The whole promoted return sits in the 40 acres, not the colo

The retrofit gap is bigger than the deck is letting you think. A 2013 hall built for 6 kW racks has a slab loading limit, a chilled water plant sized to a certain kW per rack, and busway that was never specified for anything close to current density. Getting one 2.1 MW hall to liquid ready is not a paint job, and the number I have heard people throw around for that kind of retrofit swings by a factor of three depending on whether the electrical room has room to grow.

So the question I would put to the sponsor in one sentence: who pays for the density upgrade when the replacement tenant asks for it, and where does that dollar amount sit in your model. If the answer is that a replacement tenant will happily take 6 kW racks at 172, ask which tenants those are and what they are signing elsewhere in that market.

Fee stack first, because it changes your strip-the-land number. A 1.5 percent acquisition fee on 95M is 1.43M off the top, and 1.25 percent annual on invested capital rather than on equity contributed and unreturned is a subtly worse formula over a six year hold. Ask which one it is in the LPA, not the deck.

The unexecuted swap is the part I would not move past. Fifty five percent debt on 95M is about 52M. A floating loan on that size with no hedge in place means your first two years of distributions are a rate view you did not agree to take. Ask for the term sheet, the hedge requirement in the loan documents, and the date they intend to execute. Lenders often require a hedge at closing, so if this one does not, I want to know why.

Then sources and uses. Ninety five million all in for a 6 MW facility at 78 percent occupancy plus 40 acres works out to a number per critical MW that I want to see against the powered shell trades people quote. Make them show you what portion of the 95 they allocated to the dirt, because that allocation is the entire argument for the promote.

I rebuilt your strip case to see where it breaks. Facility NOI at a 6.1 cap on the portion of the 95 you assign to the building, call it 82M, gives you about 5M. Debt of 52M floating, and you can pick your own rate assumption, eats a large share of that. If the 2.1 MW renews at 172 instead of 118 you pick up roughly 1.36M a year of additional rent before any capex, which is most of the upside in your no-land case.

So the whole difference between mediocre and decent is one lease, and the whole difference between decent and promoted is the utility letter. Two binary events in a six year hold, funded with 75k that you called most of your set aside.

Verity is right that the retrofit number is missing. I would go one further and ask for the model in Excel with formulas live. If they send a PDF only, you learn something about the deal.

Out in the rural markets I look at, the substation is the whole deal and everyone already knows it. Land is cheap because power is not.

Different asset class, same lesson I have paid for twice in small multifamily. A rollover you underwrite at market rent always costs money you did not budget, because the space has to be brought up to what the new tenant expects, and the old tenant's rent told you nothing about that cost. My version was 400 dollars of turn cost and a month of vacancy. Yours is an electrical and mechanical retrofit on 2.1 MW with a downtime window that a live facility may not be able to give you.

Ask how they plan to do that work with ten other tenants in the building.

The LPA is where your real risk lives, and the numbers you posted do not tell me anything about it.

What I would read, in order. Capital call language, specifically whether the 75k is your whole exposure or the first of several calls and what the penalty is for failing to fund a later one. Dilution mechanics on a sponsor-led rescue equity round, because a development bet with a 2029 power date will likely need one. Whether the promote crystallizes on a refinance or only on a sale. Whether there is a clawback with real teeth and whether it is guaranteed by anything other than the sponsor entity that holds no assets. Removal rights for the general partner and the vote threshold, which in most of these is set high enough to be theater.

Then the pref. An 8 pref that accrues and compounds behaves very differently from one that is paid current and does not, and with a floating loan absorbing cash flow early I would expect it to accrue. Ask them to model the waterfall on their own base case and show you the year six split in dollars.

A securities lawyer should read the subscription documents before you wire, and that is not a formality when the sponsor has zero realized exits.

Genuine question from outside this. When the sponsor says exited none, what did the three prior deals actually do, refinance out or just sit there still holding?

