Only 16 of 48 MW are energized and the promote clock starts anyway

Liquidated damages capped at 5% of contract value on a job this size is a rounding error next to $40M of annual rent. I've had 5% caps on $2M renovations that got eaten in the first two months of a delay.

The bigger gap is the seam. Your EPC contractor is on the hook for the building. The utility is on the hook for the substation. Nobody is on the hook for the gap between them, and that's exactly where the 12 months goes. Ask who bears cost and schedule if the hall is ready at month 12 and the feed lands at month 20. In my experience the answer is written nowhere, which means it's yours.

You are tracking two clocks and the documents you listed only govern one of them.

The building clock is the EPC schedule with its liquidated damages. The power clock is the utility's, and a will-serve letter is a conditional statement of intent to serve, typically subject to system upgrades, cost allocation under the applicable tariff, and regulatory approval of that spend. What it obligates the utility to do, and on what timeline, depends on the tariff and the state commission that approves it, so have counsel read it against the tariff rather than reading the estimated in-service date as a commitment. The binding document is usually the interconnection or construction services agreement, along with any capacity reservation and the deposit that secures it. Ask what has been paid, whether the reservation is transferable on a sale of the asset, and what event forfeits it.

The answer to your promote question depends on one clause: whether rent commences on energization only, or on the earlier of energization and a fixed date. If it is energization only, the tenant has free optionality on the utility's schedule and your equity funds the wait. If there is a fixed commencement backstop, the delay case is mostly a debt sizing and interest reserve question.

On the exit, power capacity is the scarce input in this sector, and grid delivery timelines are the constraint on new supply, which is what supports well-located existing facilities. A residual on a year-11 asset is really a bet on the transferability of secured power and the fit-out cycle for higher density loads. Underwrite those separately from the shell.

Ask for the design density per rack and the busway ampacity, then ask what a liquid cooling retrofit does to the floor loading. Air-cooled halls built for 8 to 10 kW a rack don't take 60 kW racks by swapping CRAC units. You're into piping, coolant distribution, structural work, and a hall that has to come partly offline to do it.

Also ask how the generators and UPS are sized against the 48 MW, not the 16 MW. If the standby plant was built for full load on day one you've got capital sitting idle for two years, which is fine, but it should show up in the yield-on-cost math you were given.

Sorry, basic one. Why is the rent quoted per kW per month instead of per square foot? Is the space irrelevant?

@rigging power is the scarce thing, so that's the unit that gets priced. Square footage follows from the electrical and cooling design rather than driving the rent.

@sextant debt is $274M at closing with a $58M interest reserve. I asked and the reserve was sized to the original month 26 full energization with no cushion, which is your point exactly. Cash-on-cash by year was not in the deck. Requested.

@rena-expert rent commences on energization only. No fixed backstop. That's the clause, and reading your framing I think that's most of my answer. Capacity reservation deposit is $11M paid, and the sponsor's counsel says transferable on sale with utility consent, which is a sentence doing a lot of work.

@harrow the seam is unallocated. Sponsor called it "a normal coordination item."

$11M of reservation deposit and consent-based transferability is the whole deal in two numbers. If the buyer at exit has to go back to the utility for consent, you don't have an asset with power, you have an asset with an application.

Also, is this the sponsor's first single-asset vehicle? They usually are when the fee load is high and the reporting package is a deck. Ask what they've energized before, in MW, with dates.

$9.5M per MW is light for a fully fitted turnkey hall in my experience of pricing this stuff. That number reads like powered shell plus base electrical and cooling, with the tenant installing their own gear inside. If that's what it is, then two things follow. The residual you're buying at year 11 is the shell and the power, and the tenant's fit-out cost becomes their reason to renew, which is actually good for you. But it also means the $105 per kW is a shell-adjacent rent and shouldn't be compared to turnkey comps anyone waves at you.

@solder your density question then belongs to the tenant, mostly, except for the parts they can't change without touching the structure.

The part I'd chase is who the tenant actually is. Investment grade cloud tenant could be the operating entity everyone means, or a leasing subsidiary with a thin balance sheet and a parent that has said nothing in writing. If it's the sub, the credit is a guarantee you haven't read.

And on the bubble question everyone asks about this sector, I don't think it changes your decision much. Even people who think capital is running hot agree the demand is structural. A phase risk you can't allocate is a specific problem in front of you and doesn't need a macro call.

I'm nowhere near this size and reading it mostly to see where the ceiling on my own stuff is, but the forfeiture question feels like the one I'd fixate on. What event kills the $11M? Missed milestone on the customer side, missed payment, change in the load request? Deposits like that usually have a clawback trigger written by the party holding the money.

Who's doing remote hands and the 24/7 site staffing, and is that a sponsor affiliate? Affiliate service contracts inside a single-asset vehicle are where the fee load hides after you've already negotiated the visible fees down.

