David Rupert, Vice Chairman, Griffin Capital
On Thursday, September 22, 2022, Cornell University’s Baker Program in Real Estate hosted David Ruppert (BA Economics, 1979), Vice Chairman of Griffin Capital, a full-service real estate investment and management firm with institutional-level assets across the United States.
Rupert, founding director of Cornell University's Baker Program, demonstrated his love of teaching by delivering an informative 90-minute talk on the interconnected aspects of the real estate market. Reflecting on his time as a Harvard MBA student, Rupert found it beneficial to introduce students to the full picture of U.S. real estate markets and transactions early on. In a Socratic exchange with the students, Rupert explained the relative size of public and private debt and equity markets, the range of lease terms within commercial real estate, and the “winners and losers” of real estate types during the COVID pandemic. Rupert also discussed the role of alternative investments in a properly diversified portfolio, something that has been increasingly emphasized by institutional investors and endowments since the 1990s. It is important to add assets that move the portfolio toward the upper left of the efficient frontier. A passionate teacher, Rupert has been pleased to see students from diverse backgrounds participating in the Baker Program since its inception, and encouraged students to ask questions.
Students enjoyed learning about the investment decisions made by the REIT team and how it impacts the real estate market overall. Rupert saw a direct connection between the role of emotions in valuing deals and assets and their impact on price. He distinguished between the fundamental value of an asset and the “price” determined by buyers and sellers, highlighting how this creates opportunities for informed investors. “Emotions are the number one reason why individual investors underperform in a balanced strategic portfolio,” he said. “The institutional model of investing that has proven successful at Griffin Capital uses math, not emotion. Focusing on numbers is not an option, it's a necessity.”
Rupert urged students to thoroughly research everything there is to know about the market and the asset they are considering. When evaluating a tenant's creditworthiness, “reading the footnotes can reveal the company's true cash generating capabilities and inherent risks,” he said. He emphasized that with all the information available to investors today, much of it via the internet, there is no reason not to be well-informed when making important decisions.
In response to a question about recent transaction volumes below the annual average of $800 billion, Rupert replied, “The current market is very tough. Many buyers are leveraging and, in some cases, the cost of debt is doubled, which means lower prices for sellers. In the office sector, things are even tougher as lenders' credit arms don't want any more office buildings as collateral, and as a result there are very few transactions. But that doesn't mean there aren't profits to be made in this cycle. Market participants have a tendency to overreact, which creates opportunities for savvy players. As a property owner, focusing on tenant needs and keeping buildings occupied is a smart strategy. It is much easier and less costly to incentivize existing tenants than to put departing tenants on the market and find new ones.”
Rupert then shared some stories and photos of buildings the company has owned over the years. Starting with a two-bedroom apartment in Manhattan Beach, CA (not designated for office use) and now operating out of a large open-form headquarters in El Segundo, CA (just south of Los Angeles International Airport), Griffin is a leading conglomerate in the net lease space, owning and leasing prime office and industrial properties to blue-chip tenants such as Shaw (a Berkshire Hathaway subsidiary), Restoration Hardware (RH), Amazon, and Pepsi. Griffin buys existing buildings and develops them from the ground up. Two notable deals include a 1 million square foot warehouse for RH in California and an 800,000 square foot fulfillment center for Amazon outside Columbus, Ohio. The warehouse was delivered in less than 12 months because Amazon needed it completed before the holiday shipping peak. The warehouse has over seven miles of conveyor belts and ships over 8 million packages per week. One of Griffin's most successful investments wasn't a warehouse, but the headquarters of DreamWorks in Burbank, California. Griffin bought the building believing that with streaming services starting to take off (Netflix was in its infancy when Griffin bought the building), content production space would become highly sought after in land-limited Los Angeles. The strategy worked out well, and Griffin sold the property to an institutional investor for a huge profit.
Rupert also shared some photos of the company's team-building and charity work, which he said have helped build a company culture of giving back to the communities its employees live and work in. Two notable charity efforts over the years have been building homes with Habitat for Humanity and a month-long drive for Breast Cancer Awareness.
As parting advice, Rupert reminded Baker students that real estate professionals should never take things too far: “Not only do you know what's going on in the market, who your competitors are, and when to invest, but you also know where you stand relative to the market and project what the numbers say is possible and what isn't. Always be in analytical mode when thinking or talking about real estate. Don't assume that the laws of nature don't apply to you or your portfolio. Occasional arrogance needs to be addressed before it becomes a problem,” he advised.
Baker Program students thoroughly enjoyed Rupert's highly energetic, interactive, and fast-paced talk. The Baker Program thanks Rupert for his visit and for his continued contributions to the program as a board member and wishes him continued success in the future.