The date bothers me more than the retrofit. You have an unhedged loan, no engineering report, and a utility letter of uncertain standing, and the response to all of that is a nine day window. Every deal I have passed on for calendar pressure has been fine to pass on, and the two I hurried into are the two where I learned the sponsor had already told me the answer by refusing to move the date.

Ask for two weeks and a data room. If both are refused, the diligence is finished and you did not have to spend anything on it.

Look at the 40 acres the way a land holder would. If the power never arrives on the schedule in the letter, what do you own. Forty acres in a secondary southeast market with an industrial or flex use, carrying property tax and possibly an agreed payment in lieu arrangement that only exists if a data center gets built. That is the downside case and it is worth an actual dollar figure, not a footnote.

I would also want to know if the letter is site specific or utility wide. Ninety MW available in stages beginning 2029 can mean the utility has queued capacity for your parcel, or it can mean the utility expects that much new capacity somewhere in the service territory and everyone with a letter is competing for it. Those are not close to the same thing and the sponsor will know which one they have.

Seventy five thousand as most of your reserve, into an asset class where you cannot evaluate the mechanical plant, sounds like size before it sounds like anything else.

I am reading this twice and still stuck on vocabulary. What is PUE measuring, and what does powered shell mean when people say it. I gather the utility letter is a promise of future electricity for the empty land, and everyone here thinks the promise is softer than the deck implies. If someone can put those two terms in plain words I can follow the rest of the argument.

What I want from a passive position is a check that shows up, so I looked at your numbers for current yield only. Between an accruing 8 pref, a 1.25 percent annual fee, and a floating loan on 52M, I struggle to see meaningful cash coming to you in years one through three. Then the 2.1 MW rolls, and if it rolls with capex attached, year four is worse before it is better.

So this is a capital appreciation bet with a coupon that may exist. Ask the sponsor point blank what they project for cash distributions in each of the first four years, in dollars per 100k invested, and see whether they will put it in an email.

On the dirt, four things I would confirm before assigning it any value. Zoning and whether data center use is permitted by right or needs a special exception, because that process has become political in a lot of jurisdictions and can add a year or kill it. Transmission access and whether the route from the substation to the parcel crosses land you do not control, which means easements someone has to negotiate. Water rights or sewer capacity if the design is evaporative rather than closed loop. And the fiber situation, because a parcel with power and no diverse fiber path is worth much less than the per MW comps assume.

All of that is public record work you can do yourself in a week with the county site and the utility's filings. If the sponsor has done it, the memo already exists and they will send it.

I have not put money into anything yet, so weigh this accordingly, but the concentration is the thing that would stop me. Seventy five into a single illiquid LP with a six year stated hold, run by a sponsor with no completed cycle, and it is most of what you have set aside. Even if every answer in this thread comes back clean, you are one capital call away from having no cash and no ability to say no.

I would ask whether they will take 25 or 35 and whether that changes your economics in the waterfall. If they will not go below 75, that tells you how full the raise is.

Whose credit is behind the 2.1 MW tenant, and is the parent on the lease or just an operating subsidiary.

Powered land pricing is the piece I have been tracking for other reasons, and the spread is wild. Parcels with a signed capacity allocation and an energization date trade at multiples of parcels with a letter of interest, and the market knows exactly which is which. So when the sponsor puts a value per MW on the 40 acres, ask them which comps they used and whether those comps had executed agreements. Nine times out of ten the comp set is the contracted stuff and the subject is the letter stuff.

Wren's question matters too. A 2.1 MW enterprise tenant at 118 is paying legacy pricing, and legacy pricing sometimes means the tenant has been there long enough that the space suits them and nobody else.

Juniper, PUE is total facility power divided by the power actually reaching the computing equipment. At 1.6 you burn 60 cents of cooling and overhead for every dollar of useful load, where a modern build might be near 1.2. It shows up as higher operating cost, which matters because in a lot of colocation leases the power cost passes through to tenants, so a bad PUE makes your space more expensive to occupy than the competition even at the same rent.

Powered shell means a building with electrical capacity delivered to it and nothing installed inside, so the cooling and the racks get fitted out by the tenant.

