Another marquee name in the investment world is putting money to work in the data center sector. Global investment firm KKR has announced the formation of Global Technical Realty (GTR), which plans to develop more than $2.5 billion in data centers across Europe.
KKR has tapped veteran data center entrepreneur Franek Sodzawiczny to head GTR, which it describes as “a build-to-suit and roll-up acquisition data center platform in Europe.” KKR will make a $1 billion equity capital commitment from its third global infrastructure fund, which will be supplemented by debt financing to build data centers for large technology companies. The firm may invest more over time, based on demand for third-party data centers.
“The data center market in Europe presents a unique opportunity to invest behind the secular trend of increased cloud services adoption and demand for data,” said Waldemar Szlezak, Managing Director of KKR.
A Storied Name Enters the Data Center Sector
As we noted last year, some of the world’s largest investors are raising billions of dollars to invest in digital infrastructure, citing extraordinary demand for capital to fuel the data economy. Investment interest in data centers has been boosted by the growth of hyperscale computing, where the tenant is a giant corporation with excellent credit, lowering the risk profile for investors.
KKR has a 40-year history of high-profile deals, including leveraged buyouts like the 1989 takeover of RJR Nabisco, popularly documented in the book and movie “Barbarians at the Gate.” In recent years KKR has become a public company and expanded into additional asset classes.
In 2019 it began exploring the data center sector, but has carefully weighed its options for entering the market, as Szlezak noted in a panel at the PTC 2020 conference in January.
“Over the past 12 months, we’ve been devoting more time to data centers,” Szlezak said. “There’s a lot of capital looking at this sector. We’re cautious about the pricing of assets. It’s very opportunity-specific.”
Not all these players will find equal success, he said.
“The path is not always clear and there will be misses along the way,” he added. “I think there will be a different distribution of value (in the future), and finding where it will shift is important.”
The competition is being driven by new investors in the data center sector, including infrastructure funds and sovereign wealth funds with deep pockets and extended time horizons. Examples include investments by Macquarie Infrastructure Partners, Brookfield, Colony Capital, Singapore sovereign wealth fund GIC and Iconiq/IPI Partners.
Money Flows into Europe, Especially the FLAP Markets
In choosing Europe for its initial deployments, GTR is following the action. Money has flowed into the European data center market, which has been experiencing faster growth as hyperscale operators seek to “catch up” with their footprints in the North American market.
Many of these ventures have followed the “FLAP” strategy, targeting large markets in Frankfurt, London, Amsterdam and Paris. Examples includes GIC partnering with Equinix, as well as Colony Capital backing a $2 billion expansion by Vantage Data Centers across Europe.
Money has flowed into the European data center market, much of it following the “FLAP” strategy, targeting large markets in Frankfurt, London, Amsterdam and Paris.
Franek Sodzawiczny was the founder of Zenium Data Centers and Sentrum, two successful data center startups that were acquired by larger public players, with CyrusOne buying Zenium and Digital Realty scooping up Sentrum.
“The 25 years of industry experience that Franek brings to the table, alongside the rest of the management team, is impressive and exactly the kind of know-how we sought out to invest in the sector,” said Andrew Peisch, Director of KKR.
“We are thrilled to have found an investor like KKR that shares our vision for the future of the data center market,” said Sodzawiczny. “KKR’s breadth of resources and tremendous expertise will allow GTR to fully participate in this growing market and provide a solid foundation for GTR’s future growth and success.”
GTR has partnered with Mercury Engineering, a leading European engineering contractor with deep experience in data center construction, to design and develop a data center product specifically catered to the needs of hyperscale cloud service providers.