Digital Realty and Realty Income Corporation have joined forces in a strategic joint venture to facilitate the development of two build-to-suit data centers in Northern Virginia, a key hub for data center operations.
In a significant investment move, Realty Income has committed approximately $200 million to acquire an 80 percent equity interest in the joint venture, with Digital Realty maintaining a 20 percent interest. The partnership aims to leverage the strengths of both entities to meet the growing demand for data center infrastructure.
The first phase of the project, estimated to cost $150 million, is well underway, with an anticipated completion date in mid-2024. Each partner will contribute its pro rata share to fund the remaining development costs. These build-to-suit facilities were presciently 100 percent pre-leased to an S&P 100 investment grade client before construction commenced, demonstrating the robust market demand for high-quality data center services.
Upon lease commencement in mid-2024, the facilities are expected to yield an impressive 6.9 percent initial cash lease, showcasing the financial viability of the venture. The lease terms extend over an initial 10-year period, featuring extension options and 2.0 percent annual rent escalators.
Construction on the two data centers began in the fourth quarter of 2022 and is progressing as scheduled. The initial data center capacity will deliver 16 megawatts (MW), with the flexibility to expand up to 48MW at the client’s discretion. The first phase’s budget is approximately $400 million, and the client retains the option to expand the projects up to 48MW during the initial lease term, potentially increasing the budget to $800 million, based on current development cost estimates.
This partnership between Digital Realty and Realty Income Corporation not only underscores their commitment to meeting the evolving needs of the data center market but also positions them as key players in the dynamic and expanding Northern Virginia data center landscape. As digital infrastructure continues to play a pivotal role in various industries, this venture is poised to make a significant impact on the region’s data center capabilities. Investors and industry experts will be closely monitoring the progress and success of these cutting-edge developments.