From Bloomberg, January 28:
The private equity giant says landlord QTS could be one of its best investments ever — but the resources needed for growth are vast.
Off a highway in Phoenix, cranes tower over a stretch of land larger than 60 football fields. The first of five hulking bunkers are under construction.
Thirty miles away, engineers are plotting another complex on 400 acres, some three times the footprint of the Mall of America, all but erasing the land’s farming roots. If all goes as planned, both sites will be home to thousands of computers churning mountains of data, powered by the energy needed for hundreds of thousands of homes.
This is Blackstone Inc.’s bet on the AI revolution.
After its $10 billion takeover of data center operator QTS in 2021, the world’s largest private equity firm is fueling rapid growth at one of the top landlords for tech giants. It’s bankrolling the development of massive structures that will handle crucial computing needs, while also reshaping communities across America.
It’s part of the classic Blackstone playbook for real estate, the largest piece of its $1 trillion empire. The firm identifies where there’s a rising need for properties but too few to meet demand. It then directs billions of investor dollars to build giant landlords poised to capture big rents and market share, a move it has deployed in everything from warehouses to suburban homes.
In this case, the shortage centers on the buildings needed to sustain the digital workings of modern life — and since the deal, demand has exploded. With the artificial intelligence boom taking hold, the Metas and Microsofts of the world are increasingly relying on landlords for the space, and critically, electricity to run machines that train software to predict patterns from a deluge of text, images and videos. Blackstone now says QTS could be one of the best investments in its history.
The company has parlayed its land reserves to profit on a short supply of space and power in key markets. QTS has $15 billion of properties in development, up from $1 billion at the time of its acquisition. It’s become North America’s largest provider of leased data center capacity based on megawatts under contract, after ranking No. 4 just three years ago, according to research firm datacenterHawk.
But the vast amount of resources required makes expanding further more complicated.
Power is already strained in key parts of the country. QTS estimates that its projects, once complete, will tap into some 6 gigawatts of electricity, equal to the needs of roughly 5 million homes. Some campuses will need new power lines, threatening higher costs to others on the grid. And the economic impact of the centers isn’t distributed equally, pitting neighbor against neighbor over who benefits from vast industrial parks filled with computers, rather than properties such as hotels and shopping centers that draw a steady flow of visitors and jobs.
“People are willing to make larger investments on data centers,” said Brian Pryor, Houlihan Lokey's North American data center lead banker. But “there can be public backlash if you suck up power and resources without clear and direct benefits to the local community.”
Read More: AI Needs So Much Power That Old Coal Plants Are Sticking AroundAlready, QTS has faced challenges winning approvals. The biggest recently played out in Manassas, Virginia, where residents and conservationists fought a proposed multibillion-dollar, 900-acre development with tracts next to a state forest and a Civil War battlefield. Hundreds of people showed up to speak at a county vote on approving land for a 2,100-acre data-center corridor, with supporters and opponents lobbying for 27 straight hours....
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