Data Center Firms Turn To Huge JVs To Fund Growth Amid Power Woes

As an increasingly challenging development landscape forces data center providers and investors to get creative, a growing share of projects are being funded through massive joint venture partnerships. 

On Wednesday, Atlanta-based T5 Data Centers and Canadian real estate investor QuadReal Property Group announced an $8B partnership to fund the build-out of 5 gigawatts of new data center capacity across the U.S. Hours earlier, developer PointOne Data Centers had announced a partnership with an unnamed investment firm to bring a gigawatt of new capacity to market across three sites in Virginia. AI data center provider Raeden also unveiled a joint venture with digital infrastructure real estate firm ImpactData to build a 200-megawatt facility in North Carolina. 

The latest trio of data center development joint ventures joins more than a dozen such partnerships that have been unveiled or have launched new projects so far this year. The list ranges from single-asset build-outs like Raeden’s to megaprojects like Stargate, the $500B artificial intelligence development effort touted by President Donald Trump and jointly funded by SoftBank, OpenAI and a consortium of tech giants and institutional investors. 

Development JVs account for a growing share of deals amid a torrent of new investment flowing toward the data center industry, a trend that is only expected to accelerate in the months ahead, industry players told Bisnow. 

For developers, the shift toward JV deal structures has been driven by the increasing need to access large amounts of capital earlier in the development process to secure electricity. For investors, these partnerships can be suited to an array of different risk profiles, exit timelines and check sizes, opening doors for more of the record number of equity investors looking for an entry point into the booming sector. 

“A lot of the equity is looking for exposure to data centers,” said Carl Beardsley, a senior managing director at JLL who heads the firm’s data center capital markets group. “A JV is a good way for an equity group to get more exposure to the space without fully buying a platform.”

At the core of developers’ growing preference for joint ventures are the power constraints that remain by far the industry’s most significant development headwind.

As electric utilities in major data center markets have been inundated with requests for grid connections for data center projects, development sites face wait times for power of up to 10 years while power providers scramble to build out billions of dollars of new infrastructure. Suddenly skyrocketing power demand has created financial risks for utilities and the potential for higher electric bills for consumers. 

Because of this, within the past year, a growing number of utilities have attempted to separate viable data center projects from speculative requests in their interconnection queues by adding new steps to the power procurement process that require big upfront expenditures.

To stay in the queue, data center developers must often pay substantial fees or fund expensive grid impact and cost studies. And once those hurdles are cleared, they may have as little as two months to begin paying the utility for the cost of infrastructure upgrades needed for power to be delivered. On top of that, new data center power contracts in many markets now require data centers to pay for much of their allotted power upfront, whether or not that power is ever consumed.

The result is that developers have far higher capital requirements earlier in the development process than ever before, Beardsley said. Through joint ventures with private equity or other funding sources, data center firms are able to reliably access and deploy that upfront capital quickly, with less risk to their existing operations. 

“More dollars are required earlier in the cycle to procure power and stay in line,” Beardsley said. “Developers are looking for partners to step in and ride that risk train with them and partner up on a deal like that.”

While the recent spate of joint ventures has included single-asset deals, the broader trend is toward partnerships pairing developers with equity partners to fund the build-out of a portfolio of projects or the execution of a near-term development strategy.

One of the largest programmatic JVs is the $15B partnership announced in October between data center REIT Equinix, a Canadian pension investor and a Singaporean sovereign wealth fund intended to acquire land and power for 1.5 GW of hyperscale capacity. 

These deals haven't been limited to institutional investors. Private equity firms, real estate investment groups and alternative asset managers constitute a growing share of the capital pool driving these multiproject and platform partnerships.

The past six months have seen the emergence of JVs like the $5B development partnership between PowerHouse Data Centers, Chirisa Technology Parks and Blue Owl Capital to build a series of data center campuses anchored by CoreWeave. Private equity’s role in funding data center growth is expected to expand in the months ahead, according to a JLL report.  

The trend toward programmatic joint ventures has been driven by the development headwinds facing data center firms despite record demand. Data center projects are bigger, more power-hungry and more capital-intensive than ever, while uncertainty around power and supply chain disruptions for critical equipment continue to make development timelines longer and less predictable. 

Pairing a data center operator with a capital partner to execute a strategic expansion plan gives the developer a reliable source of capital that can be deployed quickly and flexibly, allowing the partnership to navigate the challenging development landscape more effectively and efficiently than would be possible through single-site deals. 

“There’s stress on availability of everything in the entire food chain: land, power, equipment, interconnection to the grid,” said Brian Alletto, director of enterprise technology at West Monroe. “It’s adding additional lead time to all the things you need to assemble smaller deals.”

With far more capital looking for a home in the data center space than there are opportunities to deploy it, development joint ventures increasingly serve as an entry point into the sector for a growing number of investors, particularly private equity and real estate funds.

For new entrants, JVs often present lower price points, faster exits and more contained risk than other kinds of equity transactions. Additionally, partnering with an established operator provides access to expertise and experience in a sector where the technical and highly specialized knowledge base required serves as one of the primary barriers to entry.  

The JV deal structure also allows for creative approaches to craft deals for investors and their limited partners with an array of risk profiles, exit timelines and approaches to the market, allowing for a broad range of capital partners. 

A report from Ropes & Gray on private equity data center dealmaking published last week points to one such approach: bundling development projects with equity in the operating partner’s portfolio of leased assets, thus balancing the risk of new development with reliable revenue to make the deal palatable to more limited partners and financing sources. 

For real estate investment firms, JVs with operators allow them to frame digital infrastructure investment as a more traditional real estate play that their limited partners will be comfortable with. This strategy has been employed extensively by Harrison Street, which has invested more than $5.6B in data centers almost exclusively through programmatic joint ventures with developers like PowerHouse, Lincoln Property Co. and Oppidan.   

“[It] allows us to structure our investments within the context of a conventional real estate joint venture,” Harrison Street Managing Director and Head of Digital Assets Michael Hochanadel said in an interview with Bisnow last month. “A lot of the infrastructure capital that you see flow into the sector flows in at the enterprise level, and it's not so cleanly oriented around specific underlying discrete projects. That's something that's worked well for our limited partners as well.”

As the volume of data center JV deals grows, the dealmaking landscape is becoming more segmented in ways that open up opportunities for new investor profiles, JLL’s Beardsley said. He pointed to a segment of equity investors and developers who are now solely focused on the “horizontal phase” of development — acquiring land and bringing power to a site in three to four years and then exiting the deal. Conversely, other developers and equity investors focus solely on the vertical stage of data center projects, bringing facilities to market on powered sites. 

“It's actually created new subsets of equity for data centers,” Beardsley said. “There's different risk spectrums in the cycle with development, and we're seeing a bifurcation of both developers and equity.”