Dallas Data Center Summit Preview: JLL’s Tim Jordan Says Expect More M&A, Sale Leasebacks & Ground Up Construction
by Josh Anderson
DALLAS, TX — Tim has been involved in commercial real estate for over 30 years. He joined JLL as a Managing Director in September 2013 and serves as the Capital Markets Lead for the South Central Region. His primary areas of responsibility include capitalizing commercial real estate for data centers, office, hotel, retail, mixed use developments and multi-family product types. Tim has facilitated structured finance solutions in conventional permanent financings, joint ventures, mezzanine debt, bridge loans, and construction financing. Prior to joining JLL, Tim was a Senior Managing Director in the Dallas office of HFF. During his 20+ years at HFF, he completed the capitalization of a broad range of properties, including multifamily, office, data centers, industrial, retail, hotels, and CTL properties. Tim is a member of The Real Estate Council, The Salesmanship Club of Dallas, is the former President of Northwood Club, and serves on the SMU – Cox School of Business Advisory Board for the Folsom Institute for Real Estate. Tim will be a featured speaker at today’s Dallas Data Center Summit. Below we caught up with Tim in preparation for the event to learn more about the latest trends and developments he is tracking in the data center industry.
CapRE: Thanks for chatting with us, Tim. What have you and your team been keeping busy with lately?
Jordan: We’ve been keeping active with speculative data center construction projects in first-tier markets and bridge loans on adaptive reuse assets, as well as looking at hyperscale opportunities in the CTO-Private placement world, capitalizing those through the private place market, and corporate sale-leasebacks. Those are the sectors we’ve been most active in so far this year.
CapRE: And how would you characterize those projects and activities?
Jordan: Capital is more attracted to projects that are leased. Particularly those that are leased to credit tenants with 10 to 15-year terms. So, corporate sale-leaseback with a credit tenant in place is the broadest part of the capital markets. Speculative data center construction is typically done with top tier data center developers with a good pedigree in the business. Bridge lenders are active around tailor-made specific opportunities.
CapRE: What changes have you seen in the industry over the last year, and what changes might you expect in the next year?
There has been a significant increase in capital available in debt and equity for the data center business from both domestic and foreign sources. There’s been a fair amount of bridge capital through commercial banks and debt funds. Domestic advisory and pension funds have also been active.
We’ve seen an increase in the education level of capital providers to the data center space too. That’s always been the toughest part, getting people in financial services to understand the data center market. We are seeing more institutions invest in people with a curiosity around the data center business, because they understand that it’s a business that is critical to our economy and it’s a great opportunity to deploy capital.
The industry has experienced continued growth from typical internet users as well as IoT and AI, along with continued strong growth in corporate America. As the economy has continued to do well and corporate America does well, it has led to an expansion of demand in the data center world. We expect that the rate of growth in the industry will continue across all of these areas and will have continued dynamic growth in Tier I markets, as well as continued M&A opportunities.
CapRE: Why do you expect to see more M&A?
Jordan: There is just more capital in the business and people are trying to get to scale. That’s where we’ll see continued large portfolio acquisitions. And there has been a phenomenal amount of capital chasing it. Some of the foreign capital that’s coming into the space has a lower cost than what was typically in the space.
CapRE: What are the most exciting opportunities you’re seeing out in the field?
Jordan: Obviously the hyperscale market is where we are seeing a lot of growth. Corporate sale leasebacks are also having more activity. Ground up and greenfield construction in Tier I markets is increasing to meet market demand as well. Those three areas have great growth opportunities.
CapRE: So what economic/technological trends are you keeping an eye on?
Jordan: Hyperscale is a trend that has some strength, because they’re economically advantaged. They have good credit, they have good scale, and they will be a dominant force in the market. AI is growing rapidly and that’s a technological trend we think will become an even larger influence. Growth of the Edge applications and the expansion of the internet is positively affecting our lives and the way that we do business.
CapRE: What challenges have you identified as being particularly salient at the moment for the industry?
Jordan: The continued education of capital providers on why they should be lending money in the space and de-mystifying it. Massive amounts of capital is required for some of these large projects. It is a challenge to make sure that there is enough capacity in the system to facilitate that growth. There is a need for even more capital to fund the hyperscale developments. The size of those deals will outstrip a single capital source. So you’ve got to be able to deploy $300 million to $ 500 million or more in a cost-effective and efficient way.
CapRE: How would you characterize the overall industry in 2018? What has been the most interesting activity this year?
Jordan: It’s been a very active year. Given the complexity of the transactions they’ve taken longer to structure and close. There is strong competition among those developers and operators, and it has increased.
Tim will be a featuered speaker on the 1:30 pm panel, Texas Data Center Market 360: The Rapid Growth of this Market, Impact of Hyperscale, Edge and Colocation’s Rebranding to Compete at CapRE’s Sixth Annual Texas Data Center Summit.