Amazon’s owner doubles down on vast ecommerce stores


During the first dotcom boom, Hamid Moghadam, like many entrepreneurs, was taken aback by the idea that the Internet would one day revolutionize the way people shop.

Moghadam, then a property investor, sold the large portion of its portfolio that was devoted to shopping malls and poured the money into stores and a $ 5 million stake in Webvan, the pioneering online supermarket.

Webvan went bust soon after. But these stores were the germ of what is now one of the largest property companies in the world. The nearly 1 billion square feet of warehouses in 19 countries controlled by Prologis, Moghadam’s real estate investment trust, are the essential nodes of e-commerce and home for tenants including Amazon, Walmart and Home Depot, among others.

“We haven’t really had a new idea since 1999,” Moghadam, 64, joked about the rise of Prologis.

If the store was once derided in the property world as “four walls and a roof” it became a sensation last year as the Covid pandemic it has sparked a growth in online businesses, and a corresponding demand for facilities to deal with all those goods.

As part of retail sales in general, e-commerce has jumped from about 15 percent before the pandemic to about 25 percent shortly after. The boost to Prologis ’business has been even greater since warehouses used for e-commerce require more square footage than traditional ones to handle product returns and other spacious businesses.

As Covid-era clouds hang over office towers, shopping malls, business hotels and other real estate categories, investors are asking to put money into warehouses. Blackstone, the private equity group, has bought $ 100 billion worth of stock, with Jonathan Gray, its chairman, recently identifying e-commerce as the “primary theme of society.”

“It’s very, very good to be an industrial owner,” said Vince Tibone, an analyst at Green Street, a real estate research firm, using the industrial term for warehouses and logistics assets. “ECommerce is the tail end wind at the back of the industry.”

Moghadam did not expect the pandemic to unfold in this way. Since the 2008 financial crisis, some of the companies that own warehouses have been heavily exploited and have had problems.

“Our initial reaction was that this was going to be really terrible, and we were actually slowing down a part of our development… A kind of door button,” he said. Instead, he discovered that the growth of e-commerce that he had predicted for the next five to 10 years has happened in a few months.

The column chart of possible and managed rental space (m sq ft) showing Prologis has increased its storage space

Ecommerce as a part of retail sales may fall briefly, Moghadam predicted, since the pandemic eases in the United States and Europe, and people are no longer at home. But he is convinced that the growth of the sector will resume and accelerate.

“A whole generation of people who weren’t ecommerce consumers – older people – have now seen convention and magic… And they’re not going to go back,” he said. Moghadam also believes that companies are beginning to reverse a decades-long declining trend of their inventories.

“All those supply chains that have been really modified and optimized for impact efficiency are shattered when there is… Unforeseen disruption of any kind. And that’s why you’re facing all these shortcomings,” he said.

“For a company to lose sales because they don’t have an asset they can sell to their customers – that’s more than compensation [the] savings on less inventory transportation. ”

Moghadam’s own background is a poignant memory that things can change – dramatically. When he was 16, his father, a residential property developer in Tehran, died. Moghadam went on to study at the Massachusetts Institute of Technology, where he earned two degrees in engineering. He went to Stanford Business School, with plans to return home and take over the family business. Then came the Iranian revolution. Moghadam remained in the United States, but struggled to find work.

An Amazon fulfillment center in Tracy, California.  Prologis counts the giant among its many tenants

An Amazon fulfillment center in Tracy, California. Prologis counts the giant among its many tenants © Justin Sullivan / Getty

“It was 1980, it was still 14 percent inflation, and oh yes, by the way, they took American hostages into Iran and it was on TV every night,” he said, adding, “I’ve never been too sure about anything. , and every time things went really well, I started to get impatient and think about what could go wrong. ”

One recent morning, a neat and clean Prologis store in Elizabeth, New Jersey showed how such structures have evolved over the decades – from static buildings where workers occasionally acquire an item to dynamic ones where goods constantly come in and out.

The 645,000-square-foot facility is managed by Fedway Associates, a liquor distributor that delivers up to 47,500 cases per day, each with its own mix and batch of bottles – many ordered the day before. They zoom in on five miles of conveyor belts and are then deposited on the trucks only in the right order to correspond to a computer-generated delivery route.

What attracted Fedway to the site? It is located between one of the most important seaports in the United States, an international airport and the Jersey Turnpike. Strangely, though, Fedway was the most attracted to parking. “If you ask an industrial user what is the critical digital demand that people have when they look after space? Parking,” said Robb Sansone, Fedway’s chief financial officer. That’s because as companies make more and more “last mile” deliveries, they need more vans – and space to park and load them.

With so much money now running out of stores, Prologis is facing more competition from Blackstone and others for a declining supply of suitable land, particularly in built markets such as New Jersey and Los Angeles. The good news is that the shortage has supported strong rents. Green Street predicts a record 8% rent increase for U.S. stores next year.

Stock price chart and lower index showing the surges of Prologis shares in growing move to online retail

But land prices are rising, and companies are demanding ever-larger structures. Some developers have taken to converting faded shopping malls into warehouses. These have the benefit of being among the population centers, making it easier to reach customers. But it turns out that residents don’t want Romanian trucks going to their cities, and retailers don’t want nearby stores to become warehouses.

“We’ve probably looked at a thousand opportunities, and we’ve done, like, three or four. There are a few but they’re very difficult to do,” Moghadam said.

So companies are trying to squeeze new life out of old structures that may lack modern dimensions and amenities, but which are well located in places like the Bronx. Moghadam said these buildings had been canceled but were now “really big warehouses by virtue of their location”.

Prologis is also trying a new approach: it wants to sell more and more services to its tenants, especially the smaller ones. Rather than just renting the space, for example, they could also provide their internet service or use their forklifts. A Prologis public service program launched a few years ago to train students for on-the-job work, can become a business.

“They’re not permanent career jobs, but they’re jobs that pay $ 25 per hour,” Moghadam said, noting that widespread criticism of warehouse employment conditions had been overshadowed. “They’re not bad at starting jobs, and they’re certainly struggling to get opiates or whatever.”

In the future, he speculated, Prologis could enter the energy business by using its roof solar panels to generate energy for its customers ’electric delivery vans. “There is a real opportunity to help customers by bringing more of these adjacent products and services that you need to be able to use our facilities,” he said.

It’s Moghadam’s original idea – but with some new wrinkles.



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