Rakowich: Of course there are risks, no question about it, but the risk are both long-term and short-term. The long-term risk is that the Euro would break up. Shorter term, the risk is lack of financing and if that could effect valuations down the road. There’s no question that those risks are out there, but the rewards are great, and have been great. Our company has been there since 1998. Europe is the largest block of people in the Western world. There’s a lot of people there to be served. In addition to that, the distribution system, or the logistics system, if you will, is really antiquated. It wasn’t originally built for a Pan European model. The system itself of warehouses throughout Europe used to be very country specific. In other words, companies would have a warehouse in every different country in Europe because of the Tariffs associated with sending product from one country through another country to a third country. Then with the advent of the EU in the 90s, it all broke down. Now companies can distribute throughout Europe on a Pan-European basis not paying any Tariffs anywhere that they are shipping goods. So now, the shipping and distribution facilities that they need are larger and more regional in scope. Because of the antiquated system, now, the opportunity for a company like Prologis to build new efficient warehouses throughout Europe is tremendous. If you look at it, you have a lot of people. You have a structural change that has taken place in the way goods are distributed. Those are tremendous opportunities for Prologis. If you think about it and look at the GDP growth of Europe, over that 14-year period of time, it’s actually been quite anemic. Europe has rarely grown at 1% per year, and yet we’ve built a $10 billion business there. So how is it that we’ve built this business without any growth? We’ve built it because there is tremendous need for what we do. Are there risks in Europe? Yes. But does Europe need what we do? Absolutely. The rewards are there, and we’ve built a great business on a long-term basis. My sense is that need is going to continue in the future irrespective of what we are seeing in the short over there.

GlobeSt.com: What is your development strategy?

Rakowich: In Europe, we are developing only on a build-to-suit basis today, meaning that companies come in, they pre-lease a building, so therefore, we are not building any speculative product. We are going to continue to be cautious in that regard until the crisis begins to subside somewhat, or we begin to see tremendous growth in demand, and then perhaps we’d change our strategy. But for right now, we are only building on a pre-leased build-to-suit basis. In the US today, we are building both spec and build-to-suit. Our build-to-suit business is taking off in the US as demand grows, but there are some markets in the US where we are building speculative product where we really believe the supply and demand are in balance and occupancies are very high. Los Angeles comes to mind as a market where it is strong enough for us to undertake speculative development. There are some markets in the United States, but I wouldn’t say we are doing it across the board.

GlobeSt.com: What regions are the most active right now?

Rakowich: We invest primarily in the largest markets. About 90% of our investment is in global markets, which tend to be markets which are port driven or have a very large population basis. On the East Coast, it is New York/New Jersey, Toronto, Washington, DC/Baltimore, Atlanta and Miami. Those are the East Coast markets or global markets where we will invest and where we will develop over time.

GlobeSt.com: Has that been driven by the Panama Canal expansion?

Rakowich: Only slightly. Obviously you know that the Panama Canal is going to be finished very soon. I think a lot of speculation is who is going to be the relative winners over time. The ports along the East Coast are Miami, Jacksonville, Norfolk, Savannah, Charleston, Baltimore and New Jersey. We have put a little bit of capital into Savannah, Jacksonville and Norfolk. But I would say is that our general view is that product comes into the ports, but it immediately gets shipped out to the major markets where the people are. People consume; ports don’t consume. When product comes into the ports, there is not a major necessarily a major need for warehousing at that port unless there are people around that port. We actually think the relative winners are going to be Atlanta, Washington, DC/Baltimore, New York/New Jersey because that’s where the population is. To the extent that product is going to move coming into the West Coast ports from to the East Coast ports, we think from our businesses perspective that the majority of the activity in building new warehouses is going to be in the major markets on the East Coast as opposed to the ports themselves. The good news is New York/New Jersey has both. We see it as a big winner with the Panama Canal. We see Washington, DC as a potential winner. Atlanta is not a port city, but we think it is a winner because we think product is going to come into Savannah and Charleston, but it is immediately going into Atlanta to the warehouse there as opposed to staying at the ports. It is not just the ports that win, but from a development standpoint of industrial buildings, the major cities actually are the ones that win.

GlobeSt.com: The company ended Q2 above plan despite uncertainty in the economy. Is this a sign of the returning strength of the industrial sector?

Rakowich: Quarter to quarter is difficult to focus on, but what we are seeing in the overall dynamics of the market are that number one, demand is steadily increasing. Is it increasing to the pace that we saw in the mid 2000s in ’05, ’06 and ’07? No, but it is definitely picking up and moving in the right direction. You have the demand side doing better and better, and the big differentiator is the supply side of new buildings, and that’s very, very low. There is 12 billion square feet of space in the US. Since 2008, each of years – ’09, ’10, ’11 and ’12 – each year will all be less than 50 million square feet of new space built. If 1% is 120 million square feet and there’s been less than 50, there’s been less than a half percent built of supply every year for the last four years. That’s incredibly low. And not only that, people think that 50 million to 75 million of space a year just goes out of stock, or becomes obsolete. We are not even developing at replacing obsolete facility levels. The supply has been really really low and the demand is beginning to take off, so what you have is positive absorption in the market, so occupancies have been rising and vacancies have been dropping. The demand is far outstripping the supply, and that’s the dynamic we’ve seen for 10 consecutive quarters, and that’s good. Occupancies are going up and rents are beginning to firm up, and so, last quarter was really just a manifestation of what we’ve seen slowly but surely happening over the last 2.5 years of our business.

GlobeSt.com: So are you confident about the industrial market going forward into 2013?

Rakowich: Confident is a tough word to use. But based on what we in the market in terms of supply and demand, we feel good about what we see in 2013. There are obviously a lot of things that have to happen, like the elections, like the fiscal cliff, like solving the deficit – there’s a lot of political things that we are concerned about. Having said that, if we just project seeing what we see in the marketplace today, we like what we see in 2013, but we’ll see what the market will give us.