Private Equity Investing Billions in Data Center Expansion Despite Global Realignment

The massive and growing demand for data storage has set off a multi-billion dollar wave of private equity investments to fund construction of new data centers and the expansion of existing ones, according to nationally recognized real estate and construction advisor and author Barry B. LePatner, Esq. The continued growth of data centers will accelerate advances in IT infrastructure, development of demand for new sources of power and power distribution units, and new air-based as well as liquid-based cooling techniques. However, global roadblocks may slow or hinder construction of these vital assets.

“The advent of artificial intelligence and the incredible new data storage needs for businesses who are AI, IoT (Internet of Things), cloud services, and data generation has caused public and private organizations to be more reliant on immediate access to data than ever before,” LePatner says.

Reports vary on the size and scope of the U.S. data center market, but estimates see total investment value between $400 billion and $600 billion by 2030.

As counsel and advisor to corporations, design professionals, institutions and construction lenders, LePatner points to demand from major users such as Amazon, Microsoft, Meta (Facebook), and Google, who are known in the industry as “hyperscale operators” for the scale at which they operate. Mostly in obscure locations, these and other large organizations are building out massive facilities usually defined as exceeding 5,000 servers and 100,000 square feet of space, with the number of servers running into the millions.

Despite this massive expansion, LePatner points to global obstacles that could disrupt data center expansion. “Like with other sectors of the real estate and construction worlds,” he says, “data centers face challenges that could hamper some elements of venture capital’s eagerness to fund future investments.” These include:

  • Continuing supply chain disruptions caused by the Covid-19 pandemic, on materials and equipment used in the construction of these projects;
  • Geopolitical conditions, such as the war in Ukraine, has limited access to supplies of neon (key for semiconductor manufacturing), continuing civil strife in the Middle East that threatens oil production, as well as uncertainty over the future of Taiwan where 95% of all microchips are produced;
  • Climate change that has created wild fires, flooding, excessive heat waves and water shortages that threaten disruptions around the world;
  • The shortage of skilled construction workers needed for data centers’ complex mechanical and electrical assemblies;
  • Higher interest rates that threaten to remain at these levels for the near-term future, and;
  • Meeting new standards of sustainability required to provide and protect the needed water and unique materials needed to build these facilities.

One critical issue to consider, LePatner explains, is that the capacity of a data center is a function of how well it cools the needed multitude of servers. As a result, data center owners and operators are looking to install air-cooled chillers that recirculate water in a closed loop, in an effort to drastically reduce water use. But in some regions, data centers continue to rely on evaporative cooling systems that are highly efficient but require significant amounts of water that have become an increasingly rare or government limited commodity.

Trained professionals will be a key driver in the advancement of data center construction. “The demand for highly skilled trades to meet these new design and installation requirements may well prove to be a major spur to the U.S. construction industry through the balance of this decade,” LePatner says. “The U.S. has the opportunity to take our entire ecosystem to the next level.”

About Barry B. LePatner, Esq.

Barry B. LePatner is the CEO of Insights+ and the nationally recognized corporate construction lawyer and advisor to institutions, commercial, and real estate developers and lenders. As the author of Broken Buildings, Busted Budgets (University of Chicago Press) and Too Big to Fall: America’s Failing Infrastructure and the Way Forward (University Press of New England) he frequently appears in the media addressing problems arising from design and construction issues as well as the perilous nature of our crumbling roads and bridges. He is frequently seen commentator on television with CNBC, CBS TV, MSNBC, and CNN on NPR and radio stations around the nation as well as interviews in the NYTimes, Wall Street Journal, Bloomberg New and other publications.


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