Terry Montesi and Kevin Kessinger sit down with Luke Petherbridge, CEO of Blackstone’s Link Logistics, on Leaning In to explore how e-commerce, industrial real estate, and physical retail have evolved from competitors into complementary partners. Luke brings a rare perspective; he’s led major platforms across retail, multifamily, and industrial, including roles at DDR and Blackstone’s ShopCor and LiveCor. The conversation unpacks how omni-channel models have reshaped distribution networks, why speed has become the defining customer promise, and what it takes to operate at scale in today’s market.
They discuss:
– Why Amazon’s logistics footprint expanded from 100 million to 700 million square feet in a decade
– How industrial and retail real estate now serve overlapping functions in the supply chain
– What Blackstone’s thematic investing approach reveals about macro trends and real estate fundamentals
– Why seller financing and public incentives have become essential to new retail development
– How AI is being deployed in industrial operations beyond automation and chatbots
This episode offers a grounded look at the structural shifts connecting logistics, retail, and consumer behavior for investors and operators navigating a post-pandemic economy.
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Transcript:
Luke Petherbridge: This race for speed is insatiable. I mean, Amazon talk on their earnings call about how do we go three-hour deliveries from some same day. I think what’s happened is we’ve seen that commodity level part of retail really get penetrated, and it started with books, then… It started with really books, then electronics.
We’re like, “That’s where it’ll stop.” And then it’s like, oh, clothing can get delivered, and then it’s shoes, and then… And all of a sudden it sort of expanded at rapid speed. So I think where we sit today, it won’t grow at the same clip. I mean, that was like that step function, but there’s probably it’ll con- the penetration will continue.
Retailers that sit inside that commodity space are probably gonna come under pressure. But what that does, it breeds better retailers that are a lot more experiential and local in nature, and that’s where I think, you know, you’re seeing, you know, that the physical stores really sort of play a huge role in their growth.
Terry Montesi: Today I’m excited to welcome my friend Luke Petherbridge to Leaning In. Luke’s the CEO of Blackstone’s Link Logistics, one of the largest owners and operators of logistics real estate in the country, the kind of platform that quietly powers how everything we buy actually gets to us. But what’s super interesting about Luke is that he’s been involved across our whole industry.
Before Link, he ran ShopCorp Properties, Blackstone’s retail platform. He also ran LiveCorp, Blackstone’s multi-pet- multifamily platform. And before that, he was CFO of DDR, one of the largest shopping center REITs in the US, and that’s where we met ’cause we were partners long ago So Luke has sat in the top seat of retail, housing, and now industrial and logistics companies, and there aren’t many people who can connect those dots the way he can.
That’s one reason I was super excited about this podcast. With everything happening right now, the consumer, the capital markets, the way retail and industrial have continued to converge, it’s a great time to step back with someone who sees the whole picture at a very high level. As if we need anything else to make this episode more exciting, our president and COO, Kevin Kessinger, worked closely with Luke at ShopCorps, and at DDR before that, which is where I also met Kevin.
And I’m told even before Luke officially moved to this country, he and Kevin had a connection, and Kevin promised us to keep us honest. So Luke, welcome to Leaning In.
Luke Petherbridge: Thanks for having me. I’m really excited. Kevin also told me to love the brown, so-
Terry Montesi: There you go … that’s
Luke Petherbridge: another thing Kevin’s done for
Terry Montesi: me.
And, and I’m so privileged and happy that I get to see you in person. Yeah, I really appreciate it. Thanks for having me. So thanks for being, thanks for being here today. Thank
Luke Petherbridge: you, Terry.
Terry Montesi: So Luke, for our audience, let’s start at the beginning. Tell us about your journey, where you started, and
Luke Petherbridge: how’d you get to where you are today.
Yeah. Well, I’m not from the US. No you’re not. Uh, no. Uh, so grew up in Australia, uh, worked in finance there till I was about 30. Probably the formative years w- No
Terry Montesi: Vegemite jokes today.
Luke Petherbridge: No Vegemite jokes , though, which I do love Vegemite. I do miss Australia. Uh, but you know, sort of worked in, uh, this small business that went from, like, 30 million of assets to about four billion, four or five billion.
But they… We took three different REITs public, so I got to learn real estate. So I didn’t choose real estate, I sort of fell into it, and took a US REIT public in Australia, a Japanese REIT public in Australia, and a European REIT, and sort of started to learn real estate. Um, but it was the feverish years.
This was pre-GFC. Um, and then I went to Macquarie Bank, which is obviously a very large investment bank, and had a partnership with DDR. That’s where I got to meet Kevin. Uh, I was in Australia, Kevin in Cleveland, and we worked through, uh, what was MDT, which was really an over-levered retail business. Our largest tenant was Mervyn’s- Wow
uh, which that, that makes it hard when it’s 11% of your rent roll. And when I joined there, within two weeks Lehman went bankrupt. So what my, thought my job was, and what it actually became- was wildly different, but the learning opportunity in that sort of period, as you probably remember, both of you probably remember-
Terry Montesi: Do we ever
Luke Petherbridge: was just incredible and scarring or formative. And so there was this real opportunity, turned it around, we sold that business off and it got private. And then I remember at the time it was Dan Hurwitz and David, they called me and said, “Would you move to, would you move to Cleveland?” And I’d been to Cleveland a lot, and I- From
Terry Montesi: Australia.
Luke Petherbridge: From Australia. And it was like, you know, as an Aussie you’re like, “Sure, why not? We’ll try something different.” So we went over, we moved there, got to work in retail. Like really, and that was my first real operating company versus being an investing company. And you know, DDR was amazing. We did a lot of business with Blackstone, where I got to know Blackstone.
We grew that business. I eventually became the CFO. Got to work with great talent like Kevin and, and the team. And then moved to Chicago when I started my Blackstone last 10 years, which you mentioned. I was… We- I and others, we built ShopCore together, which was their retail business, and then I m- got moved to run LiveCore, which is their multifamily business.
And for the last five years, five or six years now, uh, I’ve been super fortunate where I’ve got to be at Link Logistics, which is Blackstone’s logistics or industrial business here in the US. We have about 1,100 teammates all around the country, 400 million feet, um, and it’s a really, really big business.
