A joint venture between Starwood Capital Group and Digital Realty has sold a data center in Ashburn, Va., to GI Partners. The price was not announced but Green Street reports it traded for $150 million.
The sale was significant for the market, Green Street also added in a research note authored by David Guarino and Harrison Mullany, because given the scarcity of transactions lately in the sector, it provided valuable data for pegging cap rates.
The headline cap rate appears to be in the mid-6% range, they wrote, "however, like most data center comps, headline valuation figures can be misleading." Instead, they wrote, "it's likely the cap rate underwritten by the buyer was in the low-to-mid 5% range" because the smaller of the two tenants occupying the data center is paying a rental rate significantly above-market and its lease is up for renewal in the next two years. "Odds feel high the tenant's rent will decline materially upon renewal," according to the report.
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Green Street also notes that Digital Realty developed it in 2010 for $100 million and sold a majority stake to Griffin Capital four years later for a valuation of $185 million. The recent $150 million transaction represents a significant downward price, which is attributable mostly to reduced NOI as sector-wide rental rates declined.
At the time of the sale, Starwood was the majority owner at 90% while Digital Realty had a minority stake of 10%. Starwood gained its majority stake in 2020 at a significant discount to the recent sales price.
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