On Thursday, September 22, 2022, the Cornell Baker Program in Real Estate hosted David Rupert (BA Economics ’79), Vice Chairman of Griffin Capital, a full-service real estate investment and management company that owns institutional-quality assets across the United States.
A founding board member of the Baker Program at Cornell University, Mr. Rupert’s love for teaching showed as he delivered an information-packed 90-minute talk on the inter-related aspects of real estate (RE) markets. Recollecting his time as a Harvard University MBA student, Mr. Rupert believed it would be helpful to give students an overview of the big-picture perspective on real estate markets and transactions in the US early on. In a Socratic back-and-forth with the students, Mr. Rupert explained the relative size of public and private debt and equity markets, the spectrum of lease terms within commercial real estate, and the ‘winners and losers’ of property types during the COVID pandemic. Mr. Rupert also shared the role of alternative investments in a properly diversified portfolio, something that institutions and endowment funds have increasingly emphasized since the 1990’s. Adding assets that will move the portfolio towards the top left of the efficient frontier is important. A passionate teacher – Mr. Rupert expressed his happiness with the expanded diversity of backgrounds in the Baker Program since its inception and urged students to challenge him with questions.
Students appreciated learning about investment decisions by REIT teams and their impact on the overall RE markets. Mr. Rupert drew direct links between the role of emotion in valuing deals or assets and its effect on prices. He distinguished between the fundamental value of assets and the ‘price’ determined by buyers and sellers and highlighted how it leads to the creation of opportunities for an informed investor. “Emotion is the number one reason why individual investors underperform on a balanced strategic portfolio”, he stated. “The institutional model for investing that has proven to be successful for Griffin Capital uses mathematics, not emotion. Emphasis on numbers is not an option but a necessity.”
Mr. Rupert urged students to leave no stone unturned in finding out everything there is to know about the market and the asset under consideration. When assessing the creditworthiness of tenants, “reading the footnotes can sometimes reveal the true cash generation capabilities, and/or inherent risks of the company”, he said. He stressed that with all the information available to investors today (much of it via the internet) there is no reason to be less than fully informed when making key decisions.
Answering a question about recent transaction volume dropping below the recent annual average of $800 billion, Mr. Rupert responded, “Markets are very challenging today. Many buyers use leverage, and the cost of debt has doubled in some cases —that means lower prices for sellers. In the office sector, things are even more challenging because lender credit departments don’t want more office buildings as collateral; as a result, there are very few transactions taking place. But that’s not to say there won’t be some money made in this cycle. Market participants tend to overreact, and that creates opportunities for informed players. As a property owner, focusing on tenant needs, and keeping buildings occupied is a prudent strategy—it’s much easier and less expensive to incentivize an existing tenant than to go out into the market to replace a tenant should one vacate.”
Mr. Rupert then shifted to sharing several stories and photographs of buildings the Company has owned over the years. Starting in a 2-bedroom apartment in Manhattan Beach, CA (not zoned for office use), and now operating from a large open format headquarters in El Segundo, CA (just south of LAX Airport), Griffin is one of the top integrated companies in the net lease arena, owning key office and industrial properties leased to blue chip tenants such as Shaw (a Berkshire Hathaway company), Restoration Hardware (RH), Amazon, Pepsi and others. Griffin buys existing buildings and does ground up development, with two notable transactions – a 1 million square foot warehouse for RH in California and an 800,000 square foot fulfillment center for Amazon just outside Columbus, OH. That warehouse was delivered within 12 months because Amazon needed it finished before peak holiday shipping season. The warehouse has more than 7 miles of conveyor belts inside and ships over 8 million packages a week. One of Griffin’s most successful investments wasn’t a warehouse, it was Dreamworks’ headquarters in Burbank, CA. There Griffin bought with a belief that with streaming services beginning to take off (Netflix was in its early days when Griffin bought the building), the content creation space would become highly sought after in land-constrained Los Angeles. That strategy was spot on, and Griffin sold the property to an institutional investor at a significant profit.
Mr. Rupert also shared some photos of the team building and charitable activities of the Company, which he said helped build the company culture of giving back to the communities where employees live and work. Two featured charities over the years were homebuilding with Habitat for Humanity and month-long activities for breast cancer awareness.
As parting advice, Mr. Rupert reminded Baker students that RE professionals should never take their eye off the ball. “Know what is going on in the market, know your competitors, know when it’s time to invest, but also know where you stand relative to the market and what the numbers say about what’s possible and what’s not. Always be in an analytical mode when thinking or talking real estate. Don’t think that the laws of nature don’t apply to you and your portfolio. Periodic arrogance should be dealt with before it becomes an issue”, he recommended.
Students of the Baker Program thoroughly enjoyed Mr. Rupert’s highly energetic, interactive, and fast-paced talk. The Baker Program thanks Mr. Rupert for his visit and his continued contribution to the Program as a board member and wishes him continued success in the future.