“Does he need to wear a tie?” asks Ambika Goel, a senior vice president working on the capital markets and investor relations team at Global Logistic Properties (GLP). Her boss and the company’s co-founder, Jeffrey Schwartz, is about to meet with PERE and evidently is concerned about ensuring his appearance is appropriate for the occasion.
Such focus on the minutiae is a surprising opening impression for a man known in commercial real estate markets the world over for thinking big picture. However, it isn’t long into our visit with the 53-year-old Philadelphia native before we are engaged in conversation about the big picture. Although this man has built a career and reputation around one distinctive area of commercial real estate – outsized warehouses to be exact – his strategy is clearly informed by a wide spectrum of market forces.
Schwartz picks on Brazil, a market where last year GLP established itself as the country’s largest landlord of logistics real estate through two portfolio acquisitions. “Compare it to China and it’s one sixth the size,” he says. “Compare it to anywhere else in the world and it’s a big opportunity. It has 200 million people and more water than any other country. And, if you think about alternatives to energy or oil, water is going to be the most scarce and important resource over the next 20 or 30 years.”
Schwartz extols Brazil’s virtues: a young population, a balanced state budget, low debt, significant resources, agricultural land, oil and the list goes on. Assimilating such economic indicators is always a starting point for Schwartz when he considers markets primed for entry.
“It’s all about macro-trends and where the world will be five to 10 years from now,” Schwartz declares. “I had people who thought we [his former firm, ProLogis] were crazy in 2002 when we were looking at China. I believed China would be the biggest and best opportunity in the world from a logistics standpoint. That belief is proving correct.”
It is clear within these opening minutes of meeting with Schwartz that he likes to develop perspectives on the whole world, even if he is unsure about whether or not to wear a tie. Those perspectives very much serve as convictions.
Not that Schwartz’s perspectives have always convinced. In November 2008, just weeks after the collapse of Lehman Brothers and as markets wilted, he left ProLogis after 14 years of growing the firm into the world’s largest logistics real estate company by asset value following a clash with its board over how to address the large debts it had incurred along the way. Schwartz wanted to go one way (issue more equity), while the board wanted to go another (shrink the balance sheet).
Global financial catastrophes aside, those who have worked with Schwartz – from senior executives at the world’s largest sovereign wealth funds to local development directors – remain enamoured. Consequently, it is not surprising that less than four years later he is sitting here talking about another logistics heavyweight with him at the helm in the form of GLP.
When Schwartz left ProLogis, it dominated markets across North America, Europe and Asia and had more than $40 billion of assets comprising 548 million square feet. At the end of last year, GLP had $16 billion of assets in the nascent logistics markets of China, Japan and Brazil totalling 211 million square feet – already two-fifths the size of ProLogis in 2008. “We’re not as big yet,” he acknowledges, “but I’d like to think we’re better. We’re clearly focused on markets we think will outperform the norm over the next decade.”
A gratifying experience
Indeed, GLP has been extremely busy over the past three years. In that time, the firm has listed on the Singapore stock exchange, struck a large joint venture with the Canada Pension Plan Investment Board (CPPIB) for Japanese development, partnered with China Investment Corporation to take down the largest Japanese logistics portfolio in the country’s history, entered the Brazilian market and launched Japan’s biggest J-REIT.
Asked for one word to describe the experience, Schwartz jokes “Exhausting! No, that’s not fair. That’s a function of the jet lag.” In fact, Schwartz has just flown 14 hours from Los Angeles to be with PERE in Hong Kong at our annual Asia Summit.
“I’d have to say gratifying, and that’s because of the people working with me,” Schwartz says, attributing GLP’s milestones to the team he has assembled at the firm. From co-founder Ming Mei – his so-called ‘Chinese younger brother’, who he describes as an “all-world talent” – to Goel, who he describes as “the best analyst under 30 years old on Wall Street,” Schwartz gushes about his colleagues as if he handpicked each personally. “The greatest value I add is putting together a great team and steering them,” he says.
It also is clear from speaking with colleagues both current and, perhaps more tellingly, past that Schwartz’s emphasis on selecting and nurturing talent is a point of pride for those he has hired. “I’ve said before I’d go to hell with him and back,” says Michael de Jong-Douglas, a former managing director for ProLogis in Central and Eastern Europe. “People want to work with him,” adds Alan Curtis, another former ProLogis managing director focused on the UK. “He’s definitely an inspirational leader. The senior managers of the business never felt remote from him.”
Described by former colleagues as “intense” and “persistent,” Schwartz has a track record of pursuing targeted recruits. For example, Mei was ensnared following an interview in a restaurant when he was just 28 years old. “Before I had even returned home, I had three messages on my phone already,” Mei says. “He doesn’t take no for an answer when he’s focused on something.”
