Blackstone, Digital Realty Form $7B Venture

Blackstone—whose NYC headquarters is pictured above—has poured several billions in data centers this year alone. Image courtesy of CommercialEdge

Digital Realty has entered a joint venture with funds controlled by Blackstone for the development of four new data center campuses in three primary markets—Northern Virginia, Paris and Frankfurt. The partnership expects to invest $7 billion over several years and develop up to 10 data centers that will support 500 megawatts of IT capacity upon full build-out.

Blackstone will acquire an 80 percent interest in the joint venture for $700 million in initial capital contributions. Digital Realty will retain a 20 percent share of the partnership. After the deal closes, the partners will fund their pro rata share of remaining development costs. The joint venture agreement is expected to close in two stages through the first half of 2024.

Digital Realty will manage the development process and will oversee day-to-day operations of the joint venture. The global provider of cloud and colocation data centers expects to leverage roughly 20 percent of its sizeable land bank for this partnership.

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Of the total upcoming capacity planned by the joint venture, 46 megawatts are currently under construction and 33 percent is preleased. The remaining space is in pre-planning stages and will be rolled out depending on customer demand. Roughly 100 megawatts are planned to come online through 2025, while the rest is set to be delivered in 2026 or later.

Data center investments continue at a record pace

The deal comes on the heels of several other massive agreements, making 2023 yet another year of growth for the data center sector. In August, Digital Realty entered a joint venture with TPG Real Estate Partners, valued at $1.5 billion. In that deal, the global provider sold an 80 percent stake in three stabilized assets located in Ashburn, Va.

Blackstone had another milestone in its continued push to invest in data centers. In a record-breaking deal at the time, the investment giant spent $10 billion in 2021 to acquire QTS Realty Trust. This year in July, the company announced it has sold off other assets to fund an $8 billion commitment to build new data centers through QTS, DCD reported.

Other large-scale 2023 investments include the $1 billion commitment from AREP subsidiary PowerHouse Data Centers in Sterling, Va., where it will develop a new campus in partnership with Harrison Street; Google’s $1 billion, 187-acre upcoming campus in Mesa, Ariz., scheduled to come online by 2030; AWS’ plans to expand its Virginia presence, where it intends to invest $35 billion over 17 years, in tandem with the $7.8 billion expansion the cloud provider has planned for Ohio.

Largest data center market overcomes hurdles

Digital Realty owns 16 facilities—encompassing more than 4 million square feet—within Northern Virginia, the largest data center market in the world. The company’s network ecosystem provides access to more than 145 cloud and network service providers.

According to CBRE research, the Northern Virginia market had one of the lowest vacancies in the U.S. in June, under 1 percent. The market’s inventory stood at more than 2.2 gigawatts, with a construction pipeline amounting to more than 900 megawatts.

However, one of the main challenges of this primary market was power availability. Last year, Dominion Energy, the main utility provider for data centers in the market, highlighted a potential bottleneck in Ashburn, Va., which might have led to some projects being stalled. It also led to other adjacent counties receiving more investments and development, as demand in Northern Virginia did not slow down as a result, with developers shifting strategies.