insight
工程技术，地产投资，信仰家园，时尚生活
Published March 09, 2013， Business Times
- PHOTO: ARTHUR LEE
"A warehouse has almost no functional obsolescence if you build it right the first way. If an office building isn't newer than five years old, it's considered to be old and doesn't command the same rent a new one does. Because people want the fanciest glass, the prettiest elevators, and the nicest fountains. But with logistics, nobody cares! If it's functional, it works! If you build the building right, it commands 92 per cent as much rent as a brand new building 20 years after you built it."
JEFFREY Schwartz arrives, bulging leather briefcase in tow, every part the globe-trotting road-warrior co-founder of Global Logistic Properties (GLP), the Singapore-listed developer of warehouses in China, Japan and now, Brazil.
Mr Schwartz, the former CEO and chairman of New York-listed ProLogis, founded GLP with CEO Ming Z Mei in December 2008, when much of the world was still wringing its hands about a financial meltdown.
In an alternate universe, the 54-year-old Mr Schwartz could have been embroiled in the Lehman Brothers mess, if he had stuck by his first ambition out of Harvard Business School to be a real-estate investment banker on Wall Street.
So there's some sense of relief when he looks back on the other road he's taken. "I'm much happier doing what I'm doing. I have a lot of friends who are investment bankers, but I'd much rather do this than be an investment banker," he says. "You get to build something as opposed to advising people. You get to look back and think, 'We built a great organisation, we built a great company. We really built something and accomplished something', as opposed to being pure transaction. There's a lot of pride in that."
Much of what Mr Schwartz says betrays what a thoroughbred builder he is. Even his iron-clad physique betrays his work ethic: he exercises close to five or six times a week if he can help it, and chooses his hotels not by how stiff a martini the bartender whips up but how well equipped its gym is.
As for his choice of trade, he confesses readily that warehousing is "non-sexy", but it makes up for it in terms of cash flow.
Just out of business school, he was asked by his former boss at Arthur Andersen who ran the real estate tax office to meet with some real estate clients of his, one of whom turned out to be a developer of industrial real estate.
"I realised through talking to one of them that well, it's not a sexy business but it has tremendous cash flow," he says.
Where hotels or offices require constant care and beautifying, the sturdy warehousing industry is beautiful in spite of it.
"A warehouse has almost no functional obsolescence if you build it right the first way. If an office building isn't newer than five years old, it's considered to be old and doesn't command the same rent a new one does. Because people want the fanciest glass, the prettiest elevators and the nicest fountains.
"But with logistics, nobody cares! If it's functional, it works! If you build the building right, it commands 92 per cent as much rent as a brand-new building 20 years after you built it. Nobody pays a premium for brand new. Warehouses are a much better store of capital, with very little capex," says the hard-nosed developer.
In just four years, GLP is bearing out those principles that have made warehousing so appealing to Mr Schwartz. It has 525 completed warehouses in China, Japan and Brazil, its most recent venture, that total 11.8 million square metres of gross floor area. GLP also reaped in profits in the last financial year of US$541 million (S$675 million) and net operating cashflow of US$418 million.
And while it is now sprawled across Asia, there was a time when Mr Schwartz had second thoughts about the region. In 1997, he headed a team at ProLogis to judge if the time was ripe to sink warehousing roots in Asian economies, such as Japan, China, Philippines, Malaysia and Thailand.
"I told my board that the market seemed frothy. That was the word I used. Because I had someone explain it to me in Thailand that it was okay to get only a 3 per cent return on your development because everyone knows that real estate goes up in value 15 per cent every year. The mentality then was that real estate was always going to go up and it can never go down," he says.
Six months later, the Asian financial crisis hit.
He remains vindicated, but not by much. "Because if I really were that smart, I would have shorted all the currency and made hundreds of millions of dollars," he chuckles.
But ProLogis revisited China in 2002. By then, the equation had changed because of the country's admission into the World Trade Organisation. Mr Schwartz saw that China's need to shift gears towards domestic consumption would fuel demand for warehousing space.
A decade later, the same beliefs underpin GLP's growth in China.
"If you look at pure numbers, China's GDP growth is about 7.5-8 per cent but retail growth is 16-17 per cent growth. So domestic consumption is growing more than twice as fast as GDP. And that's coming off a smaller base - it's only 30 per cent of the economy," he says.
And where other companies involved in the logistics supply chain fear the threat that 3D printing - that enables highly customisable manufacturing in one's home - will bring to their modus operandi, GLP's warehouse demand could stand to gain.
"I could see it being an advantage because it brings manufacturing closer to the consumer and distribution closer to the consumer," he says. "Whether the product is manufactured in Tokyo for distribution in Tokyo, or manufactured in Shenzhen for distribution in Tokyo doesn't matter to us."
In China alone, GLP is prepared to emblazon 2 million sq m of warehousing space, still below its customers' demands of 4.5 million sq m.
