Stream Realty Partners' President and CEO Chris Jackson and his team came to a big decision nearly a year ago: The firm's Stream Data Centers arm needed a major financial backer to keep growing its U.S. data center development business.
The decades-old data center division of Stream Realty had grown as much as it could under the Dallas-based private company's leadership, Jackson said. The data center industry, having rapidly evolved in the past five years, requires hefty backing these days to procure power and compete in a sector that has attracted sophisticated buyers and developers and finance firms like Goldman Sachs.
"We engaged Goldman to help us find capital" for Stream Data Centers, Jackson told CoStar News. "The data center business for us has changed a lot in the last five years. You need more upfront capital."
Stream Realty had grown its data center division "as far as we could take it," Jackson said. "So we looked at a few different options from bringing in capital partners to selling the business."
The growth of both cloud computing and artificial intelligence has changed data center development in the past few years as well as the amount of capital needed to build and operate these properties, which use record levels of power.
In the end, Stream Realty decided to sell a majority stake in Stream Data Centers to New York City-based asset manager giant Apollo for an undisclosed amount. Apollo had $840 billion of assets under management across all its businesses as of June 30.
"We came to the conclusion that Apollo was the easy decision," Jackson added. "They had the capital and resources to help grow Stream Data Centers."
Apollo plans to close on the deal this year. The pact is expected to help Stream Data Centers, which has completed more than 20 large-scale data center campuses, expand in top-tier and secondary U.S. data center markets.
Major investment
As part of the deal, Apollo's funds and affiliates could deploy "billions of dollars" into Stream Data Centers' portfolio, which includes more than 4 gigawatts of secured power, according to a statement from Apollo. A gigawatt can power roughly 750,000 households.
Since 2022, Apollo-managed funds have invested $38 billion into "next-generation infrastructure investments, including renewable energy, digital platforms and compute capacity," the statement said.
The management team at Stream Data Centers is retaining a minority stake in the business and will continue in its leadership role.
It was not in Stream Realty's nature to sell a business, Jackson said, adding it was a hard decision to sell a stake in the data center division after more than 20 years of building the firm, but it was "the right thing to do" as "demands of the sector required it."
Jackson said bringing in global private equity fund Apollo positions Stream Data Centers to compete in a world where rivals also have financial backing from private equity firms Blackstone and Blue Owl Capital. In the past decade, the cost of a megawatt has more than doubled — and the size of data center projects has grown tenfold, Jackson said.
To procure power, data center developers have to fork over "significant deposits" to power providers, he added. Apollo's backing gives Stream Data Centers the ability to compete with its peers that have their own backers.
"It gives us speed to market and the capital to buy land sites, procure the power and move yourself up the line," Jackson said.
For Apollo, the majority stake in Stream Data Centers represents "a landmark digital infrastructure transaction" said Apollo Partners Joseph Jackson and Trevor Mills in the statement.
"With deep development expertise and a valuable long-term land fund in key growth markets, we believe [Stream Data Centers] is uniquely positioned to serve the infrastructure needs of the world's most sophisticated technology customers," the statement said. "Apollo will bring scaled capital and structuring capabilities to help drive recurring origination across our ecosystem."
Apollo estimates data centers will require "several trillion dollars of global investment over the next decade," driven by a so-called global industrial renaissance, the firm said, with substantial investments required in power, facilities and semiconductor chips.
Stream Data Centers is expected to continue to work alongside Stream Realty for a while. The deal is expected to allow Stream Realty to focus on its office and industrial divisions, Jackson said.
"We'll get more aggressive in how we grow and recruit talent," he said. "Office has been on a slow but steady recovery ever since COVID, and there's clearly been a return to the office," Jackson said, adding he's seen a flight to quality by office tenants.
Fundamentals for the industrial sector also remain strong, Jackson said, pushing a return of more development in Stream Realty's Sun Belt markets, where drivers from e-commerce and strong population growth are pushing tenants to seek space.
For the record
Goldman Sachs & Co. was the financial adviser to Stream Data Centers. Akin Gump Strauss Hauer & Feld was legal counsel for Stream Data Centers. Moelis & Co. was the financial adviser for Apollo Funds, with Latham & Watkins acting as its legal counsel.