Blackstone is launching a joint venture to spend $7 billion on developing data centers as the expansion of artificial intelligence powers worldwide growth in a once-small niche of commercial real estate.
The New York-based investment giant said it will join Digital Realty, one of the largest data center operators, to develop 10 data centers across four massive "hyperscale" campuses over the next few years in Northern Virginia, Paris and Frankfurt, Germany.
The venture adds to billions in data center investments by Blackstone, billed as the world's largest property owner. The firm has said it tripled the size of its data center development pipeline to $15 billion since it acquired QTS Data Centers in 2021.
The facilities that support massive levels of data required for cloud computing and AI can be seen by some as a pocket of stability in a real estate market that is struggling against a combination of remote work, declining demand for office space and uncertain property valuations.
Average share prices of Digital Realty and other data center real estate investment trusts were up 32% in 2023 as of December — the largest annual gain among commercial property REITs.
That was followed by single-family rental housing developers, at just over 18%, and regional mall operators at just over 11%, according to research by investment bank Morgan Stanley. Shares of office REITs slid nearly 15% and apartment companies dipped almost 5% in the first 11 months.
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Real estate developers, and the biggest tech companies such as Microsoft, Google, Amazon and Apple, have rushed to accelerate investments in data centers and other technical infrastructure to prepare for anticipated artificial intelligence-fueled growth.
Blackstone has increased its investments in data centers, warehouses and student housing while cutting back sharply on spending in areas such as offices that were hit by a lack of demand because of remote working.
The company said it will acquire an 80% ownership interest in the joint venture for about $700 million of initial capital contributions, with Digital Realty having a 20% interest in the investments slated to close in two stages during the first half of 2024.
The 10 data centers will have roughly 500 megawatts of potential IT load capacity. About 46 megawatts is already under construction, of which about about a third is pre-leased, according to the Blackstone statement.
The remaining capacity is in varying stages of pre-construction and is expected to be developed to meet customer demand. One megawatt is 1 million watts, or about enough to meet the needs of about 750 homes at the same time.
The joint venture "represents a strong vote of confidence in the growth outlook for the data center industry," Morgan Stanley equity analyst Simon Flannery said in a research note.