Blackstone, Digital Realty Team Up to Develop $7 Billion in Data Centers | Mint

Blackstone, Digital Realty Team Up to Develop $7 Billion in Data Centers

Demand for data centers has been soaring from cloud-computing companies and newer players like TikTok.
Demand for data centers has been soaring from cloud-computing companies and newer players like TikTok.

Summary

The new venture plans to develop 10 data centers on four campuses in Frankfurt, Paris and northern Virginia over the next five or six years.

Investment giant Blackstone and Digital Realty, one of the world’s largest data-center companies, are creating a new venture to develop $7 billion in data centers that will target the largest providers of online content, cloud services and artificial intelligence.

The venture plans to develop 10 data centers on four campuses in Frankfurt, Paris and northern Virginia over the next five or six years, the companies said.

Digital Realty, which already has more than 300 data-center operations in over 25 countries, will operate and lease the facilities while Blackstone will provide much of the capital.

Demand has been soaring for data centers—the physical real estate that houses the Internet—from cloud-computing companies and new players like TikTok. The growth of artificial intelligence is expected to turbocharge that demand, given that artificial-intelligence searches require 10 times the computing power of regular searches.

“Data centers are experiencing once in-a-generation demand growth, driven by cloud adoption and the AI revolution," Blackstone President and Chief Operating Officer Jon Gray said in a statement.

The new venture comes amid growing concern over whether there is enough power and land in the most desirable locations for the anticipated growth of the data-center business. Environmental groups also have questioned the large amount of water needed to cool many facilities.

The partners likely will be able to sidestep these issues because Digital Realty already owns the land and has the needed power commitments for the four campuses being planned. The venture also is planning cooling systems that don’t require water.

Under the terms of the deal, which is scheduled to close in stages next year, Blackstone will have an 80% ownership stake and will make an initial capital contribution of $700 million. Digital Realty will own the other 20% stake. After closing, the partners will fund remaining development costs on a pro-rata basis.

When fully operational the data centers are expected to provide 500 megawatts of capacity—enough to power more than 375,000 homes. Digital Realty already is developing 46 megawatts of that, with 33% pre-leased.

The venture’s so-called hyperscale data centers will be focusing primarily on serving the world’s largest technology companies. About 20% of the 500 megawatts in capacity at the four campuses is expected to be delivered by the end of next year.

Google, Microsoft, Amazon Web Services and other tech giants have leased more than 2.3 gigawatts of capacity in North America data centers this year. That already exceeds last year’s record level, according to datacenterHawk, a data, research and consulting firm.

Blackstone, one of the world’s largest commercial-property investors, made a major push into the data-center business in 2021 when it privatized QTS Realty Trust in a deal valued at $10 billion. Blackstone has increased QTS’s development pipeline to more than $15 billion from $1 billion two years ago.

Write to Peter Grant at peter.grant@wsj.com

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