9,000 customers, and to give a context like 4 to 5% of US GDP flows through a Link building, which is- Wow … pretty humbling. And, and the businesses I get to see. We have a bunch of stuff here around Fort Worth and Dallas. Um, it, it’s a great business and I’ve been very fortunate.
Terry Montesi: That’s great. Yeah, we’re gonna talk about what, uh, what getting to see so many different businesses can mean.
You’ve held senior leadership roles at, like you talked about, DDR, ShopCore, LiveCore, now, um, at Link. Tell us what it’s like, what it’s been like working in three different property sectors.
Luke Petherbridge: Yeah. It’s- It’s more alike than you think. When you really think about real estate, you know, at the end of the day, we all have a customer.
What’s u- very unique about retail is you have a customer and a customer’s customer. Yeah. In multi, the resident is your customer, and industrial, our tenant is our customer. And so there’s a lot of similarities about location matters, proximity to consumption, proximity to people. Um, but it’s been really fascinating to see the different levers that drive different businesses and what you can a- adopt.
So I’d say in industrial, it really… the, the customer, it’s very transactional. A lot of merchant builders, l- very broker centric, and the brokers are very important. But this notion of the customer really is something that’s new, and Prologis, who’s a, who’s a great firm, but Link, we’ve really leant into the customer, where from retail, national accounts and customer is almost core to who you are.
This was new. And then when you go to multifamily, the, the, the depth of data and information that they have on every building, every unit, how they can move and transact at operational intensity, at speed is something that’s really unique, and that was something which we got to take to industrial. So they’re very similar, but there’s nuances in every business.
Then, and what I’d say is if you can learn from those nuances and morph them into other businesses, we’ve found that to be wildly successful at Link.
Terry Montesi: That’s super interesting. So you’ve been now, as, as you mentioned a second ago, at, at a Blackstone entity now for over 10 years. Blackstone’s the largest commercial real estate investor/owner operator in the world, and they’ve consistently outperformed their peers over multiple cycles.
What do you consider to be their secret sauce or competitive advantages, and what are some key lessons learned from your time at Blackstone?
Luke Petherbridge: Yeah. Um, I mean, one, they’re, they’re amazing partners. I’ve been super fortunate to be inside their ecosystem for now a decade, and even longer at DDR, they were a big partner.
I think a few things that stand out, they have just great people that care a lot about their business, that really pay it- like, the attention to detail at Blackstone is something that’s really unique. They also sit a very unique spot. The scale and access to data and information, um, is really somewhat unique, where you think about the access, like John and Steve, the most senior levels of the company, their private equity business.
They have hundreds of portcos where they can see whether it’s retail spending or, you know, CapEx expansion, and then all the way through the retail or the real estate complex. Like, you can connect dots between industrial and multifamily and retail spending and data centers. You know, I think that ability to connect the dots and that access and purview really is unique.
And I think I use the word scale very deliberately, ’cause size is, you can, you can go buy size. Like, in theory, anyone can be… if you have the money, you can be really big and have size. What Blackstone has been able to do with really smart people that care, and the do- is to connect all these dots and find these insights early, and I think they’ve been very, very good about thematic investing where they can.
So, you know, it’s very fortunate as we plug into that, one, being a giver of information to them, but also receiver. It’s been wildly helpful at Link, Leafcor and, and at ShopCor.
Terry Montesi: Thanks. Well, I’ll, I’ll follow up on what you just mentioned, thematic investing. The, the… What you hear a lot about Blackstone is that they invest in big macroeconomic themes and not really real estate.
Help us understand that thought process.
Luke Petherbridge: Do you know, I’d, I’d probably push back a little bit on that. I’d… If you buy, when you buy a real estate portfolio, they are out there looking at the real estate. Um, I think they are real estate investors, but because they have this very unique opportunity to see macro trends early, um, you know, for Link, you know, really it was this explosion of e-commerce.
They saw that earlier than most. They really sort of set themselves well in the mid 2016, 2017, and then into COVID, like before COVID happened. Um, not that they foresaw COVID, but they start seeing these themes in whether it’s consumer behavior, whether it’s travel and leisure. Data centers is more recent, which is outside Link.
But I think they’re able to overlay that with still very much intrinsic real estate, um, walking real estate sites. You know, they, they want to be on, you know, talking about leasing, how we think about fundamentals, so. But I think at the end, good neighborhoods. They talk about this good neighborhood strategy and, you know, where good neighborhoods sort of co- uh, coexist, whether it’s e-commerce or, or infrastructure at the moment.
You know, you seem to get better returns over the long term.
Terry Montesi: So they are both thematic and real estate.
Luke Petherbridge: I think they, they merge it really, really well together.
Terry Montesi: That’s great. Yeah, so, um, we were talking earlier, uh, about the industrial business in the US. So tell us, tell us about what you’re seeing. Give us a look inside what’s happening in the industrial and logistics business across the US.
Luke Petherbridge: Yeah. So right now, um, so if you sort of… If we… The way back machine, I think 2020, uh, we go into COVID, we have this explosion of buying online, things getting delivered, supply chains being stretched. Massive growth for our business and our sector. Everyone started to be a developer. Everyone became an industrial developer because they thought that was a cool thing to do, and you could make a lot of money.
And our, our sector grew. If you go to any market, there’s a lot of supply. We were talking about Boston before, which is, which had a lot put in. And then so ’22, that sort of euphoria slowed and it, we sort of felt like we probably delivered a little bit more. And so from ’22 to today, supply is down 50 to 60%, so new starts is off considerably.
Um, demand has normalized. There’s been a lot of absorption. And what we’re seeing right now is this multifaceted demand profile, and we’re seeing really strong early signs and strengthening signs in our business. So e-commerce continues to grow. You see Amazon, Walmart has been a big, um, leaser and, and grower in that space.
But we’re seeing that demand over that is secular. We think, uh, you know, if you look at the working population in a decade, 50% of the American working population grew up with Amazon Prime. We all learned to buy online. I look at my kids, they just assume everything’s online first. So there’s sort of this, that’ll start to drift and agent e-commerce will probably help that The other thing that’s happened in the last five years has been this huge reinvestment in the country.
There’s over 200 new factories or plants, whether they’re batteries, solar, EV, uh, manufacturing plants announced. It’s, like, nearly a trillion dollars being redeployed back into the country. There’s a spillover that’s reabsorbing it. Austin is a great example. Tesla built out a huge gigafactory. There’s all this demand for suppliers to feed the Tesla gigafactory.