Mr Schwartz is measured when it comes to expansion, ever mindful that GLP can't bite off more than it chew. "I had people come up to me and ask why don't you build twice as fast?" he says. "But you can only grow an organisation so fast without making mistakes."
Much of his prudence and careful handling of GLP's reputation was cultivated during his pre-ProLogis days, when he spent six years developing warehouses in Florida alongside a man 35 years his senior called Elmer Krauss.
Together, they formed the Krauss-Schwartz Company. From 1988 to 1994, the firm became the largest warehouse developer in Florida.
"May he rest in peace, he passed away 10 years ago this summer at 77. And he was like a second father to me, just great," says Mr Schwartz.
"Never went to college, self educated. Just brilliant, nice, honest. He was the one that really imprinted upon me and drove the philosophy that reputation is by far your most important asset and nothing else matters. You'd always be able to make money if you had a great reputation."
It was then that ProLogis, still one of the largest warehousing providers in the world, acquired Mr Schwartz and Mr Krauss' Florida portfolio.
With that, Mr Schwartz embarked on his globe-trotting development role for ProLogis.
But he's never quite kicked the habit of exercising in the morning he'd picked up in Florida; nights were reserved for knocking back beers over dinner and business talk with Mr Krauss.
Big boy ties
Four years after joining ProLogis, Mr Schwartz encountered some of the funds he will come to rely on as long-term partners.
But it was a different picture back in 1998 when he was leading ProLogis' beachhead into Europe. Then, Mr Schwartz had his back against the wall with the outbreak of the Russian debt crisis, which threatened to dismantle his newly hired team of 110 and hampered his efforts to access capital in the US market to fund ProLogis' US$800 million development pipeline plan in Europe.
To get around the problem, Mr Schwartz created the ProLogis European Properties fund, the first fund underpinning a real estate company, which he opened to institutional investors such as the Government of Singapore Investment Corporation (GIC).
It was then the largest private equity fund raising in Europe that summoned US$1.5 billion.
"Out of necessity because I didn't want to lay off a bunch of people I just hired because I made a commitment to them, I had to figure out a way to fund my own business, and as we went through it, we realised it was a better model," he says. "I get a higher return on my shareholders equity than we would have if we invested 100 per cent of our own capital."
Today, GLP counts GIC as well as China Investment Corporation (CIC) and Canada Pension Plan Investment Board (CPPIB) as its long-time partners.
"We go back more than 15 years with GIC and they've done well on everything they've done with us, and we've treated them very fairly. I'd rather make money alongside someone for 20 years than make a lot of money in one year then they never want to do business with you again because you don't do the right thing. So it's a long-term perspective. At the end of the day, the most valuable asset we have as a company is our reputation," he says.
And it's thanks to GIC that Mr Schwartz got his adroit start at GLP.
It began at the height of his career at ProLogis when Mr Schwartz was CEO and chairman.
But he resigned on Nov 12, 2008 because of differences between him and the board about whether or not to issue stock in the weeks following the Lehman Crisis.
In the days after his resignation, ProLogis' stock on the New York Stock Exchange lost more than 85 per cent of its value. "People called me and asked me if I felt vindicated. I said 'No, I feel really poor'. If the stock went up 30 per cent on that day, I would have felt really bad, like nobody respected me. But 85 per cent was way more than my ego needed. Ten per cent would have felt just about right," he jokes.
Mr Schwartz's departure from ProLogis saw Mr Ming's resignation alongside his, and the glimmering genesis of GLP.
With ProLogis saddled with debt and in a hurry to trim it, the Schwartz-Mei Company and GIC Real Estate pitched in on a 50-50 joint venture to buy over ProLogis' property fund interests in Japan and China for US$1.3 billion.
GLP made its debut on the Singapore Exchange scarcely two years later, in the Republic's second-largest listing since SingTel's in 1993.
When asked if he intends to keep GLP's firepower trained on Asia or follow ProLogis's trailblazing model, he says he would prefer to stick to a more modest route.
"No, I've done that. I built businesses in 30 countries around the world and established No 1 market position in 27 of them. I have proven we can do that and do it well. Now we just have a desire to be the best. The best people, the best relationships with our customers, the best return for our shareholders. Not to be the biggest, but to be the best," he says.
JEFFREY H SCHWARTZ
Co-founder and chairman of the executive committee of Global Logistic Properties
Born May 1, 1959
1981 Bachelor of Business Administration from Emory University
1985 Master of Business Administration from Harvard Business School
1994 Joined ProLogis, an NYSE-listed Fortune 500 company
1999-2008 Director of ProLogis European Properties
2003-2004 President of International Operations of ProLogis
2004-2008 Trustee of ProLogis
2005-2008 Chief executive officer of ProLogis
2007-2008 Chairman of the board of ProLogis
2009 Co-founded Global Logistic Properties
