Commercial Real Estate Finance

What is the one real estate sector that is the hottest right now?  Despite the availability of capital through Fannie and Freddie, its not multi-family.  Despite the rising age of baby boomers, it is not senior living.  Despite the immense growth in the healthcare sector, it is not medical office. So what is it?  Data Centers.  Last year, I wrote about data centers in this post.  Yet, seemingly nobody in the real estate sector has caught on.  So before I go on, let me get you all up to speed.

Take a few moments to watch this:

Now that you have some understanding of the power of the digital age we are all living in, and more importantly, the transition in the way we think and act, you can appreciate how that could translate into the world of real estate.  As I wrote nine months ago, bandwidth sucking sites like Youtube and Facebook need places to store such copious amounts of data, and the place they do it is data centers.  And data centers require real estate.  After all, they are simply just real estate without human tenants.

So while most of the economy was floundering in 2009 (and the commercial sector hasn’t even seen the worst of it yet) the one sector that flourished was data center based real estate.  If you don’t believe me, take a look at the following chart:

Of those on this list, the first and last companies, DuPont Fabros and Digital Realty Trust are REITs. Of course the catch-22 of most data center real estate is that it is still very difficult to finance.  Not because the fundamentals aren’t strong.  But because lenders, and most investors for that matter, do not like to invest in things they do not comprehend.  Many archaic bankers barely know how to turn their computers on, let alone wrap their heads around something as promising as this sector.

Prediction: The lender who has the foresight to create a lending platform specifically catered to data center real estate will not only be way ahead of its time, and way ahead of the curve, but also way ahead on their bottom line.