Earlier in his career, Matt Ostrower remembers losing sleep over a decision that carried consequences for employees, lenders, and shareholders.
At Site Centers, Ostrower tells us, the management team was confronting two challenges. Investor fears about the internet’s impact on retail real estate were depressing stock and bond valuations. Then Hurricane Maria struck Puerto Rico, leaving a portfolio of company assets out of commission for months.
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The immediate pressure was to reopen properties and navigate the crisis. But Ostrower says the team forced itself to “pull back” and consider how the company could emerge positioned for growth.
Working with the CEO and capital markets leader, Ostrower says the team developed an answer that had not been executed repeatedly elsewhere: Separate the portfolio, create a liquid pool of assets for public-market investors, and establish a remaining company positioned for greater growth.
Because the approach was untested, Ostrower says the team had no certainty about how investors would respond. “I had sleepless nights for months,” he tells us, describing the market’s acceptance as an “existential question” for the company.
According to Ostrower, investors ultimately embraced the decision, and the strategy received positive press. He says it allowed the company to realize value in one place while setting up another company for growth.
For Ostrower, some of finance’s strongest strategic moments emerge during crises, when leaders are tempted to pursue whatever is most expedient. His experience suggests another possibility: Use the pressure to step back, ask harder questions, and make the decision that addresses not only the immediate disruption but also the company that must exist afterward.
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CFOTL: We do have a few more career-related questions for you a little later. But right now, we’d like to find out about Link Logistics. For someone who might not know Link Logistics, what business are you in? Who are your customers? And where’s the opportunity today?
Ostrower: Sure. Like any business, we can take something very simple and make it sound very complicated. But to boil this down, we are an owner and operator of warehouses all across the United States. We’re the second-largest owner and operator of those warehouses in the U.S. We operate in both the United States and Canada. We’re a North American-based platform.
Our job is to own and operate those warehouses, which means two things. It means knowing which of them to buy and sell, and that involves the whole investment process, including financing. What’s the optimal way to finance this? And then, how do you squeeze the most cash flow possible out of those assets for as long as you own them?
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Really, the reason why I’m at Link was that Blackstone was building what they wanted to be their biggest portfolio company, with the biggest real estate asset manager in the world and in the biggest economy in the world. Our goal was to take this scale and build something very special—to really build the company of the future.
We wanted to build a company adapted for the kind of disruption that we think is coming, both to industrial real estate and to real estate as a whole. The first disruption involves industrial real estate. For decades, it didn’t really matter that much where you owned a warehouse. People took trucks and moved things around. This was in the days before e-commerce. But Link was built for the disruption brought by e-commerce and all the ripple effects that it has on the distribution process.
In a nutshell, it meant that all of a sudden, it really mattered where you owned real estate. You needed to be near people, near rooftops. Oceans of human beings were where the value in industrial real estate was going. Blackstone saw that coming, and that was the entire investment thesis. Ten or 15 years ago, that was a very new thing. Blackstone really made a bet on that particular thing, and it was our job at Link to help them execute.
It’s not straightforward to find the most valuable locations in a world where the value of location is evolving very, very quickly. You have to see where the puck is going and be there way ahead of everybody else—buy that location before others discover that it’s a great location and accumulate as much of that kind of real estate as you can.
That was disruption one. Disruption two is what’s coming to real estate overall, and that’s really core to our strategy. It involves using our scale to develop better data-driven insights and make better decisions than anybody else in the entire real estate industry. We have access to enormous amounts of data because of our size. We have access to dollars to build systems and platforms because of the wonderful sponsorship we have at Blackstone and its willingness to think very long term about these things.
We’re combining those two things to equip our people—and our people really are our most important asset—to make the best decisions they possibly can across the firm. But that meant really reinventing how real estate works. The days of emails flying around everywhere, notepads, and Excel spreadsheets—we went on an Excel extermination campaign. We really had to change the traditional functioning of a large real estate company like ours.
That’s been incredibly exciting. We’re still in that evolution. I think we are years ahead of almost all our competitors, and we’ve got a very clear view of where this is going and how we’re going to get there. With Blackstone’s sponsorship and our combined leadership, I think we have a good chance of getting there. But there’s real disruption coming. Link is based on this change in consumption patterns and distribution, as well as the change in how real estate works. We really built a company around those two things.
CFOTL: As CFO of a Blackstone-owned business, I have to believe your peers often ask you, “What does that mean exactly?” What’s the way Blackstone is known to invest in and build businesses? What’s the Blackstone way?
Ostrower: Sure. It’s funny. In the public markets, I was interacting with hundreds or thousands of these really sophisticated investors. That’s an investor relations job: You have to talk to those people and satisfy them. I thought that was going to be the peak of the intellectual challenge.
Then I met our sponsors at Blackstone and learned, “Wow, there’s another level here.” I would just say that they’re the smartest people in the business. They have incredibly high expectations. That aspiration for us to be the best real estate company ever created—sure, that was us as the management team at a portfolio company, but they were with us every step of the way.
They can take a short-term view where they have to, but in a company of our scale, which is always going to be part of the Blackstone family and the Blackstone enterprise in some fashion or form, they’re taking an incredibly long-term view of the business. That’s an advantage they have over the public markets, where investors are looking at every penny of earnings every single quarter and saying, “Why is that a penny lower?”
We can invest tens, if not hundreds, of millions of dollars in building platforms because we have some luxury of time here. We have a sponsor that really does want to think longer term about that. I’m a huge, passionate supporter of the public markets, so it took a lot to get me to leave the public markets and come over to the private side. But it was that mindset, the scale of the opportunity, and the ambition that Blackstone and the team had that really sealed the deal for me and made me want to make the change.
CFOTL: Help us understand the economics of Link Logistics. What really drives revenue across the portfolio?
Ostrower: Revenues, like those of almost any company, are driven by our customers. In our case, revenues come in the form of rent, which is produced by contractual agreements—leases—with our customers.
We call our tenants “customers” at Link because we want to think of them that way. We have to understand what real estate they’re going to be willing to pay the highest price for and what real estate they’re going to value the most. While that might sound simple—it’s just a box, so how complicated could this be?—we really think of ourselves as a proxy for the entire U.S. economy.
We have thousands upon thousands of customers, and they represent everything from Amazon or even the U.S. government to a mom-and-pop contractor building air-conditioning units in a very small space for houses. You can imagine the gamut.
We have to understand what all those customers want and where they’re going to want to be located because we can buy or sell our portfolio any day we want. We’re always making sure that we’ve paid the right price for things and financed them the right way. Most importantly, we want to own a product that will have the most dramatic increase in value over time, particularly through revenue growth.
We’re in the business of predicting what customers will be willing to pay over time and trying to pick the locations where growth in value will be the highest.
Link Logisticss | www.linklogistics.com | New York, NY