Pier 1, Bay 1
AMB's acquisition and development focus is on distribution facilities located in the largest and most supply-constrained hub and gateway markets in North America, Europe and Asia. We finance our transactions through co-investments with private capital partners and by strategic redeployment of capital.
Operating out of San Francisco, AMB Property Corporation is a real estate investment trust (REIT) concentrating on industrial properties. AMB's portfolio includes approximately 1,000 buildings, encompassing some 96.5 million square feet, located in 30 markets in North America, Europe, and Asia. The REIT concentrates on distribution facilities near ports, airports, and highways. In addition, subsidiary AMB Capital Partners, LLC provides real estate investment and management services for outside investors. AMB is one of the few REITs seeking to grow aggressively overseas.
The letters AMB represent the initials of the last names of the company's three founders: Douglas D. Abbey, Hamid R. Moghadam, and T. Robert Burke. Of the three, Moghadam was particularly influential in the establishment and growth of the business. Moghadam was born the only son and youngest child of a wealthy family in Iran before the overthrow of the shah in 1979. His father not only ran a successful construction and residential development business in Tehran, he also was involved in a number of other businesses, including banking and oil exploration. Moghadam went to Switzerland as a teenager to attend a British academy, where he became fluent in English. A gifted student, he graduated at the age of 16, the same year that his father died. As the only son he was expected to take over the family business. In order to be better prepared he came to the United States to further his studies at the Massachusetts Institute of Technology. In just four and one half years he earned a bachelor's degree and a master's degree in civil engineering and construction management, graduating in January 1978. He returned home to Iran to join the family business but he was still considered too young and so returned to the United States, this time to attend Stanford Business School. It was while he was at Stanford that the shah was deposed and the hostage crisis at the American embassy in Tehran unfolded. The new Islamic-led government nationalized the assets of the family business. Given the political climate in Iran, Moghadam decided to remain in the United States.
Moghadam completed his M.B.A. at Stanford in 1980, graduating near the top of his class, yet despite his academic credentials he discovered that at the height of American hostility toward Iran, no company wanted to hire him. Moghadam told the Wall Street Journal in a 2000 article, "I can't say it was discrimination, but it certainly looked that way to me. People at that time had negative reactions to anything that had to do with Iran." He received 80 rejection letters, and years later he quipped, "I actually got more rejections than interviews." The best he could find was a temporary position with Homestake Mining Co. in San Francisco. Moghadam was then hired by one of his former Stanford professors, John McMahan, to do real estate advisory work. McMahan described Moghadam to the San Francisco Business Times, as "one of the brightest people I've ever known." Moghadam soon teamed up with Douglas Abbey, a colleague from McMahan's office, to form Abbey, Moghadam & Company to continue their work in the real estate advisory business. A year later, in 1984, they were joined by Robert Burke and the three men established AMB Institutional Realty Advisors.
Initially, AMB was an investment management firm that provided real estate investment advisory services to major pension funds, endowments, and foundations. It began investing and managing on behalf of these institutions, focusing on office, industrial, and community shopping centers. In 1987 AMB decided to exit the office area and over the next two years sold off the office properties. In the 15 years the company operated before converting to a public REIT, AMB developed a disciplined approach to investing. Acquisitions started with a thorough evaluation of a property by an acquisitions officer. The deal was then vetted by a regional manager before going to the firm's Investment Committee, which following a due diligence process rendered final judgment on the deal. In addition, AMB created proprietary systems and procedures that it used to manage acquisitions as well as monitor important market data.
