Blackstone, COPT Form $265M Data Center Venture

A non-traded REIT sponsored by Blackstone is forming a JV with Corporate Office Properties Trust to buy a 1.2 million-square-foot portfolio of COPT data centers.
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Corporate Office Properties Trust has formed a joint venture with Blackstone Real Estate Income Trust Inc. for the purchase of seven of COPT’s data center shell properties at a value of approximately $265 million. The group of single-tenant facilities encompasses 1.2 million square feet of warehouse space.

COPT declined to go on record with Commercial Property Executive regarding the new partnership, but the REIT noted in a prepared statement that the transaction demonstrates the strength of demand for strategically located data center shell properties leased to high-credit tenants. Per terms of the agreement, BREIT will be majority owner of the joint venture with a 90 percent stake, leaving COPT with ownership of the remaining 10 percent, as well as $238.5 million in proceeds.

At the close of the first quarter of 2019, COPT’s portfolio of single-tenant data center shell properties—facilities leased to tenants to be operated as data centers in which the tenants generally fund the costs for the power, fiber connectivity and data center infrastructure—encompassed 19 assets totaling 3.1 million square feet. The REIT owns six of those properties through GI-COPT DC Partnership LLC, a 50-50 unconsolidated joint venture formed with private investment firm GI Partners in July 2016.

A flourishing CRE sector

As COPT stated in its first quarter 2019 earnings presentation, data center demand continues to boom. According to a report by CBRE, the cry for data center accommodations is growing louder nationally, spurred by big-data analytics, 5G, gaming, streaming services, edge computing and the Internet of Things. The seven primary data center markets in the U.S.—Atlanta,  Chicago, Dallas/Ft. Worth, New York Tri-State, Phoenix, Silicon Valley and the largest data center market in the world, Northern Virginia—recorded a total of 303 MW of net absorption in 2018, breaking the 228 MW record set in 2017 by more than 16 percent, per the report. The robust demand has translated into equally robust construction, with 322 MW of capacity having come online in 2018. At the close of the year, a whopping 500 MW of capacity was under development in the primary data center markets.