Are private data center real estate developers merchant developers or do they build to own?
How would they repurpose the building or re-lease the building upon expiration? What are the barriers to entry in this asset class, and what would prevent a sophisticated mixed-use developer with good business development from entering into this space?
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Based on the most helpful WSO content, data center operators and developers can be both merchant developers and build-to-own developers. It really depends on the strategy of the individual company. Some may choose to develop and sell (merchant develop) while others may choose to develop and hold (build-to-own) for the long-term cash flows.
Repurposing or re-leasing a data center upon lease expiration can be a complex process. Data centers are highly specialized buildings with significant infrastructure for power and cooling. If a tenant leaves, the owner would likely seek another data center operator as a tenant due to the specialized nature of the building. Repurposing the building for another use could be costly due to the need to remove and replace the existing infrastructure.
As for barriers to entry, the data center real estate market is highly specialized and requires a deep understanding of the technological needs of potential tenants. This includes knowledge of power and cooling requirements, data security, and more. Additionally, the market may require significant capital investment due to the cost of the specialized infrastructure needed in these buildings.
A sophisticated mixed-use developer could potentially enter the space, but they would need to gain the necessary knowledge and expertise in the data center market. They would also need to be prepared for the high capital costs and the potential risks associated with the specialized nature of the market.
Remember, every banana peel is a potential slip. So, tread carefully and do your homework before jumping into a new market!
Sources: What is your real estate end game and plan to get there?, Learning curve in development, Q&A: I work for a data center operator and developer (Specialty REIT), Anybody here have any experience brokering data centers?
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Private developer here. To answer your question its both.
https://dgtlinfra.com/how-much-does-it-cost-to-build-a-data-center/#:~:….
https://www.cbre.com/insights/reports/north-america-data-center-trends-…
These should help you better understand the development/operational landscape
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