And the last one, which is a little more, you know, in the last 12 to 18 months, is, it’s hard not to talk about AI, but the infrastructure spend on data centers and power and infrastructure is enormous. 15% of our new leasing over the last nine months is all to do with cooling, electrical, data center related.
So, so you’ve got this multifaceted demand profile that seems to be enduring and quite strong, and at the exact same time, supply is almost at decade low, off, uh, quite a high peak. So we went through a few years of transition, but- Yeah … it feels, it feels fairly, um… We feel solid. We’ve got solid footing right now.
Demand feels good. Supply is in check. Um, so we’re having a pretty good year at the moment.
Terry Montesi: Yeah.
Kevin Kessinger: So macro then on, on, you know, the, the industrial side and, and we’ll get into soon how that intersects with, with retail, but maybe before that. So macro level, multifamily, some thoughts, and even, I know office isn’t one that, uh, you’ve been as close to, but we’ve talked before about how some of what office is experiencing now feels like what retail was experiencing- Yeah
uh, a couple decades ago, call it. So, uh, macro level thoughts, multifamily, office, and, and then we’ll dig more into retail.
Luke Petherbridge: Yeah, I think the, I mean, the macro on residential is probably similar to retail, where it’s like you’ve got this supply sort of shortage at the moment. I think we’ve under-housed as a country.
We have been for a long time. I think we’ve oversupplied in pockets though, like we’ve probably built too much. Austin’s another great example. Mm-hmm. We’ve probably oversupplied the amount of apartments there. So I think short term there’s been, like, just reading publicly, I don’t have- Yeah. A
Terry Montesi: lot, a lot of pain in Austin.
Luke Petherbridge: There’s, yeah, there’s just a little bit of, um, I think that’s probably it, but, you know, the business itself still remains. Like, if you think long term, take away the short-term noise, I think the macro there still feels pretty good. Um, I think supply is always the thing that gets you caught. Like we ta- we were talking before about retail.
We haven’t had a lot of development for a long time, and, and you know that better than I do. But we overdeveloped into that cycle. I mean, we 20, over 20 feet per capita, which is just re- uh, much, much higher than, um, most other countries around the world. So I think supply is always somewhat of a catalyst to, like, wow, we’re oversupplying, and it just takes time.
It’s how quickly can that be reabsorbed? I think retail, I think multi probably you see the path to that, it’s probably gonna take a bit of time. Office, I think it’s gonna be, not that I’m an office expert, I think it’s very much market-centric. From what, you know, our partners that run the office business perform, what they’re talking about is, like, if you’re in Manhattan, it’s tight.
And for the office leases we’ve been doing- Oh, really? … like class A buildings in, you know, uh, like around Midtown, it’s starting to get tight again. So… Or if you go to San Francisco, like there’s certain pockets that are, that are, that are difficult. Um, the thing which we… I’d back to, um, industrial that I like is it’s low CapEx.
Like the, the carry and the, the CapEx that we’re pouring into these buildings still remains relatively in check, and we’ve seen that rents continue to grow. The utility of the building gets better. So it’s, it’s, we’ve had a pretty good macro run here. And even over the last few years it wasn’t bad. Like we still leased last year, even in the midst of all the tariffs, that noise that happened earlier in the year, it was the second-best leasing year on record for industrial real estate in the United States, even with all that noise.
So the, it sort of gives you this proxy of all this other, whether growth in, in manufacturing, growth in re- reindustrialization, growth in data centers, and the consumer. The consumer, you see it better than I do, still seems to be fairly healthy. So consumption is there and GDP, so I think, you know, that’s probably a good buoy for,
Terry Montesi: buoy for a lot of these asset classes.
So Luke, uh, something I’ve been excited to, to, uh, talk about with you is that the theme that seems to have launched Link Logistics related to e-commerce causing a structural shift in industrial demand My thesis is that the high growth period in e-commerce shifted the real estate growth that formerly would have been in new retail development into industrial or logistics buildings.
I think you’re uniquely qualified, having been on both sides of that, to connect these dots for my audience. So give us your view of what happened and how it’s, uh, flowed from ’15, ’16 on into today.
Luke Petherbridge: Yeah. I, I think your- the general direction is correct, and I think it’s very important you started in ’15, ’16 as opposed to…
People say, well, it was a COVID shock, and that create- It really wasn’t. There was this constant growth of e-commerce, Amazon Prime crossed 50 million-
Terry Montesi: The retail apocalypse.
Luke Petherbridge: Yeah. And, and we can talk a little… I think that has been mislabeled- Yeah … honestly. Now, look, if you’re Bed Bath & Beyond, you probably thought it was an apocalypse.
Um, but it’s generally, I think that’s mislabeled, ’cause I think retail right now, you go to a great retail center, it really thrives. But- E-commerce has been slowly growing, and at that exact same time Amazon was speeding up. So if we remember e-commerce 1.0, you buy something online, it’ll be there the next week, and that was kind of cool.
And then what happens, they’re like speed has been their real widget. So to deliver speed, you need a network of facilities closer to the end customer. So from ’15 to ’20, it was about speeding it up, and then COVID became this great accelerant of trends that already existed, whether it was somewhat work from home, that was already starting, whether it was buying online became an accelerant.
So this real accelerant took off. And then what happened then is everyone started to press into it, Amazon, Walmart. Walmart’s, you know, marketplace business is like one of the fastest-growing marketplaces in the world. It’s one of their growth engines. Their e-commerce sales since 2020 to now I think is like 11X, and their warehouse square footage is up like 30% in the last five years.
So they have really invested in that. They utilize the store, so we’ll come back to omni-channel. So they’ve really pressed that in. But where are we now? This race for speed is insatiable. I mean, Amazon talk on their earnings call about how do we go three-hour deliveries from some same day, and the way to do that is you need more square footage.
So a decade ago, Amazon had about 100 million feet of industrial, they now have 700 million feet. So it’s been an enormous infrastructure build-out, a fixed network that now can absorb at rapid speed the throughput, and they’re delivering on this customer promise. But it really, even if you go back to the very beginning, it’s really you’re trying to deliver value to the customer.
