ATL Round-Table: “There’s a Lot More Money in the Private Equity World, Chasing Deals”
by Josh Anderson
ATLANTA, GA — Atlanta is hot, but it’s still heating up. That means there’s a lot to unpack, especially in the context of the larger U.S. market. And that was the crux of the discussion that kicked off CapRE’s 2018 Greater Atlanta Data Center Summit, “Greater Atlanta Data Center Market 360: The Rapid Growth of this Market, Impact of Hyperscale, Edge and Colocation’s Rebranding to Compete.” Below is a snippet of that round-table discussion, starting with a wide view and zooming into the ATL.
Moderator Michael Clark, Project Executive, DPR Construction: We’re going to talk about the national trends. But our initial question will go to Frank. You guys have a large national footprint and you’re pretty spread across the country, so what is T5 seeing as far as the current state of the lending and financing markets right now?
Frank Lyles Chief Business Officer, T5 Data Centers: Okay so our experience in the lending markets is that the financial clients and lenders are still fairly conservative in their underwriting of data centers. That’s a good thing, right? The good news on our end is that the education process, to explain what our product is and why there is product there and who we are, has gotten a lot shorter. There is a larger pool of lenders and financial institutions willing to lend, but they’re still fairly conservative in their under-writing.
What has changed is the private equity markets. There’s a lot more money in the private equity world, circling around, chasing deals. This has driven down the cost of capital. And so there have bene and there will continue to be new interest in the market. The danger is that the new private equity firms, or the people chasing this product, don’t always have the [same] standards when they’re looking at assets. If the data centers, whether existing or not, aren’t properly maintained and with capital repairs made over time, you could wind up with a bad asset in your portfolio. And that’s the risk that these private equity [firms] are going to have, if they don’t have that experience and knowledge in the space.
Clark: Tim Kiser, what has been your experience?
Timothy Kiser, Owner, Colo Atl, a JT Communications Company: On our cost of capital, we’re in a very good time…the cost of capital is great. The private equity wants to loan you money. So now is the time to build. Interest rates are low and money is…well, I hate to use this term, but the money is cheap.
Clark: We’re going to switch now. Senator Albers, are you starting to see some larger political consideration right now on the market? Are you bullish?
Senator John Albers: I’m very bullish on the market right now for a whole host of reasons. We were talking about low interest rates but in general we are at our absolute peak. Where it be the unemployment rate or investment, it’s like circa 2000, and the end of Y2K and the bubble that burst. However we see that there is at least 36 months of runway in front of us. Knowing all of the things that we know in this room, about how businesses and event individuals are continuing to move away from their home-based and business-based data centers and into the cloud, looking at data centers as an option will continue to thrive. We also have significant security concerns and risks today that we did not have that many years ago. Which also plays a lot more into disaster recovery and business continuity.
I’m working with our state agencies as well as business right now – we have to rethink how we do things. How any of us in this room remember, and it wasn’t that long ago, post-9/11, when we were looking into disaster recovery and business continuity, and we were hoping to get from hot-to-cold, to hot-to-warm, and hot-to-hot? And now, look at where we are today. Things have dramatically changed. That benefit is also our greatest risk now. But for the work that we do, in technology and data centers, we see that that continues to open the market. We’re only going to be doing more business and I believe we’ve got a lot of very favorable years ahead of us.