Jeff Schwartz, the Chairman and CEO of ProLogis, visited Kellogg in January, holding a wide-ranging, interactive discussion with students at the Allen Center as a guest speaker in Dean Emeritus Donald Jacobs’ Strategic Dilemmas course.
Dean Jacobs, a longtime ProLogis board member, welcomed Schwartz, saying he hoped the class could “make a suggestion to help the [company] grow a little faster and drive shareholder value” before Schwartz’s second and final visit. Kellogg’s connection with ProLogis runs deep, with Ming Mei (KSM ’02) leading the company’s China business and more than a dozen other alumni working for the company throughout the world.
ProLogis, the second largest REIT in the US and the largest industrial REIT in the world, is developer, owner and manager of industrial and retail facilities across the globe. Schwartz extolled the attractiveness of the industrial asset class, including low maintenance costs with expenses passed on to the customer, long-term leases and high customer retention. ProLogis’ competitive advantage, Schwartz said, is a deep focus on customer service. “We call them customers and not tenants,” he said, noting that ProLogis renews 75 percent of all leases that roll over.
When prioritizing new markets, ProLogis seeks high growth, but is generally cautious about the business environment. “There are certain countries in the world [in which] we cannot do business,” Schwartz said, citing Russia as a particularly difficult. “We wrote down a significant investment there.” Schwartz was quick to point out that he has never encountered any difficulty in China. He argued that the relationships that he and [China Managing Director] Mei have built with political and business leaders have been critical for success.
Schwartz noted that Asia, while currently representing about ten percent of the company’s assets, will contribute significant growth over the coming years. “To put this in perspective, the value of ProLogis Park in Osaka is more than the entire value of ProLogis when Don [Jacobs] joined the board,” Schwartz said.
The outlook for the North American market, however, was less optimistic. “We’ve cut development starts by $300 million,” Schwartz said, saying that pursuing aggressive expansion plans was “a mistake.” More broadly, he sees key challenges for the business with respect to tighter global credit markets and the impact of the US economy on its operations.
Schwartz noted that the real risk to ProLogis is if supply chain technologies reduce demand for industrial space. Such a reduction, he countered, will likely be offset by the proliferation of SKUs. “Brand extensions are great for business,” he said.