So if you’re delivering value to the customer, some of that value could be a nice lifestyle center. It doesn’t get delivered, like you’re actually delivering an experience. Other things like if you want to buy a fry pan, the value to me is if you can deliver that to my door this afternoon, that’s considered value.
So I think what’s happened is we’ve seen that commodity level part of retail really get penetrated, and it started with books and, started with really books and electronics. We’re like, “That’s where it will stop.” And then it was like, oh, clothing can get delivered, and then it’s shoes, and then… And all of a sudden it sort of expanded at rapid speed.
So I think where we sit today, um, I think there is a grow- well, ne- it won’t grow at the same clip. I mean, that was like that step function, but there’s probably it’ll con- the penetration will continue. Retailers that sit inside that commodity space are probably gonna come under pressure. But what that does, it breeds better retailers that are a lot more experiential and local in nature, and that’s where I think, you know, you’re seeing, you know, that the physical stores really sort of play a huge role in their growth.
Terry Montesi: But what percentage of- y’all’s business do you think is satisfying e-commerce? E-commerce.
Luke Petherbridge: I’d say it’s 25% to a third. Is that- Big
Terry Montesi: chunk.
Luke Petherbridge: It’s a huge chunk of our business. Now, whether it’s 3PLs, I’d say that that’s e-commerce and retail, like whether- Yeah … it’s moving into a store. But yeah, consumption- Yeah
is probably about a third of our business is that. I mean, Amazon would be the largest, um, customer on nearly everyone’s w- any large company’s web role.
Kevin Kessinger: So if that’s been the progression with, with Walmart’s distribution network and, and warehousing and, and if Amazon has made, you know, substantial, uh, progress in, in, in placing their, uh, their facilities closer to where, where people are.
We used to talk about how expensive it was to actually get things to a consumer directly at their home. And, uh, when we last worked together, we were firm in the conviction that it could not be done, at least at the time, profitably. How much is that gap closed? Can anybody- We were wrong … do it profitably yet?
Luke Petherbridge: Yeah, you can do it profitably. Um, so Amazon, to use some stats, uh, 87% of Americans live within an hour of an Amazon facility. You don’t know that, but so they can get things to you very quickly. Uh, their supply chain network, I’d say is best in class. Um, to give you an idea, when we last worked together, that was like 50%.
So they’ve got more dense, more urban. You know, now there’s a truck running past my house four or five times a day, so that incremental package is actually, you’ve actually got the fixed network. So it was really the fixed network, once you have that running, then it’s about how can you run the throughput through it.
So you need a massive marketplace. They have that. You need huge GMV, so gross sales. They’ve got that. Um, so they, they’re able to do that, um, fairly efficiently. Their average cost per package or per unit in, if you look at their earnings over the last five years, is down 15%. So they’ve been able to in a, in a…
By the way, that’s an inflationary environment. Yeah. Think about how much inflation’s- Sure … gone in the last five years. They’ve been able to cut per unit delivery costs by 15%. We- And that’s all to do with they’re just leveraging the, the network they’ve built. So it is profitable. They’re doing it faster, but they constantly reinvest for the final frontier of the customer.
Like, we can do it in a day, let’s do it in six hours. If we can do it in six hours, let’s do it in three hours, and that seems to
Kevin Kessinger: be their focus. So Amazon can do it. Walmart, uh, you didn’t, uh, specifically say, but I would think Walmart- Can do it … uh, can, can do it. Um, is there then a huge gap between those two and, and everybody else?
Luke Petherbridge: I think if people are doing it individually, it’s very hard to do at scale. So could Target do it? Um, I, I haven’t dug into their numbers. Probably. But then what happens is they use Spreetail or GXO Direct, they start using 3PLs to sort of fulfill that last mile. The other thing to note, like remember they- they’re solving for…
‘Cause I mean, I think Walmart’s promise is we can deliver it in like 30 minutes. Like speed is what they’re solving for. If you’re buying a Canada Goose jacket, you don’t need it the next day. It can… So the quality of the, like the good and the speed don’t necessarily have to be the same. So you know, higher of luxury goods, you’ll wait longer and they, they’ll still make benefits, their margin can cover it.
So I think if you’re trying to chase this commodity component, it’s hard unless you have a huge fixed network, and I think there’s only a few that have really invested in it. And it’s, it’s been an evolution. It’s been 20 years for Amazon to get to this place and, and it’s not stopped. I mean, they constantly reinvest and use automation and faster and more network, more you know, nodes to be able to deliver.
So there’s still a growth engine there.
Kevin Kessinger: So if, and, and I’m sorry, I just, uh, I… The, the retail and the omnichannel part is just, just fascinating. So if, if that’s the model to actually bring it directly to, uh, to, to the store, there are other aspects of the, the omnichannel, uh, model where it either goes to the store or, um, I, uh, or groceries online and, and all I have to do is drive by my grocer on the way.
What’s working well, um, either within your space or the retail space outside of just the deliver it directly to the customer right now?
Luke Petherbridge: Well, so on the retail stuff I’d ask you what’s working well, ’cause I’d be s- fascinated. I think, um, what we’re seeing is really the customer wins. If the customer wants to pick it up, you have to be able to serve it.
So if you don’t have that option, you lose the customer. If you can’t deliver it to their door, you better have a product that will make the customer come to you. For us, what we found is the hub and spoke network, very large facilities, sortation facilities that get it closer to the consumer. Inventory goes up, speed goes up, and then when you read through Amazon’s, uh, like whether it’s supplementals, they talk about conversion rate.
Conversion and speed are d- highly linked. If all of a sudden something says, “Well, it can’t be delivered,” and we’ve all done it. You go to buy something, it’s like, “It’ll be delivered in three days.” Like, nope, don’t want it anymore. And it’s… And by the way, we do that, so imagine now being a 20-year-old that’s only accustomed to everything is delivered within a day and this is two days?
Like, no thank you. So they’re solving for that. So I think what’s working well, sub-same day, speed delivery. You look at the Walmart ads they’re running right now. I mean, it’s all about speed, so this speed is sort of the notion which everyone’s chasing. But which I guess the omnichannel component or buy online and pick up in the store solves that speed component, ’cause you go pick it up.