Following @lantern, get the operating expense reimbursement mechanics in writing before you look at NOI again. On a triple net structure with a single tenant your only real exposures are the structural reserve and whatever the lease excludes from pass-through, and those exclusions are always the interesting sentences. Ask specifically about the chiller plant, the switchgear, and who funds replacement of the standby plant in year 12. If the answer is a reserve, ask how the reserve is funded during the two years when only a third of the building is paying rent.

What's the fee load? You mentioned it in passing and then moved on. Acquisition fee, asset management fee on gross or invested, construction management, and whether the promote is measured on a deal-level IRR with a hypothetical liquidation each year. The hypothetical is the part that stings on a phased asset. A sponsor can earn a promote on paper value created by a lease that hasn't started paying cash.

I'll disagree with @sextant on the exit. I don't think the argument is about the cap rate at all. A year-11 hall with 48 MW of energized, transferable capacity in a constrained market doesn't trade on the building. It trades on the power, and the price the next buyer pays is driven off what it costs and how long it takes them to get 48 MW anywhere else. That's a replacement-cost-plus-time calculation.

So run the residual two ways. One, 6.25% on year 11 NOI, which is the sponsor's version. Two, powered capacity at whatever a MW of secured, energized, transferable capacity is trading for in that market, less the cost to re-fit the hall for higher density. If those two numbers are within 15% of each other I'd stop arguing about it. If version two is 40% below, the whole return is a cap rate assumption and you should say so out loud in the IC memo.

Separately, $58M of interest reserve against $274M of debt sized to a schedule with no cushion is the single most fragile number in your post.

Small point from the service side. Ask what compliance and audit obligations the lease pushes onto the landlord entity, because those come with recurring third-party cost and staffing that people forget to underwrite.

Dumb question from someone whose first deal is a duplex. If the tenant can walk at month 32 because phase two is late, do they hand back the 16 MW they're already paying for, or just the late part?

@tally that's the right question and it's usually written narrowly, so the termination applies to the undelivered phase only. But narrow drafting isn't guaranteed and it varies deal to deal, so it's a read-the-clause thing rather than a rule.

One tenant, one utility, one substation. In my service business the year I had 60% of revenue from one client was the year I stopped sleeping, and the fix wasn't a better contract, it was a second client. You can't get a second tenant here, so the only thing left is making the contract carry the risk, and @harrow already found the seam where it doesn't.

Naive alternative, but if the thesis is the sector rather than this asset, does a share of a listed data center owner get you most of the exposure without the phase risk? You'd give up the development spread. I'm asking because I can't tell from your post whether you want the sector or you want this yield on cost.

Powered shell was new to me, so here it is for anyone else reading twice. It's the building with the electrical service and the space brought in, without the server-room fit-out inside. @girder is saying the price per MW here looks like that rather than a finished facility, which changes who paid for what.

Nobody's mentioned the site itself. Where does the substation sit relative to the parcel, whose easements does the feed cross, and are they recorded? Easement recording and how you confirm priority differ by state, so have local counsel run it rather than trusting a title summary in a deck.

Also ask about water. If the cooling design uses evaporative cooling you have a permitted withdrawal or a municipal supply agreement somewhere, and some jurisdictions have started putting conditions on both for large loads. And check whether the county has any pending moratorium or new overlay on large-load development, because that has shown up in a lot of places that were welcoming two years ago.

The guarantee question @bramble raised is the same thing I do on a rental application. The name on the lease and the name with the money are two different questions, and you ask for both in writing before you hand over keys. Scale doesn't change it.

Why the 19th? A hard close date on a $6M allocation into an asset where the central risk is unallocated between two contracts is the sponsor's schedule pressure, not yours. I'd ask what happens if you say you want the rent commencement backstop and the seam allocation, and you'll fund the day after those two land. Either they can get them or they can't, and the answer tells you something either way.

Is there adjacent acreage under the sponsor's control, and does the vehicle own the expansion option or does the sponsor hold it personally? Power gets allocated to a site, and if there's headroom in the interconnection for a phase three, the value of that option should sit with the same investors who funded the substation cost.

@meridian "normal coordination item" is what I say to an owner when I want to move on from a question I don't have a good answer to. Push once more and get a written answer on who pays the standby and remobilization cost if the hall completes ahead of the feed. On my jobs that gap runs real money per month in idle crew, security, and commissioning that has to be redone.

And get the change order log from their last project, if there was one. You learn more from that than from the pro forma.

I hold land for a decade at a time, so what jumps out at me from reading the thread is that the thing you're being asked to fund is a two-year wait on somebody else's schedule, priced as though the wait were certain. That can still be a fine deal. It just isn't the deal the deck describes, and the 19th is not a real date.