Financing approaches: Navigating capital structures

Investors have multiple avenues to finance data center projects, including:

• Public market vehicles: Real estate investment trusts offer liquidity and access to public markets but may have limitations on development projects.
• Asset-backed securities (ABS): ABS structures can provide tailored financing solutions but may involve complex structuring and pose regulatory barriers that are ultimately subject to prevailing market conditions.
• Private funds: Private equity funds remain prevalent, offering flexibility in investment strategies and structures.

Notably, global data center assets valued at a combined total of $170 billion will need to secure construction lending or permanent financing in 2025, according to “Why data center finance is diversifying,” a February 12, 2025 article in JLL.

Structuring considerations: Aligning strategy with structure

When structuring a data center fund, the following must be considered:

• Investment strategy:
  • Greenfield projects involve building new data centers from the ground up, offering customization but with higher development risks.
  • Brownfield projects focus on acquiring and upgrading existing facilities, allowing for quicker deployment and potentially lower costs.
  • Buy-to-hold strategies involve long-term ownership, focusing on stable income generation.
• Investment geographies: Jurisdictional considerations, including regulatory environments and market demand, play a crucial role.
• Fund size: This factor determines the feasibility of certain projects and influences the investor profiles targeted.
• Tax efficiency: Failure to properly navigate local and international tax laws can result in tax overpayments and/or legal risks.
• Target investor base: Institutional investors have different concerns from high-net-worth investors, which may dictate fund structure, disclosure requirements and compliance obligations.
• Investor jurisdiction: The domicile of investors can influence regulatory requirements, tax implications and reporting obligations.
• Fund manager location: The location of the fund management team is critical, as fund management is typically a regulated activity and likely will attract licensing obligations in each of the respective jurisdictions.