Aligning Interests: How Link Logistics Solves Industrial Real Estate's Split Incentive Barrier

Link Logistics, an operator of last-mile warehouses, has established a program to tackle the “split incentive” issue identified decades ago by economists: how to get landlords and tenants to agree on costly energy-efficiency building improvements when one party pays for it and the other reaps the benefits.

The firm, a Blackstone portfolio company established in 2019, launched Energy Solutions in 2023. It takes utility management off the shoulders of Link Logistics’ customers and brings it in-house, said Tyler Deaton, a senior vice president and the firm’s head of sustainability.

“It’s a unique time- and cost-saving program for our customers,” Deaton said. “When all the warehouses look the same, we’re constantly looking for ways to differentiate ourselves in the market.”

The award-winning program serves as a model for how energy costs are handled across the industrial real estate sector, he added.

Bisnow spoke with Deaton to learn more about the split incentive barrier concept, the firm’s Energy Solutions program and how it is already benefiting customers.

Bisnow: How does the Energy Solutions program work?

Deaton: We’ve grown our in-house energy management team over the last few years, which has enabled us to take the burden of managing utilities off of the customers in our spaces, if they opt in to our program.

Because of our size, scale and relationships with utility companies, we’re able to share insights and opportunities for energy-efficiency savings with our customers. Utilities are in Link Logistics’ name versus the individual customer names, which means we’re able to deliver savings to them.

Bisnow: How did this service come to be?

Deaton: Link Logistics CEO Luke Petherbridge and our sustainability team saw the energy management trend coming and built the program from the ground up. It was prescient. The question of how the U.S. is going to meet the increasing demand for power is now on everyone’s minds, and the creation of Energy Solutions allowed us to be a step ahead.

Bisnow: Who is this for?

Deaton: Currently, our customers are small-to-medium-sized businesses. They’re the ones who need help identifying ways to save costs and appreciate having the burden of overseeing their own utilities taken off their shoulders so they can focus on running their businesses. Larger customers, like Amazon, FedEx or Home Depot, tend to have their own systems for handling utilities internally. That doesn’t preclude them from signing up for this program, but currently, we are focused on small and medium-sized enterprises, or SMEs.

Bisnow: Tell me about the in-house team that runs the program.

Deaton: The team consists of professionals with deep industry knowledge about utilities and optimization opportunities. Customers are able to access this know-how through our digital platform, Link+.

The team identifies ways to generate savings and find energy-efficiency opportunities for new and existing customers. It lets our customers focus on their day-to-day core business operations while we worry about utilities, volatility and which improvements to invest in.

Bisnow: What was the demand for this service?

Deaton: Utility costs are no longer an afterthought for our customers. In fact, it’s the second-largest line item they think about, after rent. Our customers' demand for electricity is increasing while at the same time the cost of electricity is increasing. Our customers realize that as they invest in things like advanced automation and robotics or electrified fleets, they need to get ahead of this as a rising cost.

Customers don’t want to be caught off guard by power price volatility. We offer a power hedging program that reduces our customers’ exposure to energy markets and helps create power rate stability for them.

Additionally, our customers have their own sustainability goals. Some are focusing on reducing their carbon emissions. Some are trying to optimize utility spend. This program helps them with whatever their objectives happen to be.

Bisnow: What does solving the split incentive barrier look like in practice?

Deaton: In the traditional industrial sector triple-net lease model, when the landlord deploys capital to make energy-efficiency improvements, it’s the tenant, not the landlord, that receives the benefits of those investments. As a result, under such an arrangement, both parties hesitate to deploy capital to retrofit buildings with modern infrastructure and energy-saving technology like LED bulbs or solar arrays.

We’re striving to be a market disrupter and solve the split incentive barrier issue by transferring the management of energy and utility accounts to us, the property owner. Our energy experts find and implement strategies to make buildings more energy efficient and negotiate directly with energy providers, and then we share that financial benefit with our customers.

Bisnow: How do you help customers reduce their energy burden?

Deaton: Our mantra is “measure, reduce and offset.” First, we try to fully understand our customers' energy usage and their requirements at the site. Then we create tailored, data-driven strategies that include a menu of options at our disposal. Think LED lighting, new HVAC systems or solar arrays.

Our customers are able to benchmark their energy consumption and expenditure via a dashboard, and our energy management team tracks usage as well and monitors for trends. Once we have a handle on what a customer is consuming, we can deploy capital towards sustainable building upgrades to help them reduce their consumption. We also install renewable power sources on our customers’ behalf.

Bisnow: What are some of the program’s key performance indicators?

Deaton: Customers that have enrolled in the program have saved around 6 cents a SF on average. It demonstrates that they are benefiting from our scale. Link Logistics has enrolled more than 1,000 customers in Energy Solutions since the program's inception.

Bisnow: What does this program say about where the logistics industry is headed?

Deaton: Our customers expect a higher level of service than they ever have in the past. This program represents a shift from a passive landlord-customer relationship to a more active partnership. It’s no longer just about leasing the space. We’re focused on the real estate so that our customers can concentrate on their businesses.

This article was produced in collaboration between Link Logistics and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.