Insights from Data Center Private Equity Dealmakers' Forum

What does the future hold for data center private equity investing in 2025? Attorneys from Ropes & Gray recently attended the Data Center Private Equity Dealmakers' Forum, on February 6 in New York City, and gained valuable insights into this evolving landscape. 

A diverse group of investors and data center operators came together for a number of panel discussions. Topics included investment strategies, financing models and regulatory challenges, providing a look at the current and future state of data center investing.  Here are a few insights we’d like to share:

• Bundling development projects into a broader portfolio of assets may allow managers to access lower-cost financing solutions. By bundling a development project with a broader portfolio of existing operating assets, managers may be able to offer an investment with a lower overall risk profile than the development projects by themselves, which is more attractive to potential financing sources.  
• Private credit and institutional capital markets may become more prevalent as demand for financing/refinancing increases. While ABS and CMBS have typically been utilized by operators to refinance their bank debt as their business grows, the private credit and capital markets could serve as supplements to the ABS and CMBS markets to meet the expected financing needs for the increase in data center development.  
• PropCo/OpCo financing models have gained traction to address the substantial capital requirements of data center projects. This separation of the real estate assets from the data center operations and business activities allows managers to attract capital from different groups of investors with different risk appetites and investment theses.
• While the new administration is generally focused on reducing regulation, regulations at the state and local levels may not be impacted. Investors still need to be prepared to navigate the state and local regulatory environment, which can impact project costs and timelines.   
• Despite the push for renewable energy, fossil fuels are expected to remain an energy source for data centers in the near term. While data center operators are focused on making data centers more efficient and using renewable energy sources where available and cost effective, these renewable energy sources are not yet sufficient to meet power demands.
• Despite challenges, the demand for data centers is expected to be very strong. Cloud computing and generative AI needs are expected to continue to drive data center demand. 
• The emergence of DeepSeek highlights the need to remain flexible as AI technology will continue to evolve. While the long-term demand for data centers is expected to remain strong, the arrival of new technologies such as DeepSeek highlights the need for data center businesses to adapt to potential changes in technology and maintain flexibility in their planning.

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