Data Centers and Other Alternative Sectors Ready for Take-Off

Earlier this month, the announcement hit that Blackstone Infrastructure Partners, Blackstone Real Estate Income Trust and other long-term perpetual capital vehicles managed by Blackstone would acquire all outstanding shares of common stock of QTS Realty Trust for approximately $10 billion. 

David Bonser, who co-heads the Corporate and Finance practice in the Americas and the global REIT practice at Hogan Lovells, an advisor on the deal, thinks the agreement will set a new bar for pricing data centers.

“You may well see some increased activity and price acceleration in that [data center] space,” Bonser says. “Whenever you see a buy-out candidate at a really strong premium like that, it does tend to drive the rest of the space up.”

Bonser thinks there are higher barriers to entry in the data center space, which limits the number of bidders.

“You and I can go buy a shopping center if we can find somebody to give us the money to do it,” Bonser says. “Then we get a tenant in there. You can’t do that with data centers. With some of the sophistication of those things [data centers], that, by definition, limits some of the players. So I do think that that’s harder.”

Bonser also sees infrastructure REITs, which own things like cell towers, as popular with investors. “I do think you’ll see an increased number of infrastructure REITs out there as they figure out the right structure to hold the real estate in,” he says.

Bonser sees single-family rentals as yet another REIT growth area. “In the single-family [REIT] residential area, there are only a few players that have really dominated it,” he says. “But there is room for more. There are really not that many players in that space.”

Another sector that could be primed for more REITs is the net lease space. “Realty Income has dominated that space, but there may be some opportunities there,” Bonser says.

Then there are the potential REIT opportunities that no one is thinking about. Bonser says he gets calls from bankers once a month asking if an idea can be structured into a REIT. Some of these concepts have potential.

“It takes a long time for those ideas to come to fruition and for the market to accept the idea,” Bonser says. “So if you’re talking about something in the next 12 months, I don’t see a whole lot of completely new ideas showing up in REIT IPOs. But I think you’re going to see more investment in the things to do with technology, whether it’s data centers and cell towers—infrastructure type stuff. That is where I would see the most excitement.”