Dan Bryson, JLL: Data Centers are Designated Assets, Even if Lenders Don’t Like It
by Josh Anderson
CHICAGO, IL — Data centers are far from a monolithic entity in the capital markets arena. Depending on your vantage point, there may be just as many different types of data center as there are lenders. Some data centers are bound to be more attractive to lenders than others. You’ve got regional portfolios, you’ve got colocation, you’ve got hyperscale. Where’s the most appetite from the lending community? At our Chicago Data Center Summit last week, we asked a pair of regional data center leaders this very question. This article covers the second half of that discussion – check out our previous CapRE Insider Report covering the first part.
“Yeah, it’s an educational process,” replied Dan Bryson, Executive Vice President, Finance, JLL Capital Markets, describing how finding lenders for certain types of deals can be challenging. “At the top of the list, what lenders are under-writing is un-interrupted cashflow. And if you have a triple-net lease from an investment-grade tenant on a fifteen-year term, that’s the best. It’s the easiest to underwrite, you get the best pricing, you get the best structure, the best terms, and the best execution.”
“And you can dial it back down from there, and at the bottom of the list is a speculative or powered shell,” continued Bryson. “More people are playing at the upper end than the lower end, because they don’t understand the metrics and the cost around the powered shell relative to an industrial building.”
Bryson then revealed that he gets asked a specific question all of the time. “What’s it going to be if it’s not a data center? What’s your back-up position?” he revealed. “Well, it’s always going to be a data center. It’s never going to be anything else. It’s like if you build a freeway. You don’t ask what it’s going to be. What’s the land worth under that freeway? It’s always a freeway. This is a designated asset. And it’s the same thing with data centers.”
That’s the part that’s been challenging for chief credit officers to get their arms around in most banks and most lenders, according to Junda. “But it’s better now than it was a year ago, and it’s getting better because people are starting to embrace that,” he concluded.
Next, Joseph Junda, Managing Director for CIT chimed in with a response to Bryson. “I think that the other thing worth mentioning, other than the contract or the cashflow, Dan, is the market that the data center is in,” he replied. “You mentioned earlier, something about a project in Boca Raton. If you have a building or data center in Ashburn or Dallas or one of the top three or four data center markets, I would tell you that it’s much easier to finance that. Because of historic utilization rates, demand, supply, and where your viewpoint is of where the market is going on a cost per kilowatt.”
Banner Photo (L-R): Joseph Junda, Managing Director, CIT & Dan Bryson, Executive Vice President for Finance, JLL Capital Markets