Data Center Financing Strategies: Structures and Loan Terms, Unique Challenges, Risk Management

Description

Data centers have been developed (or existing buildings converted) so rapidly in recent years that they have emerged as a new real estate asset class. Due to demand and the Trump administration's support for data center investment, it is expected that there will be continued exponential growth in this sector for the foreseeable future.

Data center construction activity has created a strong demand from developers and infrastructure investors for project financing. Data center financings are specialized hybrid structures that borrow principles across debt markets and typically blend both real estate finance and leveraged finance loan terms. It is critical for real estate counsel to understand the financing complexities, loan terms, and risk assessment strategies unique to data center projects.

While the different financing strategies for data centers--real estate loan versus a corporate loan or leveraged loan--present unique issues, other financing challenges include whether the physical facility and the IT equipment will be bundled together or broken down into different loans and deals, the long project timelines and varying project costs, the ever-changing needs and priorities associated with the project, and whether the high per-square-footage valuations will hold over time.

Listen as our expert panel addresses the unique challenges and opportunities with data center financing and provides guidance for structuring these transactions.