$5B Data Center Development Deal With CoreWeave Shows Investors' Faith In AI Startup

A trio of developers and investors reached a deal to build billions of dollars of data centers for artificial intelligence cloud firm CoreWeave, a deal that reflects the tenant's unique position as an AI startup that major real estate players don't consider a risky bet. 

The joint venture, announced last week, will see American Real Estate Partners-owned PowerHouse, Chirisa Technology Parks and Blue Owl Capital build large-scale data centers for CoreWeave exclusively for the computing required for AI. The partnership said it could eventually deploy as much as $5B to build AI data centers for CoreWeave and other customers. 

The willingness of established developers like PowerHouse and CTP and their investors to have CoreWeave as the anchor tenant for a development deal of this magnitude is the latest evidence of the firm's unique standing with data center landlords and lenders compared to other large AI startups. Amid growing fears of an AI bubble, CoreWeave has emerged as the rare early-stage AI tenant that the industry’s most prominent players are willing to make big bets on.

“We have capital sources that will finance the equity and debt for CoreWeave but nobody else,” Primary Digital Infrastructure President Dave Ferdman, a co-founder of CyrusOne, said at Bisnow’s DICE: South event last month. “If we bring a deal to the table that has nonhyperscale and it’s not specifically named CoreWeave, we have several capital sources that will just say they don't want it. It's too much mystery.”

Expected to be delivered in 2025 and 2026, the first 120 megawatts of data center capacity the JV plans to build for CoreWeave would be located at a 350-acre campus operated by CTP near Richmond, Virginia, with further build-out expected in New Jersey, Pennsylvania, Texas, Kentucky and Nevada. CoreWeave is already a tenant at CTP’s Richmond-area campus, where it signed a 28-MW deal in September 2023.  

New Jersey-based CoreWeave has been aggressively expanding its data center footprint over the past 12 months. Initially founded as a cryptomining and blockchain firm in 2017, CoreWeave has since pivoted toward being a cloud provider exclusively for graphics processing unit computing needed for AI and other high-performance applications.

While many former crypto computing companies have tried to make the switch to AI, none have been as successful at catching the AI wave as CoreWeave.

Calling itself “The AI Hyperscaler,” CoreWeave has raised more than $12B over the past two years. Chipmaker Nvidia has invested more than $100M in the company, allowing CoreWeave to be first to market with some Nvidia products — a coveted position as the industry faces chip shortages amid the AI arms race. The firm is reportedly exploring the possibility of an initial public offering as soon as next year. 

With this wave of investment, CoreWeave has been snapping up data center capacity at a frantic clip. Even prior to the deal with PowerHouse and Chirisa, CoreWeave indicated it has occupied nine new data centers this year and has 11 more in the works. This includes deals with some of the most prominent third-party data center providers: Digital Realty, Flexential, Lincoln Rackhouse and TierPoint. 

CoreWeave is the only company of its kind that could drive this scale of development from these prominent industry players, leading data center developers and investors said at the DICE: South event.

While AI is helping drive an unprecedented data center building boom, the vast majority of that development has been driven by the world’s largest tech companies: Amazon, Microsoft, Google and Meta. 

Developers typically need a commitment from one of these credit-grade hyperscale giants to move forward with a large-scale AI data center project. It is still the earliest days of commercial AI, and there is growing fear of an AI bubble and concern that the massive investments in data centers and other infrastructure to support these technologies won't yield expected returns. But even in a worst-case scenario, these tenants carry little risk. Developers and lenders know there is virtually no chance Amazon or Google will default or back out of a lease. 

But other AI firms are a different story.

Data center providers and their financial backers want to avoid a repeat of the dot-com crash at the turn of the millennium when a wave of tenant bankruptcies forced consolidation across a data center industry loaded with high-risk customers. Today, even large and well-capitalized early-stage AI companies have to jump through hoops just to sign leases with major data center firms, some of whom cap the number of AI tenants in their facilities.

“You have hyperscalers who have huge balance sheets to support the AI industry, but a lot of the AI companies are at an early stage, operating with substantial amounts of equity investments and doing the initial deals with huge security deposits backed by cash or letters of credit from their investors,” Jeffrey Moerdler, a longtime data center attorney and member at Mintz, said at DICE: South. “That will change as they generate customers and create their own credit profile, but most of them just don't have the track record.”

For data center developers looking to build facilities to host such AI tenants, access to capital can border on impossible, according to Fran Federman, chief investment officer at CyrusOne. Funding options like securitized notes will be off the table, with the only options being alternative capital sources with rates more than 300 basis points higher than for a deal anchored by a hyperscaler. 

“It's really hard right now, from a financing standpoint, to make these deals pencil even with some of the larger AI companies,” Federman said.

CoreWeave, however, has been regarded as uniquely low risk compared to similar AI companies. The cost of capital for a deal involving CoreWeave can be as little as 175 basis points above a deal anchored by a hyperscaler, according to Primary Digital Infrastructure’s Ferdman. He said trust in “the tallest of the AIs” is only growing and predicted CoreWeave-linked debt will be priced similarly to hyperscalers within 12 to 24 months. 

It is a widely shared opinion among data center developers and investors, who point to CoreWeave’s strong balance sheet, its unique relationship with Nvidia and the credit-grade tenants with long-term contracts driving the bulk of its business. 

“If you really peel back the envelope on CoreWeave, they're partially owned by Nvidia, and their two largest customers are two of the largest hyperscalers you'd want to do business with,” Carrington Brown, senior managing director for development at Affinius Capital, said at DICE: South. “While the underlying credit for CoreWeave is not investment grade, people are looking at what their underlying contracts are.”