Vantage Data Centers, a global owner of real estate supporting digital networks, raised $1.35 billion through a securitized offering of tenant lease payments in what may be the largest bond deal this year backing this fast-growing property type.

The deal comes amid high interest in infrastructure that can support artificial intelligence and other advanced digital capabilities.

With this major securitization, data centers have now raised $7.3 billion in 12 offerings in what has been a rare active segment of the commercial real estate bond market.

The proceeds are primarily being used to refinance Vantage’s existing debt tied up in work at three data centers on its flagship Northern Virginia campus and five data centers in the province of Quebec in Canada.

The need for cash has come from the exponential increase in data use, the rapid adoption of artificial intelligence computing, broad migration to cloud storage and the transition to a fully digitized economy, according to S&P Global Ratings, which rated Denver-based Vantage’s offering.

Though S&P pointed out some long-term risks for data centers, including cloud storage companies handling their own physical locations, it said: “vacancy rates were low for key data center markets in 2022 through the first half of 2023 and that rental rates have increased year over year.”

The Vantage offering, called Retained Vantage Data Centers 2023-1 and 2023-2, last month achieved a green bond designation from Morningstar Sustainalytics, a firm that provides environmental, social and governance ratings and research.

Vantage was founded in 2010 and acquired by a DigitalBridge Group-led group in 2017. DigitalBridge is a global digital infrastructure investment firm with more than $72 billion in assets under management.

Data center properties are assessed not by square footage but by megawatts, the standard unit for measuring their power-handling capabilities. One megawatt is equivalent to 1 million watts, or the power output of about 10 car engines; Vantage's operations total more than 1,500 megawatts of leased capacity.

“Vantage is delivering on its growth strategy, and despite inflation and the challenging capital markets, investors continue to be confident in Vantage’s ability to execute as evidenced by this securitization,” Jon Mauck, senior managing director at DigitalBridge, said in a statement.

In a recent report, real estate brokerage firm JLL detailed how AI requirements are driving the need for more computing power.

It's become “challenging to find space and power for smaller requirements in many markets," JLL said. “This has led to a significant surge in leasing in the second quarter of 2023, with a mounting demand for capacity to meet higher density data center requirements.”

The demand for data center properties is attracting major institutional investors, including the world’s largest real estate owner, New York-based Blackstone Group. The private equity giant recently reached $1 trillion in assets under management.

“Large technology companies are in the midst of an AI arms race which we believe will be a once-in-a-generation engine for future growth in data centers and is driving tremendous demand on the ground,” Blackstone Real Estate Income Trust reported to shareholders in August. “We are capitalizing on this through our ownership of QTS Realty Trust, one of the fastest-growing data center companies.”

Data centers contain a large number of energy-intensive technologies and services such as servers, storage equipment, backups and power cooling infrastructure supporting billions of end users, according to Sustainalytics.

U.S. data centers consumed an estimated 17,000 megawatts of global electricity use in 2021 and are expected to reach 35,000 megawatts of consumption by 2030, Sustainalytics said.

Data centers have been criticized for consuming large amounts of water, especially for cooling. A large data center can use between 1 million and 5 million gallons of water a day — as much as a town of 10,000 to 50,000 people, according to a Washington Post report earlier this year.

Moreover, many data centers are located where water is scarce, such as the arid regions of the American West.

This can put a strain on local water resources and lead to conflict with other users. In addition, climate change is expected to exacerbate water scarcity in these areas. This could make it even more difficult for data centers to operate sustainably.

Vantage said it has committed to reducing the environmental impact of its data centers by reducing carbon emissions to achieve so-called net-zero status.

It plans to minimize water use and reduce waste from operations, Sustainalytics said in its opinion of Vantage's securitized offering.

“This transaction is Vantage’s ninth securitization financing since 2018. It’s also our fourth green financing bringing our total green loan financings to more than $2 billion,” Sharif Metwalli, Vantage’s chief financial officer, said in a statement. “This financing provides an even stronger financial position for our North American platform and enables us to continue scaling the business to meet customer demand in an environmentally friendly way.”