Terry Montesi: So, uh, the winning distribution channel, as we all know, has emerged, and it’s omni-channel retail, um, where stores and warehouses work together to give the customer a, a, a much better experience. Speed, uh, as you were talking about. Help us understand why that happened, why that’s good for consumers, and what it means for retail and retailers and for industrial, the industrial real estate.
Luke Petherbridge: Yeah, I mean, the old adage, the customer’s always right. Isn’t that, like, we’ve sort of landed back at the very beginning. Um, there’s a lot of customers, and I’d say that skews younger, love to get stuff delivered. And it’s, and it’s product specific. Like, I really don’t like getting my groceries delivered. I like doing that.
But yeah, there’s a lot of goods that I’m totally fine with. Same here. I think the… You sort of talk a little bit about how these two sectors are more complimentary than competing. I think there was a long period there, partly because there was sales, retail sales were moving away from stores, and a lot of retailers that were, really didn’t reinvent themselves with the right merchandise or the right experience.
‘Cause there’s a lot of retailers that have great retail experiences, and when you walk in, you’re like, “I like to come to the store. This is an e- experience for me to buy whatever I want to buy.” But a lot of them used e-commerce basically, you know, um, was the casualty of my business Other retailers have said, “Here’s my chance to reinvent myself.”
Walmart’s done it exceptionally well. Ulta’s, like there’s all these brands that have really sort of been able to grow themselves and reach way beyond where the store could actually reach. So I think it’s very, I think they are somewhat complimentary. I think there’s areas that, you know, obviously they’re chasing like we always do.
We, we compete for the same customer, but I think, you know, whether it’s from the f- the port to the, the person or the door, the store can be part of that, it can be directly delivered, but the customer’s always right. So the, the right approach seems to be you have to be
Terry Montesi: able to solve-
Luke Petherbridge: Both and … you have to solve for both.
And there’s a branding point of having a store. Um, so I think those retailers that have been able to navigate that well have done the best. Those that sort of really ignore one or the other have struggled, and I think Walmart is just such a great story. Think about what they’ve done in the last decade.
They’ve built a marketplace, they’ve grown their supply chain network, they’re now growing stores again. They’ve actually got more brand awareness and customers going. Like they’ve really, but it costs a lot to build out that network. So I think, you know, retailers that really focus in on that I think can be the winners in all of this.
Kevin Kessinger: So even if the businesses are, are complimentary from a real estate point of view, is, is the inevitable conclusion rent convergence when the-
Luke Petherbridge: I would love my rent to
Kevin Kessinger: be retail
Luke Petherbridge: rents … well,
Kevin Kessinger: when, when the, uh, when, when the Amazon facilities-
Luke Petherbridge: We don’t feel the
Kevin Kessinger: same way … were- No, I’m pretty sure … were located further away, they could pay less rent.
It was a less, you know, dense area, but it cost them more to get it close to where the people were, whereas our centers were located where the people were and there was higher rent demand. And of course, vacancy in our space right now is, is about as low as it’s ever been, certainly among, you know, quality, uh, uh, retail.
So is it, is it a convergence? And if so, it sounds like maybe is it, is it industrial pushing more toward retail or retail pulling back at all?
Luke Petherbridge: I think that it’s the utility of the building though, ’cause that space right beside a Whole Foods, it doesn’t… So if you just think of industrial, we’re providing goods.
You provide goods and services, so there’s a whole different… And we’re also providing manufacturing or facilities right beside Boeing. A Link, a great Link factoid, every Starburst wrapper in the United States is printed inside a Link facility, which is kind of cool. Like that is never gonna compete- With an industrial building, so, or a retail building.
I think what the buildings are used for create the separation, and I think it’s very, it’s much easier to build industrial, like supply the market. And I do believe proximity matters for industrial more than it has in the past. I think proximity is now mattering ’cause speed and customer satisfaction or speed to a facility, um, or to a manufacturing facility matters.
But it’s never gonna be as important as how close can the sh- can the consumer drive to me. So I do think there will be a premium for retail because, you know, if you’re in a, you’re probably in a zone where you can’t build industrial. Yeah. And it’s gonna be something that has all these other amenities around it.
So there is probably some level of, like-
Terry Montesi: Convergence …
Luke Petherbridge: yeah, or just at least there’s some relativity of it. ‘Cause if, if the gap was too wide, people are like, “I’ll just put all my, I’ll have a smaller store and have more in a warehouse.” Yeah. I think you will like that. But there will be some level, but it’ll never converge.
I don’t, I, I think the utility of a retail center is gonna be just enough different than what an industrial building offers. Um, and we found the utility of our buildings has gone up, so what they’re actually willing to pay is drastically more because, you know, the actual, the most expensive part of supply chain is, is transport.
And it’s not even close. Like, the average warehouse is, like, 5 to 8% of the total cost. Labor in the warehouse is next, and then transport is by far the most. So you’re naturally always solving your network to minimize transport as, as much as you possibly can.
Terry Montesi: But along those lines We’ve talked about earlier when we were together, uh, that we’re coming to the end of a, I guess it’s like a 17-year down cycle for retail development and capital markets for, uh, institutional capital for development.
Um, do you have a sense of how much of the logistics real estate success came at the expense of retail over the last 10 to 15 years?
Luke Petherbridge: I think some of it. I think particularly in the middle of COVID, that was such a shock. I think there was, I think there was like a, it was like a, a tap that was sort of dripping and it just sort of slowly…
I mean, Amazon built a really big business, and I think what they saw and e-commerce saw was the customers want this service, we’re gonna be able to go deliver it, and not just, you know, Amazon, but a lot of, you know, uh, retailers started to build out their franchise to be able to do that as well. I think more recently, I think that success has diversified.
You know, e-commerce still g- is growing, and I think a thing we’ll be talking about in five years, we’ll be talking about agentic commerce, where, you know, I want to cook this meal. Do you want me to order everything? Yes, I’ll get it delivered. Or, you know, I’m going on a holiday, can you book it all? Like, I think you’re gonna start finding this agentic commerce, which will start to grow the pie.
Retailers have to adapt to that. But we’re seeing so much more, like we’re just… It’s either reindustrialization of the country, data center spillover, aerospace and defense is, is real. Like, you know We’re in conflict. Yeah. You need a lot of, like there’s- Yeah … a lot of space. You got a-
Terry Montesi: Demand driver …
Luke Petherbridge: you go down to LA right now, like I mean, the amount of space that all these defense contractors are taking up is, is real.
