The "Data Centres Development and Infrastructure Forum" by Commercial Observer, held on 6 October at the City University of New York Graduate Center in Midtown Manhattan, focused on data centres, an increasingly relevant asset class. Experts from the legal, construction, investment, and development sectors analysed the past, present, and future of this property type, with a particular focus on the impact of AI technologies and current investment trends. The discussion also covered how public perception has made data centres a contentious issue in Washington D.C. and in regional parliaments.
Jeffrey Moerdler, a partner in Haynes Boone's practice group specialising in data centres and digital infrastructure, opened the forum with a presentation in which he referred to data centres as the "fourth and perhaps fifth industrial revolution." Moerdler compared the recent development of this asset class and AI technology to historical milestones such as the discovery of water and steam power in the early 19th century, electricity and mass production in the late 19th century, and computers and digital technology in the 20th century.
Urbanisation of AI and Scepticism towards Neo-clouds
Moerdler highlighted two significant trends. First, he emphasised that the future of AI lies in urban and suburban inference data centres. These low-latency facilities are designed to deliver AI results to users in densely populated cities, as opposed to large campus facilities in rural areas. He observed that his clients operating such facilities are renting out their computing capacity more quickly to smaller users who require a local endpoint for their AI network.
Furthermore, Moerdler expressed scepticism towards so-called neo-cloud computing companies. While these specialised on-demand cloud networks for AI models do rent space in data centres, Moerdler characterised their business model as short-term, lacking secured long-term revenue streams. He raised concerns about their creditworthiness and the sustainability of this emerging segment.
Transformation of Infrastructure and Investment Dynamics
The first panel, moderated by Michael Vardaro, Managing Partner at Zetlin & De Chiara, addressed the intersection of commercial real estate and AI, as well as future investments in digital infrastructure. Sam Stockdale, Managing Director for Energy and Infrastructure at Link Logistics, explained the significant differences between data centres of seven years ago and new builds today. While older facilities had capacities of 30 or 40 megawatts, today data centres are built requiring one or two gigawatts of power. This necessitates a completely different investment volume for development and implementation.
Peter C. Lewis, Founder and Chairman of Wharton Equity Partners, described the growth of data centres and AI properties as the "biggest change he has seen in his forty-year investment career – and by a factor of ten." However, Lewis warned that not every developer with industrial experience would successfully make the leap into the data centre market, as the asset class exhibits high complexity. He stressed that the market still underestimates the immense demand and scope of this development, even though it promises high returns.
Amir Abdu, Managing Director in BGO's US Investment Team, discussed the increasing number of delays in data centre projects. He pointed out that the entire industry, including capital markets, must grapple with the shift in public opinion. While energy supply used to be the primary bottleneck, the politically charged environment nationwide is now a new challenge affecting the entire political spectrum.
Another panel, moderated by Nicole Fenton, Partner at HSF Kramer, addressed the data centre transaction cycle and land use issues. Gavin Flynn, Principal at Blue Owl Capital, emphasised that developed building land (
- —Powered land
- —Streamlined approval processes
- —Cooperation with utilities
- —Transparency regarding long-term costs
) is crucial for evaluating any data centre deal, but permits may be even more important. He argued that "powered land" is of little value if the construction or operation of a data centre is not permitted on it. This places utility companies at the centre of any potential data centre development. Requirements from utility providers, such as clawback clauses, minimum fees, and letters of credit for large campus facilities, could necessitate investments of hundreds of millions of EUR even before a tenant is found or a clear timeline for revenue exists.