Because of AMB's focus on private and institutional clients, it did not join the rush of real estate firms that converted to REIT ownership in 1993 and 1994. REITs had been created by Congress in 1960 as a way for small investors to become involved in real estate in a manner similar to mutual funds. REITs could be taken public and their shares traded just like stock. They were also subject to regulation by the Securities and Exchange Commission. Unlike other stocks, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year, a provision that severely limited the ability of REITs to retain internally generated funds. During the first 25 years of existence, REITs were only allowed to own real estate, a situation that hindered their growth. Third parties had to be contracted to manage the properties. Not until the Tax Reform Act of 1986 changed the nature of real estate investment did REITs begin to be truly viable. Limited partnership tax shelter schemes that had competed for potential investments were shut down by the act: Interest and depreciation deductions were greatly reduced so that taxpayers could not generate paper losses in order to lower their tax liabilities. Separately, the act also permitted REITs to provide customary services for property, in effect allowing the trusts to operate and manage the properties they owned. Despite these major changes in law, the REIT was still not a fully utilized structure. In the latter half of the 1980s, banks, insurance companies, pension funds, and foreign investors (in particular, the Japanese) provided the lion's share of real estate investment funds. The resulting glutted marketplace led to a shakeout that hampered real estate firms less disciplined than AMB. With real estate available at distressed prices in the early 1990s, REITs finally became an attractive mainstream investment option and many real estate firms went public starting in 1993.
Avoiding Conversion to REIT Status in the Early 1990s
While dozens of newly formed REITs expanded aggressively in the mid-1990s, AMB stayed focused on its client business, managing the properties in which it often held less than a 20 percent stake. Approximately two-thirds of the portfolio was dedicated to industrial properties, and the rest to strip malls. Major pension funds and foundations that owned the majority of the properties included the World Bank pension plan, the Ford Foundation, and Stanford University. The most significant expansion in AMB's activities during this time occurred in 1995, when it opened an East Coast acquisition/asset management office in Boston. But increasingly institutional investors were looking for the more liquid form of ownership that publicly traded shares provided. It was becoming clear that AMB's advisory-based approach to real estate was being superseded by the REIT model. Merging AMB's managed assets into a REIT was not an easy task, however, as outlined in a 1997 Wall Street Journal article: "Several advisory companies ... have attempted to 'roll-up' the assets they manage into IPOs but met resistance. 'With poor performance you can't use a roll-up to solve your liquidity problems,' says Nori Gerardo Lietz of Pension Consulting Alliance. 'The Clients won't buy into management a second time.' ... Analysts say AMB is succeeding where other advisers stumbled largely because its clients are satisfied. AMB's properties have outperformed an average of private real-estate portfolios by about 4.5 percent a year for the past 10 years, according to a filing made with the Securities and Exchange Commission."
After AMB convinced its clients to form a REIT, AMB Property Corporation was formed in 1997, representing the merged assets of AMB Institutional Realty Advisors in exchange for shares of common stock. On November 20, 1997, the REIT completed its initial public offering (IPO), netting around $300 million. With more than $2 billion in assets, AMB, listed on the New York Stock Exchange, became one of the largest publicly traded real estate companies in the United States. Although now a REIT, AMB differed in fundamental ways from other trusts, which had been created by former developers who opted to perform a number of tasks, from leasing and property management to pursuing acquisition strategies. Because AMB had been a research-based investment manager, it preferred to outsource property management and development. AMB also opted to retain its advisory function, which would result in much needed private funding in the future when capital became tight. Unlike other REITs, of course, AMB had longstanding and successful relationships with private institutions that made tapping into this source a viable alternative.
AMB wasted little time in acquiring new properties, pursuing a strategy of assembling a national network of warehouse sites in key locations, including transportation hubs San Francisco, Chicago, and northern New Jersey, essentially creating an AMB brand, so that companies could house inventory in AMB warehouses and know delivery was within a day's truck drive. The San Francisco Chronicle explained in a 1998 article: "AMB shuns hot, faddish investments such as office buildings, hotels, and apartments. Those properties are cyclical and can turn suddenly cold," says Hamid Moghadam. ... 'Warehouses are very stable; the demand for them is fairly constant,' Moghadam says. 'No matter what happens to the economy, you have to distribute tires, toilet paper and cereal. It's the same with shopping centers. People have to buy groceries.'"
