ProLogis already is capitalizing on the emergence in recent years of e-commerce, or electronic/online purchasing of products and services. In one recent 90-day period, ProLogis signed new leases representing 1.4 million sq. ft. (130,000 sq. m.) of space geared to e-commerce companies. At press time, another 500,000 sq. ft. (46,500 sq. m.) was in negotiation. Companies joining the e-commerce bandwagon -- and companies formed just to ride the e-commerce wave -- require faster and more flexible distribution channels, says Seiple. Meeting such client requirements means taking a very hands on approach to customer service. That, hints Seiple, will help distinguish ProLogis from the pack.

Site Selection: ProLogis’s acquisition of Meridian Industrial Trust creates a major player -- the major player -- in the distribution facility marketplace in the United States. In your view, what synergies does the merger create?

John W. Seiple (right): Before proceeding with the merger, we studied where we were positioned relative to our competitors. The merger makes us more than twice the size of our next closest competitor, so it gives us great market coverage. One of the key reasons for the merger is increased market share in key logistics markets. It significantly increased our presence in Dallas, for example, as well as Chicago and Los Angeles, such that today, we are first or second in market share in every key logistics market except New Jersey, and we are working hard to build our presence there.

Secondarily, it expanded our customer relationships. Not only did it bring us new customers, but it increased the number of multi-market customers, such as Kraft, for whom we had done some business. We now work with them in four locations instead of just one. The multi-market customer is very important to us. Thirdly, the merger provided some operational efficiencies, because in acquiring Meridian, we added more than 30 million square feet [2.8 million sq. m.] of property, but relatively few people, to our operations.

SS: Is there a downside to being the biggest player in a market?

JWS: The biggest concern in a merger is integration, and that was my first job in my new role. We put together a team that did a superb job; integration was completed seamlessly. Now that that is accomplished, we haven’t experienced any disadvantages related to the merger. We added very few people, and we didn’t have to open any new offices. The overlap between Meridian’s operations and ours was perfect. Meridian had outsourced all their customer service elements, leasing and property management, which we never do, so there was not a people overlap. It was beneficial from all perspectives, particularly in having a bigger platform from which to serve our customers

SS: You mentioned New Jersey as a market with room for growth in the ProLogis network. What other areas will the organization focus on going forward?

JWS: Our North American network is pretty complete. We will build up a bit more in New Jersey, and we have a strong presence in south Florida, but not as strong as we’d like, so we’ll continue to develop our presence there.

On the international side, we are in four markets in Mexico, and we’ll continue to build our presence there. In Europe, we have 15 targeted markets. Our team in Europe is working very hard to build our presence there and put in place there the same type of platform we have in the United States. There’s a tremendous opportunity in Europe as companies are reconfiguring and taking a pan-European approach to distribution. We’ve done some large acquisitions there, too, including the largest development company in the United Kingdom [Kingspark Group Holdings] and the largest property company in France [Garonor S.A.]. At the same time, we’re active in Amsterdam and Rotterdam, Barcelona and Warsaw. So, we’re building our European platform very rapidly.

SS: I understand ProLogis recently signed an important new client in the United Kingdom, Amazon.co.uk. What is the significance of this contract?

JWS: That was a key transaction for us. We’ll build two facilities for Amazon, one 500,000 sq. ft. [46,500 sq. m.] and one 228,000 sq. ft. [21,000 sq. m.]. We have a strong focus on the e-commerce industry -- a vertical focus, if you will, with dedicated resources devoted to it. That increased focus is starting to pay off. In addition to the Amazon transaction, we recently completed a half-million square foot [46,500 sq. m.] build-to-suit facility for Hamilton Beach in Memphis, Tenn.; they are delivering their products to e-commerce type companies. There is a lot of activity in that arena at this time, and we’re focusing on markets we think are key markets that could benefit from e- commerce activity in the United States.

SS: What makes distribution and logistics issues different in the context of e- commerce?

JWS: There are two areas to discuss. First, there are start-up companies that never had a distribution network, so they need to roll one out. The most important thing there is timing to get products to market. Companies want to get their facilities up and operating very quickly. With our national and international presence, we’ll provide those companies a single point of contact and a dedicated team to roll out those facilities.

You also have companies that had distribution capabilities, but their business activity is increasing due to e-commerce. Those companies may need to reconfigure or expand their distribution network; we’ve been calling on those companies all along, but we’ll increase our call effort. Much of the distribution by e-commerce companies is being done by third-party logistics companies. We have had a vertical industry focus on those players for more than four years. So we’re working with the same companies in some cases, but we’re expanding those relationships, because of the new contracts they are picking up with e-commerce.

