On a passive data center position, the transformer purchase order date matters more than the timeline slide

1.9x on 250k over 3.5 years is the headline, but what did you actually pay to get there? Asset management fee, acquisition fee, the promote you mentioned. I'm trying to work out what the gross was before the sponsor took their cut, because that ratio is the thing I can compare across deals.

Curious about a piece nobody usually mentions. Who does the commissioning and ongoing electrical work on a shell like that? Is that the tenant's contractor once they take the space, or does the owner carry a service contract on the switchgear? I'm looking at where the recurring service dollars sit in this sector and it seems like most of it lives on the tenant side of the demarc.

62 weeks to 104 weeks on a piece of hard equipment is not shocking. Eight month waits on gear a tenth that size are not unusual either.

What happens if Building B never energizes at all is the question worth asking on a deal like this. Does the position still work on the strength of the leased building, or is it underwater without the second feed? If A alone covers the return, that's a very different risk profile than what most of these decks are selling, and it's the number to press the sponsor on before committing capital.

Can someone say plainly what a powered shell is? I've read it three times now. My understanding is it's the building and the electricity coming to it, and the tenant installs everything inside. Is that right or am I missing a layer?

@brandonlee36 the part worth chasing is the dirt underneath. Who owns the substation parcel and the easement run to the buildings? Campus deals sometimes have the utility gear sitting on a separate parcel controlled by someone else entirely, and that becomes the whole negotiation on exit. If a buyer pays up for interconnection rights on an unbuilt building, those rights are usually papered very carefully.

Did the pref compound during the 11 months or just accrue simple? That's a real difference over almost a year and I never know which one these documents pick.

A load letter checking out means something different depending on how it was verified. Calling the utility directly to confirm capacity is a different level of diligence than reading a letter and deciding it looks legitimate, and the second one is far easier to mistake for the first. A missed detail like a purchase order date discrepancy tends to belong to the same category of miss, caught only after the fact rather than during the review that was supposed to catch it.

Would you write the same check today at today's pricing? Entry basis on anything with contracted power has moved a lot since 2022, and the 8 pref with a 12 hurdle sounds like a structure from a cheaper year.

The shell to fit-out handoff is where I'd expect the bleeding. Who ate change orders when the tenant's design pushed past what the shell was built for? On my side of the business that's always the fight, and I can't imagine it's cleaner just because the building is bigger and the tenant has a real balance sheet.

Honest reading of your post is that the exit timing carried a lot of the return. An institutional buyer showing up wanting interconnection rights on a building that doesn't exist yet is a very specific moment in the market. If that buyer isn't there in month 42, you're holding a shell and an accrued pref balance for another two years. Did the LP agreement have any hold period limit, or was the sponsor free to sit?

@aliyah_b is asking the fee question, I want the waterfall. 8 pref, 70/30 over 12, and you landed low-19s net. So the sponsor cleared the hurdle comfortably and took a real promote. What I'd want to know is whether the promote was calculated deal level or on the partial sale alone, because a partial sale into a still-standing partnership is exactly where those clauses get interesting. Did you get a full distribution and a wind-down, or did they keep a residual interest in the unbuilt side?

The question worth asking before crediting the sponsor's timeline slide. Would a listed data center REIT have delivered something close to that return over the same 3.5 years, with no dry quarters and no PO dates to chase? Not a given either way. The comparison is the thing to run before trusting the next sponsor's pitch.

Eleven months of zero distributions is the whole story. Accrued pref works fine for an investor who doesn't need the income now. Many do need it, and that's reason enough to stay out of this shape entirely, or to size a position so small the dry period doesn't matter.

Take a two-building powered shell campus where contracted capacity is split across both, one building leased to an anchor tenant on a long fixed term and the other still waiting on its second feed. The equipment lead time is the deal, the building is just the box it sits in. Every surprise on an operating asset like that traces back to a piece of hardware someone assumed would show up on schedule.

Going in order. @aliyah_b, a common fee structure on deals like this runs a 2% acquisition fee at close, 1% of equity annually for asset management, plus a promote. Gross multiples around 2.2x with a 1.9x net aren't outrageous for the sector, but that fee load is exactly why the leased building needs to stand on its own. @tashaford30, yes, in a case like this the leased building alone can cover debt service and the pref with room to spare. That's the whole rationale for funding a deal shaped this way, with the unleased building treated as an option. @kevin_lombard, that's it. Building, power to the building, tenant brings the racks and cooling systems inside. @nicole_adeyemi, in a structure like this the substation typically sits on a carved-out parcel with a recorded easement to both buildings, and the interconnection agreement names the partnership. That's a state-by-state recording question, so it's worth having an attorney confirm rather than assuming it's clean. @paulgrant17, simple accrual, not compounding, is common on structures like this and it costs the investor something over time. @ehernandez74, fair point. Calling the utility's economic development contact to confirm the capacity allocation is a good step, and it's easy to miss that equipment procurement is a separate track from the capacity grant. It is. @stephen_ok9, at the deal level, a partnership can wind down at a partial sale with the buyer taking the remaining interest. That structure can work out well. @karen_whitfield, there's often no hold limit built in. If a buyer doesn't show up, the position sits. That's the honest risk and there's no getting around it.