How much of the data center adjacent demand story belongs in an industrial rent assumption

The question to answer before either choice is what happens to the improvements. If a staging tenant pours a heavy slab and brings in 2,000 amps and then leaves, the owner keeps all of it. Unlike a dental buildout, that improvement is not tenant specific. So underwriting at generic rent while giving credit to the residual power and yard is a defensible middle path. It is a slower way to lose fewer deals, and on industrial with a speculative demand driver that is usually the right trade.

Losing deals for six months while your assumption holds isn't the same as being slow. Slow is when you can't tell which assumption you're defending.

On the capital side, the version of this that tends to get funded is a hybrid. Base case at market logistics rent, then a separately identified upside case at the specialty rent, with the sponsor's promote structured to only really pay on the upside case. That way the LPs are buying the boring building and the sponsor is the one carrying the data center bet. If the person bidding against you is underwriting the premium into base case with other people's money, they may simply be sitting in a different risk seat than you are. That is a different thing from having better information.

The small multifamily version of the same problem is a unit that a corporate tenant pays 30 percent over market for. Operators who underwrite that premium as durable rent tend to stop after the second time one leaves. The sounder treatment is to book the premium as amortization of whatever was spent to serve them and nothing more. Thicket, if you can get the specialty tenant to pay for the power upgrade over the term, you have converted the whole question into a capital recovery question instead of a rent question.

How would you even verify a staging tenant's story? On the residential side I'd pull employment and payment history. Is there an equivalent for a subcontractor whose entire demand comes from one campus decision made by somebody else?

Wren, you look at their contract backlog and who the general contractor is, and in a lot of cases you get very little, which is itself the answer. On the land side this exact demand shows up as ground lease inquiries for outside storage near substations, and the inquiries move around by the quarter. The land underneath does not care, which is the appeal of land. A building with 40 foot clear and heavy power cares a lot. Thicket, keep underwriting generic and stop counting the lost deals as losses, since you do not get to see how the winners' second five years go.