Data Center CRE Originations Poised for Momentum
This week the CRED iQ research team focused upon the hottest property type in commercial real estate: the data center ecosystem. Our readers have suggested a deeper dive into this rapidly evolving segment, and we are pleased to answer that call.
Fueled largely by the anticipated computing capacity required for artificial intelligence (AI), major investments are being made around the globe to develop data center facilities and related infrastructure.
Amazon has estimated capital investments approaching $100 billion over the next decade for AI-focused data centers, on top of the investments already made on e-commerce data centers.
In late September, the BBC confirmed that Blackstone is making a $13 billion investment in a single data center complex in England.
Our team closely examined all the latest data center originations in 2024, and we zeroed in on one of those to profile and delve deeper. We wanted to understand the underlying metrics of a typical data center loan transaction in this marketplace along with signs for trends to come.
A major data center complex we researched is in Elk Grove Village, Ill., just outside Chicago’s O’Hare International Airport. Chicago is home to one of the world’s largest concentrations of data centers with more than 747 megawatts of information technology capacity and 4.4 million square feet of space.
A $185 million commercial mortgage-backed securities loan originated in April under the DATA 2024-CTR2 deal involved a recapitalization of the property where GI Partners agreed to acquire a 75 percent indirect interest in a joint venture for the asset.
As part of the transaction, GI also contributed $202.5 million of new cash equity into a new joint venture for the property.
Digital Realty Trust, which previously owned 100 percent of the property, maintains a 25 percent stake in the JV.
The asset was recently valued at $463 million, or $1,412 per square foot, which equates to $17,277 per total kilowatt capacity. Underwritten net operating income amounted to $96 a square foot and approximately $1,181 per kilowatt capacity.
Tenants are paying between $88 a square foot and $157 a square foot in rent. On a kilowatt basis, tenants at the property are paying between $1,141 per kilowatt and $1,657 per kilowatt.
Mike Haas is the founder and CEO of CRED iQ.