So I think there’s some element that was there. Um, I think some of it was just re- retailers that have probably… Retail has been an evolution. Retailers that were really hot once, they sort of, if they don’t keep reinventing themselves and doing really well from my experience, they struggle, whether e-commerce is there or not.
Yeah. Like retailers, retailers were going out of business well before big e-commerce came along. Yeah. They were, ’cause another one would build a better widget or a better store or a better experience or a better product, and I think, you know, e-commerce is like saying, “We’re gonna be- we’re gonna build a potentially better delivery model for some customers,” but the goods still, you know, hold the day.
But a well-merchandised great store I still think does very well.
Terry Montesi: Yeah. You mentioned earlier that, uh, in your mind, retail and industrial are now complementary asset classes, and I think that- that’s kind of almost part of the definition of omni-channel.
Luke Petherbridge: I think that’s right.
Terry Montesi: And so you, you, you then also believe that physical stores are a necessary part of a successful retailer’s distribution network.
Luke Petherbridge: I think in the main.
Terry Montesi: Maybe not Amazon.
Luke Petherbridge: Some people, I mean, I… Look, I think they’ve… I mean, tho- everyone’s toyed with stores. I think, I think physical real estate is super important, whether it’s an actual store or a last-mile distribution facility, the n- the l- the location network of this physical real estate really matters, and I think they’re coming to it from different ways.
I’ve got a, a store network that the customer comes to me, a great creative experience. I think there’s a lot of retailers that do really, really well at that, and then there are others like I’ve got a product, and if you’re a small, a very small retailer. Like I’m gonna now, I’m gonna distribute this nationwide through Walmart or Amazon or some marketplace.
It allows these new retailers to emerge without stores, get traction, and actually then start to open stores. I mean, there still seems
to be these, um, online-native brands start opening retail real estate, but it, it does force you to be better. I think across the board, like retailers just need to be better on merchandise, on delivery of a service, on delivery of value.
Terry Montesi: Yeah, the e-commerce challenge has made retailers better I
Luke Petherbridge: think. I, I think it, I think it’s…
You walk through a great retail center, it’s vibrant, has great brands that are relevant, great stores, great restaurants, and it’s busy. Um, you know, I go to retail centers around my house, they’re packed. You need more parking, but it’s packed.
Kevin Kessinger: It’s too busy. Nobody goes there. Yeah. Right. Well, listen, we,
we, we’ve talked about it, uh, a bit on the fringe with some of our answers. Uh, perhaps AI is the next opportunity and challenge for retailers and, and others to emerge. You and I have talked about it. Uh, I, I do hope you’re still leveraging your, your Milo, uh, agent, uh, to, to help you every day. But, uh, through all of the talk, uh, can you share anything, what is actually…
how are you actually leveraging AI in the logistics space right now? Yeah. What, what’s real versus just happy talk?
Luke Petherbridge: It’s super early. I mean, you’re, y- you guys are probably a bit more of an expert than I am. It’s very early. But what we were able to do at Link, ’cause we built our bu- Link’s only six years old, so we’re only very new, which allowed us to do a few things.
One, build- A very structured data-centric firm that had great and exceptional people that could plug into it, and being owned by Blackstone, insights matter. So I say that because now we have this incredible data moat that sits around our business that allows us to do things that I think others can’t, whether it’s draw insights, operate a little more efficiently.
But the AI, I still think we’re super early in… Even if I would answer, we started our AI journey five years ago, I just didn’t know I was on the journey. But having great and well-structured data has allowed us to do some things now. So from our business, I think of it as in three… I think of AI in three d- big buckets.
There’s, uh, process automation, so that is making a business more efficient, whether it’s in accounting, whether it’s in CAM, billing. Like, we’ve got a lot of things inside our system. They’re real, like it’s saving inordinate amounts of time for property managers, for accounting, um, that we can redeploy into value-added components, so that’s all real.
That feels like it’ll come to you, whether it’s in tools like Blackline or Yardi, I think you’re getting that. The next one is cognitive engagement, where it’s not just a chatbot with your customers, it’s the way you go through data. So if you, three or four years ago or even a year ago, it was all dashboarding and looking at your data.
Now it’s all natural language. Like, “Tell me my five biggest spaces. When was the last time someone toured it? Who’s the broker on the space? Who was the last one that toured it?” Like, you can naturally swim through data. So there’s cognitive engagement with our team. We have chatbots, which our customers can look at, um, is really good.
And then there’s cognitive insights, which that is the one that I think has got the most value for the Link or for firms, where you can really try to weave in incredible amounts of information to not just get great data, but insights out of it. And for Link, we have a thing called Field IQ. So every time a property manager sees one of our 9,000 customers, they leave and they talk to their phone and leave, you know, ‘I spoke to Kevin, he said his business is growing.’
We know what Kevin does ’cause you’re our customer. And imagine doing 8,000 of those every quarter, and being able to distill, wow, Dallas or Fort Worth in the north, anyone below 50,000 feet, all their businesses are growing. How can we connect those dots and, and deliver a service there? So these are all early, but there are ways that I think if you have a great data set and overlay these great tools, that you can actually deliver great customer service, great opportunities for your employees to be able to just be smarter and better The one thing that is really apparent though is the, the human in the loop is so important in all of this.
And I, I can’t emphasize enough, having exceptional people around this really matters, and that’s at all levels. Like, this is not… This is an additive feature to, to our, our human capital and our people, and that’s where we focus. The human in the loop is really, really important in our business. But there, there’s some tangible things we’re using and, and our customers are obviously supply chain networks and using it as well.
Terry Montesi: Luke, you’ve stepped into the CEO seat at multiple companies. When you walk into a new platform, what’s the first thing you focus on to get it right?
Luke Petherbridge: It’s, it’s all about the people. Like, I think day one is find the right people. And not only just the people, it’s the right people in the right role. And if you have great people and you put them in the right seat, then the third part, which I think is the hardest part for leadership, is you’ve gotta get out of the way.
I think everyone, um, loves to dabble in it, and I… It’s, it’s hard. I think as you’re, as you grow up being a leader, you know what you’re good at and you’re like, “Oh, I can do that a little better,” and you sort of swan in and out. So hire great people, give them the authority and emp- we call it empowered execution, and then you have to resist the urge to wanna dabble in it.
And I think when I, when I’ve joined, like ShopCore, we got to build the team. We had great people. At LivCore, we sort of retooled the, the, the leadership there. And Link, we just had exceptional people. Like our market officers at Link that run a market, they’re the experts. Like, they know the market better than anyone else in, in our business.
We shouldn’t be overriding them or, or, like, there’s gotta be guardrails around it, but you know, you hire great people, and great people do great things. That’s really been the mantra of the way I’ve run businesses. And so then really if you start doing that, you say, “Well, what’s the limiting factor?” It’s hire and attract and keep great people.
If you can do that consistently, it seems to work pretty well.
Terry Montesi: Right.
Kevin Kessinger: So talk about that though at, at, at your scale, right? So, uh, when you have 100 employees, 150, you know, employees and, and the way you personally connect with people, you can know, uh, you know everybody on, on the team. Uh, how many employees is Link now?
Luke Petherbridge: Like 1,100. Okay. I don’t know 1,100 people. Everyone’s mate. Yeah. Every…
Kevin Kessinger: It’s a little different. So-
Luke Petherbridge: You’ve got, you’ve got an advantage. Yeah.
Kevin Kessinger: So
Luke Petherbridge: I know a lot, but I, unfortunately I don’t know every single one.
Kevin Kessinger: Are there lessons though from that scale for, for me, for Terry, for, you know, for, for others, you know, listening?
Like what do you learn leading at that scale that, that maybe could benefit people, um, uh, who don’t have the-
Luke Petherbridge: So that was the hardest thing when I went to Link is learning to run at scale. And part of that is I really like to know every single person. I like to know their story and, and I remember going to a Christmas party.
I’m like, “I don’t know enough people here.” And it became… There was a little, like a little sanguine where I’m like, “I have two choices. I can go to a smaller firm and know everyone, or my job doesn’t allow it. So what can I do to create that?” And I think it’s, there’s o- obvious ways to connect with your employees, but then it’s really to leverage those around you.
You, you don’t need to carry all the water, and other leaders should be leading in that same sort of mindset. So I think at scale it’s really about, again, I use the word empowered execution. If you really hire great people, like the person that runs Miami, Merit, the person that runs Greensboro or Charlotte is, um, Britain, or Caitlin in Chicago, they, they don’t need me in the market.
They, but you’ve really got to then say, “I’m empowering you and I’m trusting you, and I’m letting you run your business.” And then what we do is we create the wrapper, whether it’s the cultural wrapper, making sure we hire great people, but then it’s delivering great tools to these people so they have the data network, the infrastructure that sits around them that they can make better decisions.
But it really is like a, you know… At scale it’s hard, but then it’s about, it’s really being very, very intentional about giving, getting great people and then giving them the tools, and then almost letting them do what they have to do. Yeah. And that’s hard. Delegating is hard.
Terry Montesi: Having led companies across multiple property types, what are some of your key leadership lessons that you think work across real estate?
Luke Petherbridge: I think, um, I would say don’t overanalyze decisions. Like, make decisions, like speed on decision-making. Um, no, I, I think most decisions we make are two-way doors. Like, you make a decision, you can sort of readjust at some point in the future. But we sort of, uh, we overthink a lot of these. I think on the human side, if you, like, uh, people management, make the tough decisions, be courageous faster.
I, I, I take myself as a, a bad example of that. Like- Yeah … if you gotta make a decision, be quick. I think everyone, once you make a tough decision, you’re like, “Wow, I wish I made that earlier.” I think that’s hard.
Terry Montesi: Um- I heard Ken Griffin say the other day, like, if you know somebody’s bad for culture, get rid of them immediately.
Luke Petherbridge: Yeah.
Terry Montesi: Don’t wait a week or a month or a year. Get rid of them.
Luke Petherbridge: Because I think if you don’t, you’re being judged for not making that decision. So I think that was something that, again, I learned, um, over time. And I think if you, if you have great people, accept great feedback. Like, if they wanna give you feedback, almost have this open revolving door where you, like, set up a culture that people will actively give you real feedback.
If you’re not g- if everyone tells you you’re awesome and everything’s great, it doesn’t work. Yeah. Like, you should be getting real, “Here’s what we can do better, here’s something we could change.” Um, so I think that they’re some of the lessons I’ve learned. The last one would be, I think people can traverse asset classes.
I think hire from outside your vertical. Like, if ed- So our CF- I mean, I’m retail. Our CFO’s from retail. Our head of pro- person that built our property managed business came out of retail. Our person that runs our data science came out of Ken Griffin, Citadel. Don’t hire in your lane. Like, actually stretch yourself out.
Kevin Kessinger: I’m hearing hire people from retail, Terry. I don’t know, I don’t know what you’re hearing. That’s what I’m hearing. Yeah.
Luke Petherbridge: I just, I, yeah, you can hire people from outside your asset class. Our power person came out of, out of in, out of banking. Like, there’s just, you can sort of hire from outside your asset class.
Kevin Kessinger: So when you think about in, in investing in, in the people, you, you mentioned, uh, with extraordinary people, right? You have to, you know, attract, develop, and, and retain, uh, you know, people. Um, is there anything you’re trying these days, uh, in, in the way of how you’re investing in, in people on your team that, that, that seems to be particularly well-received?
Everybody wants to make more money, everybody wants, uh, you know, better benefits and, and, and perhaps longer PTO. But anything unique- They both work. Sure … you can think of that, you know, you’re doing to invest in the team that, that people are saying, “You know what? I really appreciate that.”
Luke Petherbridge: Yeah. I think people wanna be part of something.
So I would say have a really clear mission in how everyone can sort of tie in together to drive that mission. I mean, we own the physical infrastructure that the economy depends on, so how people can actively wanna work for that. Then it’s, you know, training and development, like how can we train and develop people, not just inside their current role.
How can you broaden that? We have an enormous learning and development team, um, and content that we’ve created that everyone can access, um, which is good. And then the last thing I’d say is invest in the platform that your people work at. If, if the people are your greatest asset, and I would say at Link we have two and a half thousand buildings, our people are our most valuable asset.