SS: What other market forces are driving companies’ distribution facility location decisions at this time?

JWS: Speed is of the essence to all corporations that are reconfiguring their distribution network or bringing a new product to market. They want to streamline the time it takes to roll out a new distribution network and their other processes, which helps streamline the time it takes to get the product to market. A continuing process is rationalizing networks to take cost out of the overall supply chain. Our structure lends itself to assisting those companies.

SS: Many companies are in the process of integrating business functions, including corporate real estate, into a corporate services unit. In what way does this change how ProLogis personnel interact with clients?

JWS: That change makes working with clients easier. If it’s done properly by the customer, there is more coordination between the different groups within a company. Historically, the vice president of logistics or operations did not have a lot of interaction with the vice president of facilities or real estate. Having a coordinated effort there falls right in line with our strategy of having multiple contacts in the organization, to have contacts in the logistics arena, in the real estate department and in the financial area of the company. The more streamlined and consolidated their decision-making process is, the more that appeals to our single point of contact and dedicated team working with them nationally and globally. If a company is very decentralized, we’ll still call on it, but it makes your [sales] effort much more difficult because you must call on multiple people in multiple locations.

SS: What are corporate clients’ biggest challenges today in siting a new distribution facility?

JWS: For any company, one of the biggest costs is transportation. They need to be in a location where they can minimize the transportation cost, but they really need to look at all costs, and come up with an optimal network design. We have an interest in a company called InSite, which markets software tools that help a company look at their overall supply-chain costs and allows them to optimize their distribution network. It will tell them cost trade-offs, for example, between locating a facility in Memphis and locating one in Atlanta. You can include all types of variables -- warehousing costs, transportation costs, labor rates and others -- and it optimizes around those variables instead of just one.

You also have to look within the areas and focus on labor. You may have labor cost rates, but that doesn’t tell you about labor availability. So you have to overlay your network study with a labor availability study as well. Labor shortages are probably the biggest problem any of our customers face today; it’s mentioned in almost every conversation we have with them. And that doesn’t necessarily give one area an advantage over another. Frankly, with the way the economy is now, almost every market, certainly every major market, is experiencing labor shortages. That causes more turnover.

SS: Could you define the ProLogis Operating System?

JWS: The Operating System is the heart and soul of our company. It is our three- part customer service element -- it’s the way we serve our customers. The Market Services Group is a team of professionals out every day working with our customers. That group works with customers locally. The Global Services Group calls on the customer at the corporate level, offering a single point of contact to facilitate meeting their facility requirements in the U.S. and throughout the world. The Global Development Group executes strategies from the technical perspective. When we are going to build a new facility for, say, Amazon.com, all three groups are involved. It brings resources to the customer base in three different ways, but in a synchronized fashion, such that it is seamless to the customer.

SS: What will be different about doing business in the new millennium?

JWS: Well, just because the calendar changes, it doesn’t mean business dramatically changes. But a number of things are changing. The main issue has to do with time frames, which are continuing to shorten. Time to get to market and time to roll out a new product are getting shorter and shorter. And processes to achieve that have to be streamlined. The successful companies going forward will be those that can streamline their processes and shorten the time frame to get their product to market or roll out a new distribution network, and the companies that can service those companies by helping them do that. Our focus is on helping our customers improve their business efficiency as it relates to their distribution network, streamlining the process.

SS: How is institutional investors’ risk tolerance evolving where investing in REITs is concerned?

JWS: REITs today are pretty conservatively structured. If you look at the leverage position of most REITs compared to 15 years ago, it’s very conservative. There are certain requirements they must follow, which are helping them become more acceptable as an equity investment.

In my view, there are two types of REITs. Asset accumulator REITs should be viewed as an alternative investment. They buy up a large group of assets, it’s a pure real estate play, and those companies will ride with the market cycles. Other REITs have an operating strategy and a customer service focus. Those are the companies in which equity investors will increasingly want to invest.

SS: What do you see ahead for the REIT industry?

JWS: I believe we’ll see continued consolidation; it’s going on today. The other trend that is not happening today but in my view will start occurring very shortly is differentiation. That’s differentiation between REITs that are asset accumulators and those that have an operating strategy and differentiation based on the earnings multiples the market assigns to those companies. You’ll see a wide divergence in how REITs are valued.     SS