Data center sale-leasebacks have become an increasingly important strategy over the past several years. The benefits derived for both the seller and the purchaser in this financial transaction have proven to be mutually beneficial. The data center market has continued to see a rush of investors seeking such sale-leaseback projects, with a particular investor focus from data center developers and colocation operators.
Now that outsourcing enterprise IT operations to third-party colocation operators has become the preferred solution for most corporations, these same enterprises now must determine how best to dispose of its existing facility. The good news is that it remains a seller’s market for such well-maintained facilities and can provide a significant opportunity to get top dollar, among many other incentives to seek a sale-leaseback.
Data center sale leasebacks can take many forms and provide enormous flexibility
In the straight-forward real estate sale-leaseback scenario, the property owner simultaneously sells the building to an investor and then agrees to lease it back from the investor over a period of time. The property owner gets an immediate cash infusion while the investor gets a stable rent stream over the lease term.
In data center site selection, these mission critical sale-leasebacks can take on several different iterations that can prove lucrative to the seller, and still provide the investor the motivation to acquire the asset, such as:
There are many compelling reasons on the seller side to pursue a sale-leaseback. The primary reason allows for the seller, which typically is an enterprise corporation, to exit the owning and operating of a non-core asset such as a data center and focus on its business. The seller no longer has to continually upgrade these operations and can have that responsibility transfer to the new investor. Leasing colocation space allows for significant flexibility and a tailored solution to the enterprise customer. Across the business landscape — from banking to healthcare to retail — many enterprises are evaluating selling their legacy data centers.
The investor side in these data center sale-leasebacks also have compelling reasons to pursue these financial transactions. Data center real estate has proven to be a stable asset class, given the long-term leases in place on a capital-intensive asset and the likelihood of future renewals. Just as important — and probably more important — the colocation operator and data center developer gets:
Some notable data center providers that have positioned themselves very well to deliver flexible solutions to an enterprise’s needs include Digital Realty, Carter Validus, Lincoln Rackhouse and Chirisa Investments.
As the sale-leasebacks and partial sale-leasebacks have evolved, the data center providers have delivered different solutions to enterprises in the sale-leaseback model. Not including many single-tenant data center sale-leasebacks, the following are some notable deals with buyer and seller goals being met:
The benefits of the sale-leaseback, and especially the partial sale-leaseback, enable enterprise corporations to monetize legacy non-core assets and provide the future flexibility needed as they consider cloud, colocation and managed services for their IT operations. The data center operator has shown an aggressive willingness to deliver to meet this flexibility since they can create data center capacity in new markets.
So the net result will be that sale-leasebacks will remain an important solution in data center site selection.