Not a building, not a development. Our people are. So we spend, like we’ve spent $50 to $100 million building a state-of-the-art technology stack. We b- we invest around our technology constantly so our employees have a better experience. And we say exceptional people with unmatched insights. It’s my job, I’ve gotta almost re-earn our employees every single year.
Like, they’ve gotta wanna stay and wanna work. You’ve gotta keep reinvesting in that, so give them better insights, better access to, to customers, better access to what’s coming around the corner, and we spend a lot of time and effort and money to make sure if you hire great people, you give them great facilities.
It’s no different than a college football team. We were talking about that before. Be a great team but have really average facilities that they work in and learn in and, and a bad school. Like, that doesn’t work. You look at the way all these football teams, Texas, Ohio State, what you’ve done with your programs to invest around it.
I, I don’t see how that would be wildly different in corporate. You’ve got to invest in the franchise that these people come and work for, and then they become ambassadors for you
Terry Montesi: Well, I’ve, we’re running out of time, so I’ve got one more for you, then I’m gonna let you ask me a question.
Luke Petherbridge: Sure.
Terry Montesi: Or Kevin and I.
So as someone who sees the whole picture, um, across the real estate, um, all s- real estate sectors, what are one or two major trends you see coming that you think could impact our businesses the next few years?
Luke Petherbridge: I think access to power and infrastructure is real. I think there’s just such an insatiable appetite from our users, data center.
I think power is gonna be something that’s, that’s really important, and I think a changing consumer impacts all of us. Like, you know, we’re talking about AI like it’s been around forever. I mean, all these things are six months old, and imagine the way consumption could deviate over the next two to three to five years.
I just think they’re the two things that, you know, I think about, um, in addition to new supply coming on. But the consumer-changing behavior, which they’re fickle, they can do that very quickly. Um, and then physically, I think, you know, these lead times on infrastructure and power and access is, is really, really challenging.
Um, can I ask you, what are- Yeah. So you guys have been developing… I’ve, I was in, I’ve worked in US retail from 2009 to 2020. Retail development was taboo. Yeah. Like, no one did it. Yeah. So y- I see you starting it again. Is this the start of something? Like, is everyone doing this development? What are they building?
Is it the power centers returning, or is it… Like, what, what are, what sort of stuff are you building and, and why now? Is there customer demand looking for new buildings? Yeah. Is that what’s happening?
Terry Montesi: I don’t think everybody’s doing it, you know, which is one of our theses. Peter Linneman on a, a, a podcast said, “Terry…”
Because I was telling, you know, “It’s a little scary. We’re starting multi when nobody else is starting multi. We’re starting retail, and not many other people are starting retail.” Although I do know a number of developers that are getting back in the development business. It, it, it is, I think it is the start of a new development cycle.
It is… I, I think the odds of getting overbuilt are pretty slim, very expensive, but the retailers are willing to pay replacement cost rents now. So you may have 400, 450, 500 bucks a foot in a center, but the retailers are willing to pay what you, what they need to pay. Boxes in the mid-20s, high 20s. You know, retailers in the 50 to $60 rent.
So I think it is the start of a very sel- It’s very selective, too, ’cause I was telling you earlier, Luke, i- on, on everything we’re doing, there’s public incentive. So it’s gonna be real hard to build anything, um, and get a decent return without public incentive, and you’re not gonna get public incentive everywhere.
Kevin Kessinger: Yeah.
Terry Montesi: So I, I think it is… You know, who’s doing it is a few. It’s interesting. You talk about talent. If you, if you wanna go hire a young-ish, experienced re- uh, retail developer- Nobody’s gotten any reps the last 16 years. So it’s brutal to try to find that. So fortunately for us, we kinda kept, we kept our people busy during that downtime by doing redevelopment.
So I do think … So we’re, we’re doing two Whole Foods anchored centers. They’re a little more complex than, than what my friend Ken Bernstein calls small and simples. They’re not small and simples. They’re sort of large and complexes, you know, uh, or large and complicateds. Um, but it, it is, I think it is the start of a new cycle.
Um, and the capital has roared back. I mean, it’s, uh, nine months ago you felt it coming back for some things. It had, it has always been there for small and simple grocery stuff. I’m talking about everything else. Nine months ago, started really coming back. Six months ago, coming back. The last few months, maybe the last six, the core funds are all back, and even in development.
So capital is back. I, I worry that, you know, as fast as it’s coming back and pricing’s getting pretty, uh, uh, pretty tight now, I worry that it, we, we might have the shortest retail upcycle after the longest down cycle. But I- It feels, it still feels pretty disciplined Oh, yeah. Yeah, and, and the, the, the price per pound of these buildings is gonna prevent it from, from getting, uh
Kevin Kessinger: And, and that discipline though is a part of it, right?
If, if you had the good fortune of, of retail career starting in 2009, Terry and I go a little bit further back than that and remember the last, uh, development cycle. But this one really feels different for, to, to me at least, right, you know, a few reasons. One, just the, the availability of, of data that we have in deciding where to, to, to build now, right?
Remember that back in, you know, the last, you know, cycle, we still decided which shopping centers, uh, were doing well by looking at their parking lots at, at 4:00 and 5:00 PM, right? So, so the ability to leverage placer data, the ability- Yeah … to actually focus on retail per capita is, is something that we just weren’t, weren’t doing back then.
Uh, I think the second part of it is just the retailers are so much of a stronger herd than what they were, right? The, the retailers that are, uh, you know, in the centers that, that, that Trademark and others are developing now have survived, uh, the, the emergence of, of e-commerce and figured out omni-channel.
They have survived, you know, COVID. It’s, it’s just a much- Yeah … stronger group. And then just overall- The
Terry Montesi: business is healthy …
Kevin Kessinger: the business is healthy and, and, and nevertheless, the discipline is there, right? You’re not drawing up a pro forma that, that pencils to a 7% yield and adding a little out parcel building that somehow on paper gets you to a 9%, uh, yield regardless of whether it can be leased at those rates.
So I think those three things together make this development cycle, uh- Yeah … feel, feel different.
Terry Montesi: Well, we gotta get you to the airport. So, um, thank you so much again. This has been really, really fun. So glad to have you here in person and, uh, wish you all the best, pal. Thanks,
Luke Petherbridge: mate.
Terry Montesi: Really appreciate it.
Thank you