Do You Need to Be a Platform Entity to Acquire Capital?
by Josh Anderson
CHICAGO, IL — Data centers can be a pretty opaque concept for many in the more traditional real estate space – after all, for many they are still considered “technology” assets, rather than “real estate.” At our Chicago Data Center Summit last week, we gathered a group of leading capital markets experts about how this asset class is perceived and how that perception has changed over time. Specifically, we asked them how debt markets have changed over the past few years, with regards to the acceptance of data centers as an asset class? Below, we hear from Next Tier HD’s Dave Spiewak.
“We play a little differently because we are not a platform entity,” he replied to our question. “We continue to invest and look to acquire assets or develop, but we are not a platform as a colocation provider or a wholesale provider. And I think that the lines of, where private equity is viewing this space, is that they want to be able to back platforms. They don’t want to be able to look at one-off type of transactions.”
For color, Spiewak then provided our gathering with two prime examples. “We own a large campus in Boca Raton, close to 10 megawatts of critical use coming out of it, but it’s 80% office space,” he shared. “But we have folks like Equinix and others there. As we go out and raise debt or capitalize that asset, the lending community doesn’t really quite understand the data center component. Because they’re not pure data center-type lenders. They understand real estate.”
“Moving forward on that, we’re currently under construction for what’s going to be an 8.3 megawatt data center in Midtown, Tech Square, Atlanta,” he listed. “And we had a 2 megawatt, ten-year firm commitment from Georgia Tech State Credit. Investment-grade. It was a challenging deal. But there was a great story behind it.”
Again, according to Spiewak, this all comes down to their “non-platform” status. “People don’t quite understand how to look at that one-off, so the debt community wants to kind of, roll into something a little bit longer,” he explained. “And a real estate lender, who doesn’t do data centers, can’t really get their arms around it at all.”
In summary, Spiewak thinks there’s a lot of money up for grabs in the space, and it’s very stable. “If you’re a platform or building a platform, I don’t think it’s that challenging to raise money,” he shared. “The capital is out there. But if you’re looking to do one-off developments, or assets or acquisitions, then I think it’s a different pool of folks you’re going to speak to. Joe [Junda, Managing Director, CIT, a co-panelist] and I spoke a lot about our Georgia Tech project at the time. There wasn’t a lot of risk in that deal, but there wasn’t a lot of confidence either, in terms of how it would all play out at the end of the day.”