Leaders, it’s often been said, are forged in times of crisis, and on that score Walt Rakowich certainly earned his stripes. The longtime CFO of Prologis became the industrial REIT’s CEO in the fall of 2008, when the stability of the global financial system appeared to hang in the balance—as did the future of the company, where stock values had plunged 96%. He turned Prologis’ sagging fortunes around, leading his team with a combination of honesty, empathy and seasoned business acumen. 

Now a world-renowned leadership speaker, a director on several publicly traded real estate companies’ boards and a published author (Transfluence), Rakowich will deliver the keynote address at this year’s NAIOP I.CON West: The Industrial Conference, scheduled for August 31 through Sept. 1 in Long Beach. Connect CRE caught up with Rakowich to discuss crisis leadership, the challenges facing industrial in 2021 compared to those of 2008 and the long-term picture. 

Q: You began your tenure as CEO of Prologis during a very challenging time not only for the company but for the industry as well. It can be argued that this moment is also a challenging time for industrial real estate: managing its own success. How do the current challenges compare to what you and your team contended with in the global financial crisis? 

A: The problems are different in many respects. When I took over in 2008, the mindset was that “the sky is falling, our financial system is coming apart, how do I lease my vacancies? Maybe my company is going bankrupt—if I lose my job, where will I find another?” The mindset today looks different, because the sky is bright, not falling, and our financial system has ample liquidity. There’s a “build it and they will come” mentality, and “my company is doing fine, and I like my company, but I have other options and frankly, I have a great opportunity to make more money and have greater flexibility with another employer, so I’m not really sure what to do.” That’s how you compare and contrast the two, but with either, you have challenges as a leader.  

Either way, as a leader your success really depends on your ability to gain and build trust. Building trust in 2008 was my objective and building trust today should be any leader’s objective as well. Trust is the most important ingredient in leadership success. It starts with the understanding of four words: “It’s not about you.” If you take yourself out of the equation, you become a better leader.  

In 2008, my main objective was to make sure people would want to follow me, that they bought into and wanted the things that we as leaders felt we needed to do. I believe that same thing is what a leader ought to be trying to do today. It’s to make people say, “Yeah, maybe I could have more flexibility or make more money doing other things, but I really love this company. I love the leadership of this company and I want to be led by those leaders.” That’s what leaders ought to be establishing and trying to build: trust in their organization, so that they can deal with whatever mindset that their employees may have. 

Q: What lessons would you impart to industrial real estate CEOs in the world of 2021, based on what you learned in 2008 and the years that followed? 

A: The first one is that you’ve got to be careful about the assumption that rents and values will continue to climb. They may in the short run, but they can quickly snap the other way. There are always things around the corner that you can’t see.  

What I learned in 2008 is that “debt” can be a dangerous four-letter word. You may think that interest rates are so low, it’s like a gift. But you have to be careful not to get too greedy. And we did. You have to be judicious in using that gift or you could lose it all. We were, as a public company, on the precipice of losing it all because we employed too much leverage in the business. The rents and values were growing like trees—we thought they wouldn’t come back down. We thought, “well, why wouldn’t you leverage during this time?” and it almost took the company down.  

The second lesson is that people are your greatest asset, and I say that even though we’re in the business of building hard assets. As a leader, you need to treat them as if they matter. I think it’s important that leaders follow the three Hs: be humble, be honest and be human with the people you lead.  

Communication is critically important; being a transparent communicator in this market is important. I think you need to encourage and listen to people, especially today. You even have to have a willingness to be vulnerable, which is hard for some leaders. It really is. But that’s what people are looking for, and if you treat them that way, you’re likely to keep them. People generally don’t leave companies; they leave managers, they leave bosses. They’re more mobile today and they have more choices today. We have to remember that as leaders when we think about how we treat our people. 

Q: We’re in a time of global uncertainty and volatility. Yet the industrial sector appears to be better positioned to weather that uncertainty, even as some of it is related to volatility in the supply chain and near-term consumer demand. What are some of the secrets to industrial’s resilience? 

A: As it relates to uncertainty, I’ve never seen a future that wasn’t uncertain. Regarding resiliency, I do think the industrial asset class has resilient characteristics, but there was a time in my career when the market was overbuilt. For 20 years in my career, rents in the business were flat and in some markets were down. I can also remember a time when as chief financial officer at Prologis, I would talk to investors who thought the market was going to go away for industrial, when Dell started manufacturing computers and sending them directly to your home. They thought, “This means we’ll be buying products directly from the manufacturer and they won’t have to be warehoused anywhere.” The FFO earnings multiple for industrial REITs was below 10 at that point in time, and now of course it’s two-and-a-half to three times that. 

The point is that the narrative changes quickly. It doesn’t necessarily mean that the market dynamics change, but the narrative can change. Right now, if you go by the narrative, we’re going to need a growing number of industrial facilities for the rest of our lives. But again, the narrative may change. 

With all of that, I was in the industrial sector for 30 years and I agree that the product type is really a good one, for several reasons. One thing I was always attracted to is that it had relatively low capex requirements, and that reduces the capital risk for investors. It is also needed by a diversified pool of customers who are moving goods throughout the world, and the market is so large that one or two developments can’t overbuild it. You can build a big downtown office building and that one building, that one decision, may overbuild the market. It takes a lot of decisions to oversupply industrial, and generally when an industrial market gets overbuilt, it is typically caused by a strong downturn in demand. Normally, demand snaps back at some point in time. 

So industrial has a lot going for it from a real estate perspective, and one of the things I always liked about it was that it wasn’t sexy. Generally the people I worked with didn’t have big egos.  

That being said, people should be careful not to think that the current market will last forever. I’ve seen the market in the past when it wasn’t nearly as resilient as it is today and the narrative hasn’t been as good as it is today. My guess is that whatever has been, will be again. 

Q: What lessons can real estate leaders in particular derive from your book Transfluence? 

A: If you boil it down, there are three key takeaways. The first is that the world is changing very rapidly, and people now expect more from leaders in what I call glass houses in the book. What I mean by that is that everybody can see almost every move you make as a leader. We have so much transparency in the world, we have greater access to information and we have an acceleration of ideas that completely change almost every day. People have greater access to you, and then there’s this intense diversity that’s out there: cultural diversity, geographic diversity and emotional diversity. So the world is much more complex for leaders than it ever has been. 

The second thing is that leaders have to adapt to that changing environment. When I grew up in the business, “command and control” was how many leaders chose to lead. I don’t think you can get away with that anymore; I don’t think people follow command-and-control leaders. Maybe they do in the military, but not in corporate America. Leaders have to be more empathetic today about the needs of their workforce, and if they don’t, they’re going to be left in the dust. 

The third thing is that people will follow leaders they can trust. Getting back to what I said at the beginning is that idea that “it’s not about me, but it is about the people I lead.” What that means is that it’s important that you compartmentalize your own internal pride and fear. As a leader, when you begin to get prideful about yourself or fearful, you begin to look inward. And you can’t look inward; you have to look outward toward the flock that you’re leading. Leaders that can compartmentalize their pride and fear are more adept in this environment. Demonstrating openness and transparency is critically important; it’s what people look for. They don’t always look for you to agree with them or expect you to agree with them, but they want you to be open and transparent. They also want you to be authentic and treat them in a human way. 

These are some of the key themes that I address in my book. Transfluence is actually derived from the words “transformational” and “influence.” I believe it’s a leader’s most important objective to be transformatively influential in the lives of those they lead.