Here is what I was shy about asking. If power is the scarce thing and existing facilities benefit from that scarcity, why does an existing facility in a secondary market only get a 6.1 cap. Ember, is the 6.1 on in-place NOI at 78 percent occupancy or on some stabilized number.

I move fast on things and I would still pass on this one. No engineering report, no hedge, no exits, and a nine day clock. Any one of those is a negotiating point and all four together is a sponsor who needs your wire more than you need the deal.

If you love the sector, the liquid version of it exists and you can sell it on a Tuesday. You give up the promoted upside and you keep the option to change your mind, which at 75k of a small reserve is worth more than the spread.

Still working out how paper fits with anything, so tell me if this is silly. Is there a version where you are the lender into a deal like this instead of the equity. It seems like the whole argument here is that the downside case is an okay building and worthless dirt, which sounds like something debt survives and equity does not.

Or does the sponsor already have the 52M from an institution who took exactly that view and left the equity for people like Ember.

Get the utility letter itself, all pages, and read the conditions section rather than the headline number. The ones I have read are expressly non-binding, condition capacity on system upgrades being completed, require the customer to post substantial security by a stated milestone, and expire if a service agreement is not executed by a date. Any one of those turns 90 MW into an aspiration. Whether a capacity position transfers on sale depends on the tariff and the service agreement in that state, so a utility regulatory lawyer needs to answer that, and the answer belongs in the data room before you fund.

Second document, the 2.1 MW lease. I want the power clause, whether the tenant pays metered power or a gross rate with a kW allowance, and whether the landlord has any right to reclaim unused capacity. I also want the density and improvement provisions, because if that lease caps the load per cabinet, the retrofit conversation starts with an amendment.

Third, the 78 percent occupancy figure. Occupancy by square feet, by contracted kW, or by billed kW are three different numbers in this asset class, and the flattering one is usually the one in the deck. Ask which basis they used and what the billed kW is as a share of the 6 MW.

Fathom's point about occupancy by kW versus square feet is the sort of thing I would never have thought to ask.

Nobody has asked who runs the building. Five years of running a service business tells me the operating side of a 78 percent leased facility with eleven tenants is a real staffing question. Do you have on site techs around the clock, is there a third party operator with a management agreement, and what does that agreement cost as a percentage of revenue. Ask about the maintenance contracts on the chillers and the generators too, and when the UPS batteries were last replaced, because those are large scheduled expenses that sit outside a pro forma.

They sit outside a pro forma and nobody mentions them. Ask for the capital plan for the next five years with dates and dollars. If a sponsor cannot produce that on an operating asset, they are treating it as a land deal too.

I have been trying to work out which strategy suits me and this thread is a useful example of a mismatch. Ember, you describe yourself as exploring and you are looking at a position where the return depends on utility interconnection timing, a mechanical retrofit scope, and a hedge that has not been placed. None of those are things you can monitor or influence after you wire.

The sector story in the guide is about existing well located facilities benefiting from the power constraint. This deal is on the other side of that trade, since it needs new power to deliver the promoted number. Worth being clear with yourself about which one you actually want to own.

Here is how the debt gets sized on something like this, which tells you what a professional thinks the land is worth. A lender underwriting a 6 MW facility at 78 percent will credit in-place contracted revenue, haircut the near term rollover, and assign the 40 acres approximately nothing until there is an executed capacity agreement. So 52M against roughly 82M of building means the building is carrying the loan alone and the equity is the only party paying for the dirt.

That is not a criticism of the structure. It does tell you the market price of the land bet, and you can ask the sponsor how much of the 95 the appraiser attributed to the parcel. Appraisals in the loan file are hard to argue with and they are the cheapest piece of diligence you will get.

One more thing. If the loan matures in five years and the exit is modeled in year six, someone is refinancing into unknown terms with a rollover in the recent past. Confirm the extension options and the conditions on them in writing with the lender's term sheet in hand, since a sponsor's description of an extension test and the actual test are often different.