell the majority of what the company builds.

The company does hold and manage around a third of what it constructs, however. “On the larger industrial buildings we almost always partner with a pension fund or a large institution,” Mr. Dobbin shares. “We do the development and they are our capital partner. It allows us to keep a percentage of the building. And we typically keep the property management of the building, which we find smoothes out some of the hills and valleys of the cash flow of a development company.”

Panattoni carries out build-to-suit and spec projects, upgrading and redeveloping existing structures, and land development. One of the company’s very first projects was to put up a trend setting spec building in the Toronto area. Upon its completion, the 1.1 million square foot facility was the largest spec industrial development ever built in Canada. “It’s rare to find a building over a million square feet in Canada,” Mr. Dobbin reports, “but there are huge economies of scale to build that big – not only in the terms of the cost of construction, but also in terms of the efficiencies for the user.” After considerable market research, the team was confident that a state-of-the-art building designed to capitalize on the limited supply of large blocks of contiguous industrial space would make the massive complex very popular with industry. The team’s instincts proved correct; Canadian Tire leased the entire facility, making the bold move an immediate success.

Currently, Panattoni is building a distribution and manufacturing facility for adidas Canada in the County of Brant, Ontario. When completed, the colossal structure will be over one million square feet. “I believe it’s the largest industrial warehouse being built in Canada this year,” Mr. Dobbin reports. Furthermore, the building will be strategically positioned on an 82 acre site to allow for future expansion. The company has several other key projects in the pipeline for the Toronto area as well. The biggest challenge with these, Mr. Dobbin says, will be finding reasonably priced land. “Without reasonably priced land it is difficult to make ends meet,” he admits, and with the Toronto market constrained on the south by Lake Ontario and on the north by the Green Belt, affordable land just isn’t easy to come by. Fortunately, the company has managed to overcome this challenge for the past nine years – even as many competitors fell by the wayside.

In the Edmonton marketplace, the team has developed in excess of 1 million square feet and over 200 acres of land. Clients include the likes of Suncor, Kuehne + Nagel and Connect Logistics.

Panattoni has successfully implemented a winning strategy since entering the Canadian market in 2005. The team has been able to take advantage of the growing market need for large industrial warehouses and has won over clients with its high quality construction. “We try and provide as good a product as we possibly can at a reasonable price,” Mr. Dobbin summarizes. The company has a number of exciting projects in mind for the future and is eager to continue expanding. The demand is there, and the team has the expertise and local understanding to meet it.

July 16, 2018, 6:51 AM EDT

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