Final Offer with Hamid Moghadam
[March 2010 Issue]
Moghadam came to Northern California in the late 1970s to attend the Stanford Graduate School of Business. Today he is a Stanford University trustee and chair of the Stanford Management Company. Moghadam co-founded AMB, an industrial real estate company, in 1983. The company closed its initial public offering in 1997. AMB owns and manages more than 155 million square feet of operating and development properties in the Americas, Europe and Asia. Its San Francisco Bay Area portfolio measures nearly 11 million square feet, second in size in the Americas only to Southern California.
The company’s East Bay holdings are typical of its global logistics business with occupancy driven by the movement of goods. Its South Bay properties are atypical in that they are driven by the technology business. AMB faced adverse conditions in 2009 along with the rest of real estate, even experiencing layoffs (a first in the company’s 26-year history) and a significant dip with some recovery in its stock price. However, Moghadam was upbeat on the most recent conference call. AMB’s internal research is calling for positive net absorption in its U.S. industrial markets in the third quarter and a rise in AMB occupancy in the fourth. “For the first time since mid-2008 we find that our large global customers are talking about growth,” Moghadam said. He expects investment opportunities to increase with rising interest rates. He also said AMB plans to grow by creating new co-investment vehicles. “The trend we are seeing in the private-capital business is major investors around the world, after the experience of the last cycle, really want significant co-investment,” he said. “They want to invest with operators, and we are hearing an increased interest in working with specialists as opposed to just capital allocators. We think we check all of those boxes.” AMB is traded on the New York Stock Exchange.
How did you wind up in Northern California in the real estate business?
I grew up in Iran. My father was in the real-estate development business, and I grew up walking sites and smelling concrete. I knew from a very early age I wanted to be an entrepreneur, a principal and in the real estate business. Would I have imagined 27 years ago that I would be where I am? I don’t know. It has been a combination of good luck and adjustment. I came to the United States to get an engineering degree [at the Massachusetts Institute of Technology] and afterward I was ready to go back to Iran. But that was around 1978 and there was the Iranian revolution, which made it difficult for me to return. So I went to business school at Stanford. San Francisco is where we have maintained our headquarters even as we have grown into a global company and there has been no reason to move. We now have 29 offices on four continents, but we still have about 200 people in the Bay Area.
What led you to start AMB?
I didn’t start with a focus on industrial real estate. Initially our focus was on offices and then on shopping centers. We didn’t get into the industrial space until after seven or eight years in the business. We exited the office business because we didn’t see the demographic support for demand continuing at the same rate. We took that capital and put it into industrial and grocery-anchored shopping centers. So we were two-thirds industrial and one-third retail, and we refined our investment strategy in 1999 to focus solely on industrial real estate. Since then the company has done quite well. We were doing better in late 2007, but along with everyone else we were impacted by the global economic crisis that began in 2008.
What do you see as the future of institutional money management?
A lot of businesses tied to financial services are going to go through a lot of change because of the last 24 months. It is an inflection point. There has been a huge downturn and on the other side are going to be winners and losers. Remember, your average institutional investor has a variety of managers and strategies. No one makes money every year all of the time. But there are going to be companies that have been careless with investor capital, and they are going to go out of business. Or conversely, there are going to be companies that might have lost money but who acted prudently, limited losses and made money on the upside. They communicated well during the downturn, and these companies will survive. I think we (AMB) are going to have one of our best years in our capital-management business.
The company has a long-standing focus on converting infill locations to other uses to create value. How does that apply to your properties in the Bay Area?
Industrial real estate is lowest on the food chain in any neighborhood. No one likes trucks, diesel fumes and warehouses, so to the extent that you covert to office campuses, retail or apartments, you can enhance value. For example, we sometimes invest in industrial sites and move them up the food chain. It’s a huge opportunity in the San Francisco Bay Area. Not in a market such as today’s, but over the years we expect that these properties will prove to be very good investments; municipalities also like the results. For example, our headquarters in San Francisco was once a dilapidated warehouse where people parked cars and now it’s one of the most beautiful properties on the waterfront.
Why do you support City of Hope?
Our industry has traditionally supported City of Hope. When I was asked by Mike Covarrubias (chairman and chief executive of San Francisco’s TMG Partners) to accept this honor and help out, I did a little research. I knew City of Hope, but not in-depth. The more research I did the more I liked them. They do something that is unusual other than in a university setting: world-class clinical care and world-class research.