Arguably Schwartz’ most important hire, Mei went on to break Schwartz’s record of becoming the youngest-ever managing director at ProLogis and today is his equal partner at the helm of GLP. As with many aspects of their joint leadership, Mei shares Schwartz’s approach to people. “When we see a talented person, we actually build a job around them,” he says. “We see people as our most precious assets.”
Schwartz’s record of connecting with people was demonstrable even before he laid eyes on his first logistics warehouse. At 21 years old, he foresaw a career on Wall Street alongside his peers.
Filling time before a deferred entry into Harvard Business School and partly motivated by locating close to an ex-girlfriend, Schwartz took up an undergraduate accounting position with industry giant Arthur Andersen in Chicago. It was there that he caught the eye of Michael Schwarz, the firm’s head of worldwide taxation, who tried to secure his services after he graduated. “But I didn’t want to be an accountant,” Schwartz recalls. “I found a polite way to tell him no.”
It was in being polite that Schwartz agreed to meet one of Schwarz’ key clients, an Atlanta-based industrial developer called Anderson Properties. One job offer later and a career-defining decision was made. Central to that decision was the prospect of profiting from the growth he could create. “My contemporaries were coming out of Harvard and making $100,000 in year one,” Schwartz notes. “I was offered $40,000 but 15 percent of everything I did. I did a lot better.”
From that starting point through a subsequent partnership with Elmer Krauss, another Florida-based developer who he says had the greatest influence on his professional life, and then with ProLogis, Schwartz has been a man defined by the growth he generated. Indeed, a trawl through his career reveals that he has only worked for companies that are growing. In 2008, when ProLogis switched strategy from growth to austerity as the credit crunch took hold, Schwartz, then its chief executive officer and chairman, resisted the will of his board to turn defensive. It was an isolated instance of his own will coming off second best – and that led to his swift resignation.
That episode clearly still matters to Schwartz, recalling his thinking as ProLogis’ share price was in freefall just weeks after the collapse of Lehman Brothers. “I was a big advocate of issuing equity at $40 (per share) and at $30 [to address the company’s impending debt obligations],” he says. “Other people didn’t see it that way.”
The ProLogis board did not believe it needed to raise equity at the time, and Schwartz admits it would have been a big call, given no companies were doing so at the time. Nonetheless, he is adamant it was the right course of action. Time backed his conviction as, in April 2009, ProLogis did raise equity, but at a lowly $6 per share. “They weren’t bad people and they meant well, but we should have issued it,” he says. “Lots of people lost money, and I never want to see that happen.”
ProLogis regarded Schwartz as a man for expansion and said as much upon his departure. “Jeff was the key driver behind our international expansion and accomplished a great deal during his 14 years with the company,” said ProLogis lead trustee Stephen Feinberg in a statement issued to the market. Tellingly, Feinberg also said of Schwartz’ replacement, president and chief operating officer Walter Rakowich, that he was well suited to “make tough choices necessary to ensure the company is positioned to weather this storm.”
Fortune and design
Via a mixture of fortune and design, it was just weeks before Schwartz was growing a business once again. ProLogis was scrambling for solutions to its $5 billion mountain of debt maturations within two years, and the world’s banks seemingly were closed for business. Conversations between ProLogis, long-time investor Government of Singapore Investment Corporation (GIC) and the Schwartz-Mei Group, a partnership started by Schwartz and Mei shortly after Schwartz resigned, rapidly led to the $1.3 billion sale of ProLogis’ entire China operations and its minority position in a Japanese joint venture platform to the state fund.
Seek Ngee Huat, then president of GIC Real Estate, says the state fund initially was focused on ring-fencing its Japanese investment from ProLogis’ problems. However, it soon became apparent that the Chinese business was a viable investment as well. Appointing Schwartz and Mei to lead a new venture responsible for those businesses was an obvious choice. “We recognised we needed a team on the ground with operating capabilities,” recalls Seek. “Led by Jeff and Ming, we had that.”
The acquisition by GIC, which took just four weeks to complete, has been described as purchasing core assets opportunistically. An initial public offering of half of that investment on the Singapore stock exchange just one year later, raising approximately S$4 billion (€2.47 billion; $3.2 billion), supports claims it may be one of the state fund’s best-returning real estate investments.
“Putting out $1.3 billion wasn’t an easy call to make,” remembers Seek. “Everyone was running for cover and the world’s psychology was very different after Lehman Brothers, but it turned out to be the right investment.” Seek declines to confirm what return GIC has made from its investment in GLP, but he says it was “a very good return.” He adds that GIC regards its investment in GLP as one “for the long haul.”
