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Digital Realty and Blackstone announces £5.5bn data centre venture

Written by Mon 11 Dec 2023

Data centre provider, Digital Realty, and asset manager, Blackstone, has announced a £5.5 billion ($7 billion) joint venture to develop four data centre campuses across Frankfurt, Paris, and Northern Virginia. 

Led by Blackstone’s Infrastructure, Real Estate, and Tactical Opportunities funds, the venture is expected to provide a total capacity of 500MW to accommodate 10 planned data centres.

“By partnering with Blackstone … Digital Realty is better able to deliver capacity to meet the burgeoning demand of our hyperscale customers, by accessing a deep pool of like-minded private capital,” said Andy Power, President and Chief Executive Officer at Digital Realty.

46MW of the planned capacity is currently under construction, with 33% of the land pre-leased. The remaining land capacity is in various pre-construction phases and is anticipated to be developed to meet user demand. 

Around 20% of the total potential IT load capacity will be delivered by 2025. The remaining balance is scheduled for delivery in 2026 onwards.

President and Chief Operating Officer at Blackstone, Jon Gray, said data centres are experiencing ‘once-in-a-generation demand growth’, which is being driven by cloud adoption and the artificial intelligence (AI) revolution.

“Digital infrastructure is one of our highest conviction investment themes as a firm, and this transaction with a trusted data centre operator in Digital Realty is another example of how we are investing behind this trend,” added Gray.

In October, Synergy Research Group found the total global hyperscale data centre capacity is set to triple over the next six years.

The research group said generative AI technology intensified the demand for more powerful and expansive facilities. As individual data centres handle larger IT loads, the number of operational hyperscale data centres is also expected to increase.

“Blackstone’s … extensive sector experience positions us to capitalise on the explosive growth in data,” said Greg Blank, Senior Managing Director at Blackstone Infrastructure, and Mike Forman, Managing Director at Blackstone Real Estate.

The Terms of the Digital Realty and Blackstone Venture

Blackstone will acquire 80% ownership interest through an initial capital contribution of around £556 million ($700 million). Digital Realty will retain a 20% stake.

“Partnering with Blackstone … aptly reflects the shift in our funding strategy, to diversify our sources of capital and bolster our balance sheet in order to capitalise on the significant opportunity that lies ahead,” said Greg Wright, Chief Investment Officer at Digital Realty.

After closing, the parties will contribute funds in proportion to their ownership shares to cover the remaining development costs. 

Digital Realty will manage the development and daily operations of the joint venture. In exchange for performing these duties, the data centre provider will be financially compensated.

The joint venture is set to conclude in two stages during the first half of 2024. This is subject to regulatory approvals and other customary closing conditions.

Last month, Digital Realty and investment company, Realty Income, announced a new venture to develop two build-to-suit data centres in Northern Virginia.

The two data centres began construction in Q4 of 2022 and are expected to deliver 16MW of initial data centre capacity, which is expandable up to 48MW at the client’s option. The client was not named by Digital Realty or Realty Income.

Image Credit: Reuters

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Written by Mon 11 Dec 2023

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