Domestic Investment Roundtable: How Have Growth Markets, Sale Leasebacks, and Sources of Investments Funds Changed in 2019?

LEESBURG, VA – CAPRE’s Seventh Annual Mid-Atlantic Data Center Summit analyzed many aspects of the data center capital markets arenas. One of the concluding panels, titled “Domestic Investment Opportunities: How Have Growth Market, Sale Leaseback, and Sources of Investments Funds Changed in 2019 versus 2018?” dove deep into a few topics that have been grabbing headlines recently.

“Could you share with us where you’re seeing the most amount of growth in the markets?” suggested Moderator Sami Badri, Senior Equity Analyst at Credit Suisse to his panelists. ”I’d say the market are mixed, please identify some of the highest-growth pockets. Where would those be currently?”

SherAfgan Mehboob, Managing Directo at Guggenheim Partners was the first respondent. “It’s an interesting question. My focus is generally on M&A and capital raising. Without a doubt, I think the most amount of growth we’ve seen has been from the incremental addition of all of this capital coming into data centers,” he replied.

According to Mehboob, private equity has had to spend some time learning about data centers. “And then larger deployments were coming in and they changed the asset class itself,” he recalled. “Both the counter-parties themselves were very high grade and had longer-term contracts, but the infrastructure funds and capital woke up to the idea that this could really fit into their definition of core-plus, if maybe not core. And they slowly moved up to who factored their LPs.”

Mehboob says this process has been the same for sovereign wealth funds, pension funds, and even family offices. “I think the growth from the data centers, on the more obvious side of that question, has been that cloud providers have been deploying at tremendous scale,” he added. “I think what’s really fueling that and the competitiveness, has been from vast loads of capital, which come from what traditionally used to be LPs. “

Jim Kerrigan, North American Data Centers

Next up, Jim Kerrigan, Managing Principal at North American Data Centers, after concurring with Mehboob, offered his take. “I think the best opportunities out there are the sale-leasebacks around the country,” he asserted. “There’s a lot of corporate America who built a data center for $3000 per square foot and these things are selling for $150. Those are markets like Columbus and Charlotte and tertiary markets like that.”

Dan Bryson, Executive Vice President of Finance at JLL then offered a third viewpoint. “I agree with both Jim and SherAfgan. We’re seeing an enormous influx of capital from infrastructure funds, sovereign wealth funds, family offices, hedge funds, into doing builds essential to data center space,” he intimated.=

“There’s a lot of equity capital that’s coming in and people are looking for the right operators to partner with, and they’re asking all the right questions,” he explained. “On the short-term side, or the debt side, we’re seeing a lot more banks take harbor in underwriting data centers. It’s like turning a bouncer — you can get it done but it takes awhile. There’s an education process that’s been going on for the last 5-10 years within the credit committees and loan committees at large institutions. And data centers have become an accepted asset class by debt funds, banks and CMBS, life insurance companies, and pension funds.”

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