After selling $5.8 billion in assets, which it used to pay down its debts and to recapitalize, the Denver-based warehouse and distribution company of ProLogis is no ready to grow. While it has taken two years since Walt Rako took control of the company to get it to this point, the time and effort invested into the project is starting to pay off. In fact, the company started $700 million in new development projects this year, one of which was breaking ground on a 270,000 square foot building in Los Angeles near the Ports of Long Beach and Los Angeles.
“It’s our first speculative project in the U.S. in two years,” said Walter Rakowich, who is the chief executive of ProLogis, in a recent Denver Post article. “The L.A. market has tightened to the point where it makes sense to put a shovel in the ground.”
Rakowich went on to say that he expects to see the company’s growth continue into next year. In fact, he is predicting that as much as $1 billion will be put toward the new development.
“Most real estate companies are still hesitant to pull the trigger on new development,” said Rakowich. “That’s our opportunity.”
At the time when Rakowich took over as the chief executive in November of 2008, the company’s stock had reached a low of $2.60 per share. This was quite a significant drop when compared to the $60 per share price that was on the stock earlier that same year. Recently, the stock has started to rebound and is now trading at about $13 per share.
“I still remember his mantra at the time,” said James Sullivan, who is an analyst with New York-based Cowen and Co., which covers ProLogis. “He was going to bring a laser focus to the balance sheet and the effort to reduce debt and ensure the company would not just survive but thrive going forward.”
To make this happen, the company had to sell off its assets in China so it could pay down its debts. In addition, the company was forced to close down its operations in Brazil, India and Dubai.
“We didn’t see the opportunity there for the foreseeable future,” said Rakowich in reference to the markets where operations were shut down. “We didn’t see ourselves deploying capital in a capital-constrained market.”
Although the company is starting to turn around and to expand, it is still selling off some of its assets in order to pay down its debts. In addition, the company is taking steps toward leasing projects that were set into motion while former CEO Jeff Schwartz was still in his position.
“Late in the Schwartz reign, they had a very large development pipeline,” said Sullivan. “They were blowing and going and doing a lot of development throughout the world. When the downturn hit, they were left with a big development pipeline that had a lot of financing on it at a time when it was not easy to get financing renewed.”
Just a month after Rakowich took over his position, the company sold its China assets. Rakowich then led the company on an aggressive international expansion campaign, which focused primarily on Asia. Today, Schwartz is the chairman of Global Logistics Properties, which has formed a joint venture with Government of Singapore Investment Corp. and intends to acquire the ProLogis operartions in China as well as the remaining property funds in Japan.
“Walt’s got a strategy, and he’s done a nice job of executing the strategy he chose,” said Schwartz. “Walt’s good at what he does.”
Currently, ProLogis is working toward disposing of its mixed-use and retail properties, which it required in 2005 after completing a $5.3 billion merger with Catellus.
“We’re at a point where we’ve decided to part with them and go back to our industrial roots,” said Rakowich. “Our strategy is to do one thing and to do that one thing really well.”