In December 1997, only days after its IPO, AMB picked up another 5.5 million square feet of rentable industrial properties, located in 11 U.S. markets, including Reno, Nevada; Dallas, Texas; and Albany, New York. During the first three months of 1998 it acquired another 790,000 square feet of industrial property and 730,000 square feet of retail property. AMB in 1999 took a major gamble when it decided to sell off shopping center assets and focus on developing distribution facilities for e-commerce companies. In its largest transaction, AMB sold $560 million of its shopping centers to Burnham Pacific Properties. By the time the selloff was complete in 2000, AMB had shed around $1 billion in retail assets. The goal was to devote resources to high throughput distribution properties located near airports, seaports, and trucking centers to serve customers with time-sensitive warehousing needs. The company even trademarked the term "eSpace," which stood for "expedited space" to describe the concept. In this regard AMB established a strategic alliance with Internet grocer Webvan, investing $5 million in the company and leasing more than one million square feet in three cities to the start-up. When the dot-com bubble burst in 2001, however, Webvan went out of business and AMB lost its investment. But the warehouse space used by Webvan was soon rented at high rates to credit-worthy tenants. Although dissuaded from future investments in its tenants, AMB continued to pursue a strategy of targeting industrial properties located in transportation hub markets, catering to logistics and freight-forwarding customers that needed to ship products on an expedited basis. As a result, AMB was able to command higher rents and enjoy strong tenant retention and occupancy rates.
Tapping Private Equity in 1999
AMB was successful in 1999 in drawing on relationships established during its days as a private investment manager to tap into private equity funds to fuel further growth. Through the creation of the AMB Institutional Alliance Fund I, the REIT was able to raise $300 million. AMB would co-invest at least 20 percent in the fund and also receive management fees and incentives for meeting predetermined performance hurdles for managing the properties purchased by the fund. Through these additional fees, AMB could earn an enhanced return on its 20 percent equity interest while building a larger operating platform. It also held an edge over many REITs that, because of depressed stock prices, were unable to raise additional cash through the public market. A significant portion of the Alliance Fund was used in 2000 when AMB paid $730 million to acquire 145 industrial buildings, which housed approximately 10.5 million square feet. AMB also succeeded in forming partnerships with other companies to develop new warehousing facilities. It established an especially fruitful relationship with Dallas-based Trammell Crow Co., with the two companies joining forces to develop on-tarmac facilities in airports to better serve the high-speed shipping requirements of many customers.
AMB continued its pattern of growth in 2001, although a deteriorating economy forced the company to cut back somewhat on its investments. In 2002 AMB took yet another risk when it decided to embark on what the San Francisco Business Times called "a risky international expansion." The REIT began to sell off properties in 16 U.S. markets in order to focus on 11 domestic transportation hubs as well as key international locations. Moghadam told the San Francisco Business Times, "Our strategy is tied to global trade, and this forces us to look at international markets and redeploy cash overseas. Our customers are pushing us to help them with their global problems. There are few reliable warehouse sources that are up to international standards and companies want to simplify the business relying on a few vendors." Some of those customers included such major transportation companies as FedEx, UPS, DHL, and APL, which required highly secure warehouses in parts of the world where there was a severe shortage of modern facilities. The first international development project was an 800,000-square-foot facility in Mexico City for a major multinational consumer goods company. In addition, AMB targeted expansion into Europe and Asia. It opened an Amsterdam office in order to develop projects in or close to airports located in the key cities of Amsterdam, London, Paris, Frankfurt, and Madrid. The company made its first European investments in Paris and in Asia. AMB also invested in Singapore and announced development plans for a large industrial park in Tokyo. Although well financed and well managed, the success of the company's new international strategy remained to be seen.
Principal Subsidiaries: AMB Property, L.P.; AMB Property II, L.P.; Long Gatem L.L.C.
Principal Competitors: CenterPoint Properties Trust; Duke Realty Corporation; Kilroy Realty Corporation.