NYC Capital Markets Roundtable: What Private Equity Sources are Moving Into the Market?
by Josh Anderson
NEW YORK, NY – The data center investment landscape is always changing. As one kind of firm moves in, another moves out. And a whole lot goes on in between. So CapRE’s Seventh Annual New York Data Center Summit kicked off with a panel titled Greater New York Data Center Market 360: From Manhattan to Orange County, What Firms are Actively Developing, Investing & Why? This round-table panel featured a wealth of exclusive market analysis from half a dozen leading insiders from the region, and it kicked off with a rousing discussion about interest rates and multiples.
“What forms of private equity are entering the market?” asked moderator Sami Badri, a Senior Analyst for Credit Suisse. “And are we talking sovereign wealth funds? Are we talking pension funds? Are we talking private equity firms, or what?”
Hunter Newby, Partner at 1025Connect was the first to chime in with some insight. “From my perspective, everything is getting into this market,” he ventured. “It just depends on where you look, what asset, what their appetite is, and their comfort level. You have some people that are being more aggressive than they were in the past, because they saw a lot of people get in before them and make some big money. Now they feel like they missed the boat.”
“And then there are people that are very stable and very institutional, that are just raising even larger funds – second and third funds that are $10 Billion plus, and their check size is now minimum $700 Million or $1 Billion, and they need to find really huge projects to do,” continued Newby. “We have seen a few of those. That type of discussion didn’t even exist five years ago. And then you have private investors too, that are getting into the single-site type of projects. But that’s from my perspective only.”
Next, Clinton Karcher, a Principal at SDC Capital Partners, piggy-backed off of Newby’s comments, saying how he thinks that it all depends on where you are looking in the market, in terms of investment opportunity. “I would say that, just from a thematic standpoint though, I think that in terms of new entrants, we have seen some of the pension funds, in particular those with a real estate focus and infrastructure focus,” he shared, though he then pointed out that it seems things are changing.
“At the onset it was really focused around wholesale, long-term, ten or fifteen-year leases, but over the course of the last five or six years, we’ve even seen that perspective of investors evolve to the point where they are looking at more of a retail rate to businesses,” he recalled. “The Cologix transaction, for example. The model is very sticky, the contracts are 10-20 years, and there’s very high visibility for that customer base. So you’re seeing that universe of lower-cost capital kind of investors, I think, starting to put money to work. Not just in the data center space, but more recently in the fiber space. That’s a change we’re going to see accelerate as well. As they get more and more comfortable with shorter-term leases, smaller customers maybe even more service-oriented business, as long as that customer-base stickiness is in place, I wouldn’t be surprised to see that trend accelerate.”
Finally, James Henry, Senior Managing Director at the Bank Street Group LLC offered his own perspective. “The biggest thing I’ve seen, as the new blood participating in these infrastructure debates is infrastructure funds,” he shared. “A lot of funds from Australia, from Canada and Europe, folks that have traditionally invested in toll roads and airports and terminals, have discovered this category. And they’ve realized that it has all of the dynamics that they like. Massive scale of economy, great operating leverage, typical investment-grade anchor tenants, very long-term leases. A great dynamic.”
For more analysis from these insiders, check out previous CapRE Insider Reports covering this panel discussion: