Fireside Chat with Hamid Moghadam, CEO Prologis

Good morning everyone. Bill, it's nice to be doing this with you. I would say it was a little bit of both. In the beginning when Doug and I started the company, we had no idea what we were doing. Actually, the original business plan was that we were going to sell some consulting services to fund a real estate development business in Silicon Valley. That's how different the business plan was. But as we got into it, we ended up doing a lot of workouts of office buildings and other properties that investors had committed to. And based on that we built a track record that put us in a position to raise our first fund to invest in real estate. By that time, we decided to get out of the office business completely because honestly, I could never figure out how you make money out of an office building with all the capex and all the cash flow that goes to maintaining the economics of the asset class. So the first fund was focused on retail and industrial, and that was very deliberate. And then a couple of years into that, and actually after we went public in '97 — we went public as a retail and industrial company. A third of our portfolio at that time was neighborhood shopping centers. Most people forget that. And then I ran into a gentleman, actually an MIT graduate by the name of Louis Borders, who was the founder of Webvan. Most of the audience is probably too young to remember Webvan, but they were the original internet grocer. And after I saw his vision and his first warehouse, I came to the realization that we wanted to get out of the retail business as soon as we could and really double down on logistics, which is what we did in the late '90s. And that's really how we became specialists in the industrial sector. And then we did all the things that got us to where we are today. But I would say the first couple of years were completely serendipitous, and all the decisions leading up to our becoming focused were actually pretty well-planned and reasonably thoughtful in the way we approached it.

Well, I think the decision to roll up a series of private portfolios — the funds that we were running — into one big company and taking that public in '97 has to be one of those key decisions. Then the other one is that in the aftermath of the global financial crisis, AM had fared better during that crisis, and Prologis really got hurt — the old Prologis — because they basically blew up their balance sheet. A lot of vacancy, a lot of global exposure, and a lot of spec development. So as we were coming out of the global financial crisis, there was an opportunity for us to combine these two companies. We were kind of Coke and Pepsi. And we were able to orchestrate that transaction in January of 2011. At the time, most people thought there's no way this deal is going to work — two intense competitors, very different business cultures and the like. And to everyone's surprise, I think, and a lot of hard work, we managed to make it work. And today it's the most valuable real estate company in the world. So we did some of it right and some of it was just dumb luck.

Well, on the side of what I wish I'd done is that after we saw the vision of e-commerce with Louis Borders, we did a deep dive into the industry and came down to comparing two companies. One was Webvan, which is the one that we were exposed to, and the other one was this little company that was selling CDs and books over the internet. And we were trying to figure out which one to invest in because we wanted to double down. So we put $5 million into Webvan, which went to about $600 million for a nanosecond and then went down to zero. And I'm actually afraid to calculate what a $5 million investment in Amazon would have been in 1999, but it would have been a big number. So that's the one I wish we'd decided another way. In terms of doing things that we wanted to do and didn't do — honestly, I can't really think of anything. As a firm, one of the important things about our culture is that we try a lot of different things and we let the market tell us whether it's going to work or not. And we're pretty good at killing things that are not working. And we're okay with mistakes as long as we learn something from them and they're inexpensive mistakes. So we tend to actually try more things than we end up doing in the long term. No, I can't think of anything that we would have done that we didn't do.

Well, it worked for us. And I wouldn't say a thousand. We try probably three or four things in a given year. And if they're successful, we keep investing more in them and develop more of them. They fail at different parts of the evolution. Some of those ideas fail in the first three months that you're working on them, and some of them it takes a couple years before you fail. But yeah, I would say a big part of our culture is experimentation and not being afraid of making mistakes and learning and moving on from that. And it gets more difficult to do that as the company gets bigger because people don't want to look bad. They don't want to be involved with a mistake. So you've got to continue to push and make sure you don't get complacent just because we built this giant company with all this cash flow coming out of it. That can breed a sense of comfort that I think is the biggest risk that any large successful company runs. So we work hard at countering that.