Seek first met Schwartz in the late 1990s. “He struck me as a driven and intense young man, and he was doing such a good job,” he recalls. “That’s why we invested in him.” In 1999, GIC committed
€150 million to ProLogis European Properties Fund, the first private equity real estate fund formed by a logistics firm. Ironically, that vehicle was the outcome of the first major financing challenge for Schwartz and ProLogis, prompted by the Russian debt crisis.
After being charged with growing ProLogis internationally, Schwartz was told by his US superiors that issuing neither equity nor corporate bonds, the firm’s two traditional sources of capital, was going to be available to him. On that occasion, his solution was positively impactful for both ProLogis and, unwittingly, for the firm’s competitors as well.
“I came up with the idea to start the private fund,” Schwartz said. “When we started structuring the thing, we realised we could get asset management fees and promotes too. That was much better than what we were doing before.”
In raising $1.3 billion for the vehicle from 17 investors, Schwartz had made a virtue of necessity, and a new paradigm for the capitalising of logistics real estate companies had begun. “He was never afraid to step into the unknown,” recalls Curtis. “He faced a scarcity of funding and that would have blocked his growth ambitions.”
Schwartz admits: “I wish I could tell you it was brilliance, but it was necessity and circumstance.” Regardless, the vehicle precipitated the continuation of ProLogis’ growth story. By the time Schwartz resigned, the firm had raised €24 billion via private equity funds and had more than $40 billion of property spread around the world.
The role provided to Schwartz by GIC’s acquisition of ProLogis’ Asian operations nearly a decade later has been described by certain commentators as a lucky parachute, but Curtis does not agree. “Most of the momentous points of a career have luck attached, but funnily enough the harder you work the luckier you get,” he says.
Furthermore, as Seek testifies, Schwartz has worked hard at looking after his investors. “He gives lots of personal attention to his relationships,” he says. “He always wants to do right by people and, obviously, he expects them to do right by him.”
Man of repute
Looking forward, Seek is excited by the prospects ahead for GLP under Schwartz. With its 148.5 million square feet of logistics real estate reflecting market-leading positions across two of the world’s fastest growing economies, China and Brazil, and one underserved but mature economy, Japan, he sees plenty of scope for growth. “Of course, there’s always risk when pursuing growth for growth’s sake,” he comments. “One must know how to be defensive when the need arises.”
Thanks to the successful listing earlier this year of a $2.6 billion J-REIT, GLP’s coffers have been significantly boosted, and Schwartz sees plenty of growing to be done. In China, for instance, Jones Lang LaSalle estimates there to be no more than 150 million square feet of institutional-quality logistics real estate – an amount of space similar to that of Boston in the US or the Netherlands. “Even if JLL is off by 50 times, that’s still tiny,” suggests Schwartz.
In addition, with the staggering growth of China’s e-commerce sector, the requirement for what GLP produces is growing exponentially. “Ten years ago, 100 percent of our customers were multinationals,” he says. “In the last 12 months, 65 percent of our new leasing has gone to Chinese companies. The bulk of this economy is going to be domestic players.”
Schwartz takes another 1,000-foot view. “We have become the storefront for e-commerce,” he proclaims. “I don’t believe traditional retail goes away…but it becomes more the experience.” Indeed, he sees a future where consumers visit limited-stock stores to try items before placing an order, which is delivered – from a GLP warehouse, naturally – to their homes that day. Moreover, he sees that future in the growth economies of the world, particularly in Asia.
For now, that precludes making inroads again in Europe or in North America. Although Schwartz says “never say never,” he believes an investment in the mature economies of the West would need to arise from opportunistic circumstances. “I’ve proven we can build great businesses over 30 countries before, but I don’t feel the need to prove it again,” he says. “There are no imminent plans to do anything outside of our three markets and no burning compulsion to do so.”
What of India, another of the world’s compelling growth stories? “I will feel bad if I allow someone else to be the one to crack it, but I don’t know how it can be done,” Schwartz admits. “There is a huge opportunity but, with the bureaucracy and corruption in the country today, I don’t know how you can do it profitably and honourably. I can’t risk the entire franchise and my reputation.”
Reputation, and the forces that can enhance or diminish it, matter greatly to Schwartz. Integral to all his decisions is the impact on his reputation and that of his colleagues and businesses. He looks to treat his partners as he would be treated and, accordingly, he has come through a 30-year-plus career with a network of deep personal connections that have helped create the growth for which he searches.
Nodding to the charge, Schwartz notes that it was the best advice given to him by his former partner Krauss. “He really stressed on me that reputation is the greatest asset you ever have, and nothing is ever worth even taking a 0.1 percent risk to your reputation,” he says. “He had more influence on me than anyone else.” Hearing this, it becomes easier to understand why a man known for thinking big wanted to strike the right chord during PERE’s interview, simply by asking whether or not to wear a tie.