Industrial Giant To Span Globe, Bay Area

By Sharon Simonson

The merged AMB Property Corp. and ProLogis company would own and manage close to 19 million square feet of Bay Area industrial property, according to research from Grubb & Ellis Co. But it would not gain exceptional pricing power in any regional submarket as a result of ownership concentration.

According to Grubb, in the Bay Area, the two landlords would control about 18.7 million square feet of distribution, warehouse and manufacturing space, with AMB contributing 11 million and ProLogis the rest.

That constitutes about 5 percent of the total industrial property inventory in the region, according to the brokerage. About 14.5 percent of the total portfolio is available today, it says.

“They do have a much larger footprint but can’t control rents like [landlord] Equity Office Properties does at the [San Jose international] airport,” said Grubb’s David Sass, a senior vice president in the company’s Silicon Valley office. “They do have a big enough portfolio that it will allow them in dealing with their Fortune 500 clients to be very flexible. They can help companies figure out their whole logistics chain, and it can lead from one deal to another.”

To the extent that those conversations occur directly between the landlord and the tenants, brokers would be eclipsed from the deals, he adds.

San Francisco-based AMB and Denver-based ProLogis announced Jan. 31 that they would pursue a “merger of equals.” Combined, the two real estate companies would own and manage close to 600 million square feet of distribution and warehouse space in “gateway markets and logistics corridors” in 22 countries, covering about 78 percent of the world economy. About a third of the total square footage would be in the United States.

Total assets under management would be an estimated $46 billion; private capital under management would approach $26 billion.

The merged company would take the name ProLogis and would trade under the symbol “PLD” on the New York Stock Exchange. Its corporate headquarters would be San Francisco, but its operational headquarters would be Denver. ProLogis is a larger company than AMB.

Initially, AMB Chief Executive Hamid Moghadam would share the top slot with the head of ProLogis, Walter Rakowich. Rakowich is expected to retire at the end of next year.

AMB focuses on distribution and logistics space in infill locations in supply-constrained markets close to major transport infrastructure including land-, air- and seaports. Its Bay Area operations constitute its largest market worldwide as measured by revenue and assets. According to its third-quarter financial reports—its most recent filed—the company valued its San Francisco-area assets at more than $756 million at the end of September, up from $733.4 million at the end of 2009.

According to its most recent annual report for the 2009 calendar year, AMB owned  and managed more than 110 buildings in the Bay Area including its largest concentration—the 21-building Willow Park industrial complex in Menlo Park.

In an interview with The Registry in 2010, Moghadam said the company’s Silicon Valley portfolio differs from its other space in that it is driven by technology company activity more than global trade flows.

In the fourth quarter, AMB paid $6.8 million for a nearly 90,000 square-foot warehouse on Charcot Avenue in San Jose, according to brokerage Cassidy Turley/BT Commercial. The seller was Menlo Equities.

ProLogis directly owned nearly 120 buildings in the San Francisco Bay Area in the East Bay and South Bay including the six-building Pacific Commons Industrial Center in Fremont and the 13-building Hayward Industrial Center, according to its most recent annual report.

The merged company would be six times larger than its nearest competitor, according to a report from Grubb’s national director of research for industrial properties, Rene Circ. Despite such heft, the 25 billion square-foot U.S. industrial market will remain fractured. The AMB-ProLogis merged entity would still only control 4 percent to 5 percent market share nationally, Circ said. He described the merger announcement as “unexpected and even shocking.”

Moghadam has deep ties to the Bay Area. He attended the Stanford Graduate School of Business and is a Stanford trustee. AMB co-founder Douglas Abbey also is active in the regional commercial real estate industry, presiding over recent events for the Urban Land Institute.

Mike Davis, an industrial broker for Grubb on the San Francisco Peninsula, where he says AMB controls about two million square feet of the 40 million square-foot inventory, says it is logical to expect the new company to prune and even expand it asset base to focus on core products in core markets.

“The Bay Area is a pretty core market, but in the broader Bay Area, there may be some sites that don’t fit,” he said. “It is the largest industrial [real estate investment trust] in the world. You would expect some reconfiguration in their portfolio.”

The two companies are to operate independently until the merger is consummated, expected mid-year.