It seems that the smart money is getting busy, at least in regards to fully or almost fully-leased income properties. Private Equity firm GI Partners has two notable data center acquisitions, both fully leased to strong tenants.
Earlier this month, GI Partners acquired Lightwave Corporate Center, a data center and office property fully leased to cloud and managed services provider American Internet Services, and San Diego Gas & Electric Co., a public utility . GI Partners followed it up with the acquisition of Liberty Park at Tysons in Northern Virginia, a property that is principally occupied by the GSA on a long term lease in support of a mission-critical application.
Both acquisitions provide consistent rental income streams to GI’s portfolio for several years to come through high quality tenants. Liberty Park was purchased through TechCore while Lightspeed was purchased through DataCore, two funds with similar names and similar aims.
TechCore and DataCore; CalPERS and CalSTRS; Potato and Potato.
TechCore is a $500 million discretionary core real estate fund launched earlier this year and managed by GI Partners on behalf of the California Public Employees' Retirement System ("CalPERS"). DataCore is a fully discretionary core real estate fund managed by GI Partners that was launched earlier this year with the California State Teachers' Retirement System ("CalSTRS"). Both have a similar aim with different (but similar) beneficiaries.
Liberty Park at Tysons is a 225,038 square foot mission critical data center and office property located in Vienna, VA. "This was an excellent opportunity for us to acquire a state-of-the-art data center facility that recently underwent a major renovation to support the long term needs of a world class tenant," said Rick Magnuson , Executive Managing Director of GI Partners.
As mentioned earlier, the acquisition was made through TechCore, a $500 million core real estate fund launched earlier this year. TechCore targets data centers, internet gateways, corporate technology campuses and life science properties. In real estate, a “core” investment is a stable property with high occupancy rates and steady income from tenants with strong credit, which can generate a solid return without significant development or expansion.
TechCore focuses on acquiring highly-leased single tenant data centers, as GI has done here. TechCore also recently acquired a 198,033 square foot office building at 1600 Technology Drive in San Jose,CA, which acts as global HQ for Atmel Corporation, a semiconductor industry player.
GI Partners also acquired a data center and office building in San Diego earlier this month, made through the DataCore core real estate fund. The facility is a two-story, 166,892 square foot property located at 9305 Lightwave Avenue in the Kearny Mesa submarket of San Diego. It’s fully occupied, leased to American Internet Services, a cloud, connectivity and managed services company, and San Diego Gas & Electric Co, a public utility that provides energy service to 3.4 million people through 1.4 million electric meters and 850,000 natural gas meters. In summation, two strong, very desirable tenants that aren’t going anywhere any time soon.
"We are pleased to have formed this relationship with CalSTRS (California State Teachers’ Retirement System) that leverages our expertise and strong reputation for investing in technology-advantaged properties,” said Magnuson. “This property represents DataCore's initial acquisition, features extensive data center improvements and is leased to strong tenants in their respective fields. We have an active pipeline and we will continue to identify and acquire core technology real estate investments on behalf of DataCore."
Earlier this year, GI Partners advised CalSTRS on its acquisition of LCOR, a fully integrated investment, management and development company focused on large-scale multifamily, commercial, and mixed-use properties.
The California State Teachers’ Retirement System (CalSTRS) created DataCore as a core investment vehicle to invest in technology-focused real estate in the U.S., including data centers, Internet gateways, corporate campuses for technology tenants and life science properties located in primary MSAs and leased to industry leading tenants. This is the first investment for the DataCore fund. CalSTRS has a portfolio valued at $154.8 billion as of Oct. 31, 2012, and is the largest educator-only pension fund in the world. CalSTRS serves California's 856,000 public school educators and their families from the state's 1,600 school districts, county offices of education and community college districts.
Data Centers: A Different Beast of Asset Class
These acquisitions mark a continued shift from GI Partners’ entry into the data center sector in 2001. At the time, the data center industry was entering a prolonged slump amid an oversupply of space. When the Internet market crashed, companies who had overbuilt wound up in bankruptcy, leaving data centers sitting empty, to be sold for pennies on the dollar.
GI Partners acquired dozens of these properties, gradually filling them with tenants and redeveloping any unfinished space. In the past decade, data centers have grown into a new asset class, to the point where TechCORE and DataCORE funds can focus on stable income properties with solid leases rather than on speculative turnarounds.
These acquisitions are a good example of the healthy state of the data center industry. The smart money goes where the potential is, and right now, the industry is healthy enough that these fully leased properties are extremely attractive.
More on TechCore, and the thinking behind it, can be found here. For another recent example of a fully-leased data center acquisition, check out Carter Validus' acquisition in Philly, or ByteGrid's acquisition of a fully-leased data center in Atlanta.