How should Alpha Realty Funds underwrite a deal to develop an AI colocation data center given sector-specific risks including power delays, electricity prices, tenant default, and technological obsolescence?
How should Alpha Realty Funds underwrite a deal to develop an AI colocation data center given sector-specific risks including power delays, electricity prices, tenant default, and technological obsolescence?
Paul Milstein Center for Real Estate
Alpha Realty Funds, a private equity firm, is developing its first asset itself: a 20 MW, 150,000-square-foot AI colocation data center near Charlotte, North Carolina. Tenants have signed pre-leases, priced on power. Since a landlord’s primary job is delivering power and cooling, operating costs are a pass-through to tenants. The construction lender has sized a loan at 60% of total project cost.
In this case, students will learn how power-based pricing, cost pass-throughs, and power availability make AI data centers as an asset class different from traditional commercial real estate. They will underwrite a development-stage AI data center by building a levered cash flow model. Students will recommend whether to invest or pass on the deal based on how its returns hold up under stress including power delays, higher electricity prices, technology obsolescence, and tenant vacancy.
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