From shell/core to network connectivity, what makes data centers valuable in the markets they serve? This question was posed to various subject matter experts during a discussion at The INCOMPAS show: “how are data center valuations changing and shifting?” During the discussion, organized by the Independent Data Center Alliance, panelists explored how financial partners evaluate carrier hotels versus data centers, as well as various roll-up strategies from M&As to restructuring, sale/leasebacks and more. Topical questions, such as pre-pandemic and post-pandemic impacts and changes, were also explored.
Daniel English, co-founder and president of Legacy Investing began the discussion responding to a question about how the pandemic has changed their approach to investing and it’s impact.
“One is the tail end for these asset classes are unlike anything else. I mean, you’re getting every digital device, Amazon, Alexa, whatever you plug in has to ultimately flow through a data center, or through a fiber network that lives in a carrier hotel or connects to a carrier hotel. That’s creating a lot of appetite for institutional investors. As they look at that, I think the other trend is that these asset classes have been outperforming more typical real estate asset classes like office and multifamily, and retail that was further impacted with COVID-19 data centers outperformed basically every other asset class, we can attest to that with our own tenants.”
Rich Lukaj of Bank Street Group built upon Daniel’s comments, discussing investment, data centers and transactions.
“It’s also worth noting that transactions like the recap of tierpoint, took place right in the middle of the greatest period of disruption in the capital markets as well. And we were proud to be able to hold that financing group together, representing the investors. And I think that was a transaction that was literally in the midst of true financial dislocation. And as a result, required a little bit more finesse. But I would say to the longer period, maybe post the initial most volatile times, it’s fair to say that doing deals has changed. For me, I think we’re in the midst of a variety of transactions where the principles for example, and deal were involved in Asia, actually are relying on feet on the ground in another country. And because of travel bans, and other variables, we’re actually introducing digital video and using, obviously, data rooms more prolifically than ever, and forums like this, where we’re literally having management meetings, over video conferencing solutions versus in person meetings, as they would have been done traditionally. So I think the deal making evolution continues, but I think the resourcefulness, the resiliency of the players, particularly in this sector, where folks are a little bit more attuned to these, to these tools has been very rapid.”
Another interesting segment of this panel was it’s segue into digital transformation, in which the conversation was led by Tom Watts, managing partner of Radius Capital Partners.
I think digital infrastructure is a very significant core expectation of really any infrastructure fund today. …As the core infrastructure category started to produce single digit leveraged equity returns, a lot of the infra funds were squeezing each other out of transactions, and really needed a large opportunity set of scale that had similar attributes. And by the way, not all digital infrastructure projects or companies represent good infrastructure investments. The typical infrastructure fund, I think, will struggle to consider anything in short duration, productized in nature, as part of their core holdings bucket. Another variable in play, on the other hand, is the fact that most infrastructure funds now also have a non core holding bucket. And by virtue of the size of some of these infrastructure funds, that non core piece is now very sizable as well.”
To learn more and gain even greater insights, you can view the panel in its entirety by visiting the link here: https://independentdatacenteralliance.com/events/the-2020-incompas-show/