Q: Last week ProLogis acquired a competitor, Catellus, for $4.9 billion. How is that purchase related to your biggest mistake in business?
A: If we had only taken our zeal (for building ProLogis) into the larger markets of Chicago, Los Angeles, Dallas, Atlanta and San Francisco right from the start, it would be a much bigger presence today. That access and bigger presence is what the Catellus acquisition now provides, of course.
When we started in the summer of 1992 to form a plan for the company that would ultimately become ProLogis, we decided to focus on secondary markets and to build the business by flying under the radar as much as possible.
The nation was in a recession at the time. There was vacant space everywhere, and no one in America would have told you that some of those larger cities would come out of their malaise.
We knew we had to raise millions of dollars, and saying we intended to buy industrial (buildings) in a city like Los Angeles would have made that a lot more difficult. However, we did start to change our business model 18 months after getting started because our customers told us we had to be in those major markets if we wanted to be of any use to them.
Q: Who are “we”?
A: It all started in the late 1980s with Bill Sanders, the founder of LaSalle Partners in Chicago.
LaSalle was bought by another entity, and Bill, who is a real visionary, put together a group of people to forecast the future of commercial real estate. They determined that ownership of real estate, which had been mostly in the hands of corporations or private partnerships and pension plans, was going to move into the public realm.
Bill formed a company called Security Capital Group with the plan of acquiring and growing public real estate companies that would be sector and geography specific.
I was with Trammell Crow Co. for 19 years and wound up being a regional partner in charge of the Southwestern United States from the Denver office. I left in 1991 to help Security Capital Group build and manage its retail and industrial portfolios.
In August 1992, another executive, Tom Wattles, and I sat down for two months and created a business plan for a company focused only on industrial markets. Then Bill, Tom and I and a few others hit the road to raise money.
Q: What were some of the big hurdles you had to clear in 1993 to raise roughly $150 million?
A: Because of that recession, it was a wonderful time to start a new business of this nature. We were able to buy existing industrial assets for between 40 percent and 60 percent of their replacement costs. Additionally, we were able to recruit a number of experienced people in the real estate industry who needed jobs.
But when I look back, I see that no one believed in our idea of building an industrial real estate company that focused more on customer service than transactions. In real estate, you basically focus on making as much money as you can instead of building a customer base that will give you multiple transactions year after year.
We decided that we could do repeat business and more business if we could become a part of our customers’ strategy process. When a customer wants to serve 50 million people on the East Coast or 250 million people in China, we want to be a part of that discussion and to help them understand how many buildings they need and where they need them.
Q: ProLogis owns, manages or has under development nearly 2,000 warehouses in 75 markets throughout Asia, Europe and North America. How do you explain the company’s success abroad?
A: Our key advantage is that we don’t apply geographical boundaries to our thought process. In Europe, a developer from Rotterdam would not go into Brussels. A French developer would not try to do business in Munich, and it would not occur to a German developer to go into Lyon. That’s just not a part of how Europeans think yet, and that has worked in our favor.
We have also avoided other mistakes that Americans trying to do business in Europe make year after year: They set up an office in London, and they fly across the water to some capital cities. When they see opportunities to expand, they get other Americans to join them. If they’re sensitive, they may get some French-speaking and German-speaking Americans. But that’s not the way business is done. You don’t use non-natives in the real estate business. We don’t do that in America.
And when I was heading the company’s European operations, I lived in the Netherlands, not in England. Europeans don’t believe you’re serious about the Continent unless you really live on the Continent.
We also decided to show our commitment to Europe by imposing our customer service over the top of the best local people in a particular market. So, for example, we have 230 people in Europe today, and only three of them are American. When I was in Europe, I was the fourth, and that was it.
Q: Did Europeans like your Texas accent?
A: I knew my Texan wouldn’t go over too well, so I stayed in the background. The only times I went to customer meetings in Europe was for U.S. companies that were flying Americans over. But generally speaking, it’s not helpful for an American to sit in the room with French employees who are dealing with a French customer. I couldn’t add anything to those conversations. I viewed my role as growing the organization abroad and instilling in our European employees ProLogis’ culture and ethics.
Q: What does a ProLogis warehouse look like?
A: People have an impression of a big box that is dark and dingy – and for good reason, because many warehouses still in use are 50 years old or more. Our buildings are very clean, very nicely lit and very nicely manicured, with signs, trees and flowers. Ceiling heights range from 20 to 40 feet high to allow our customers to stack goods more efficiently. The buildings are very spacious to allow trucks to maneuver in and out of them, and they have more truck doors and loading docks than you typically find. Our buildings also have upgraded sprinkler systems to protect flammable goods. All of this might sound mundane, but when companies have millions, maybe billions, of dollars at stake, it’s not.
Q: Do you ever look around your house at all of the items that have been stored, at some point, in a ProLogis warehouse?
A: We have a customer who removes the covers on airplane seats and dry-cleans them. Anyone in Denver who buys a board from Home Depot is getting that wood from one of our warehouses. And anyone who buys a book from Amazon in the United Kingdom is getting something from one of our buildings. So, I don’t just see ProLogis at home. I see us everywhere.
Edited for space and clarity from an interview by staff writer Christine Tatum.
