At I.CON West 2019, Molly McShane, COO for The McShane Companies, interviewed Phil Hawkins, former CEO of DCT Industrial Trust, for the opening keynote. Hawkins offered insights into the strategy behind DCT’s IPO and eventual sale to Prologis, where he’d invest in the industrial market today, and his thoughts on effective leadership.
When Hawkins joined DCT Industrial Trust in 2006, he saw opportunities to streamline and simplify the company’s eclectic asset mix. “We did not have a clear strategy when I started,” Hawkins said. “I said, ‘I think this company is a mile wide and an inch deep, and we need to reverse that.’”
It’s not easy for larger multi-city, multinational companies to decentralize, but Hawkins thought DCT needed speed and agility at the local level. “We needed to build and trust local teams, and give them space to make mistakes and make things happen.”
While there are many benefits to being a large company, according to Hawkins, it’s still a local business: It’s built one building, one relationship at a time. “It was my belief that we needed to focus on the organization and the people.”
Hawkins was also there to help guide the company through the downturn. “The Great Recession put so many companies, including most of our public and private competitors, in a bind, but we had a lot of luck in our timing. We went into the downturn with the strongest balance sheet in the sector. But it was a low bar to jump over.”
DCT Industrial also did more than most companies directly following the Great Recession. “We picked up a lot of great people who were laid off. We also were able to buy assets when many people were selling. We used the Great Recession as an accelerator for our strategy. We acquired great assets in coastal markets, and we never could have built as much as we did otherwise.”
Looking ahead, Hawkins said: “When the next recession hits, it will shake us. The question is, will we have the courage and the vision to take advantage of it?”
Hawkins is quick to point out there was always a fair amount of mutual respect between the two companies. Prologis made an overture several years ago, approaching DCT informally to explore the possibility of a sale, but in the end, “they couldn’t afford it,” Hawkins said. “Strategically it made sense, but it wasn’t the right time. We went back to our respective corners and competed against each other.”
In the five years that followed, DCT’s stock outperformed Prologis’, and DCT generated operating results that put them at the very top. Then Hawkins got a call from the Prologis team out of the blue in late March 2018 asking if he’d be interested in having a conversation. This time, the strategic rationale made more sense. From there the companies moved forward with negotiation. “We sold an $8.5 million company in 30 days,” Hawkins said with a laugh.
“In hindsight, I can say two things,” he added. “One, the merger worked as well or better than we expected. Two, I miss DCT as much or more than I thought I would.”
Thoughts on Leadership
McShane asked Hawkins how he’d describe his leadership style and how it’s evolved over time. “My leadership style is probably complicated and mixed. I’ve learned a lot over time. I’ve learned as much being led as I am being a leader,” he said.
He pointed out that commercial real estate is a team business. You want people to have a long leash, be able to make mistakes and still receive support.
“While I became a lot more collaborative later in life, that’s probably because I have less to prove and have more confidence,” he reflected. “Some of the most important mentors in my life are the people who had the courage to say ‘I didn’t like the way you handled that’ instead of quitting or pouting.”
Rapid-fire Q&A: Trends in Industrial
McShane: “What inning are we in?”
Hawkins: “The U.S. economy has proven to be resilient. Logistics has also proven to be a leader. I’m not sure that’s going to change. The implication in this question is that it’s a nine-inning game, but we have no idea where we are. That being said, I remain optimistic.”
McShane: “Do you think demand will grow for Class B and C buildings?”
Hawkins: “Location is first, second and third most important. Physical assets always age and obsolesce. So I’d always focus on location first. I’m seeing tenants make choices of location over function.”
McShane: “What do you think of the disrupters always being talked about and how would you prepare?”
Hawkins: “The best inoculation against disrupters is a good location – good real estate. I’m not going to buy cornfields in the middle of nowhere. Some locations are just impossible to replace!”
McShane: “How has increased demand for last mile fulfillment impacted your perception of brownfield redevelopment?”
Hawkins: “Don’t let ‘no’ get in the way! People are taking on sites they wouldn’t have considered five years ago. Last-mile, close-in infill, hairy deals… That’s where I’d put my money.”
McShane: “What else does the industry need to do to foster diversity?”
Hawkins: “If we want to succeed in terms of quality of ideas and meeting the needs of people, we need to do more on diversity. Diversity of ideas and perspective and background has meaningful value. It’s not enough to put an ad in the paper, put out the EEOC forms, and check a box. We can always do more.”
Brielle Scott is Senior Communications Manager at NAIOP.