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Not personally involved in these deals, but we've started pursuing/performing some data center stuff in a handful of markets. We are primarily just building out the shells rather than turnkey BTS-type builds, but I know we have also considered those. My impression is the deals tend to be pretty complex, as getting the land fully entitled and then sourcing power can be pretty difficult, at least in the areas we've pursued. However, there is definitely a lot of demand, at least from a user standpoint. Not sure how the equity picture looks.

 

I had classes with a guy who was a VP )not quite sure his official title) at QTS. They were developing data centers at something like a 7-9% return on costs and selling them for a 4-5% ROC. Pretty wild spread. This was 2018 though.

He really liked the asset class. Occupancy was super high, renewal rates were probably 90% (as opposed to like 50% for multifamily). He said the leases are pretty sticky, and the companies that don’t renew typically only do so because they need more space somewhere else.

 

Based on some online reading, it seems 10-15 years isn't an uncommon lease term, but since the guy mentioned to me a comparison with multifamily when he spoke about their lease renewals being 90%, I assume the leases were shorter term (otherwise a comparison to multifamily would have been an apples to oranges comparison). 

Credit rating, I imagine pretty good (or at least a tenant would probably have some pretty good financial fundraising due to the tech space back then). But I don't speak from experience here.

 

Currently going through DD on an on-site substation with the electricity provider in the area for a data center group. It seems A LOT of groups are actively looking at this time, as I've been solicited several times on other deals. Capital's approach to this idea seems to be well received if there are a few things in play to sweeten the pot in the form of municipality incentives or if you're working with an OZ group. 

 

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