Cottonwood Group, a downtown-based private equity real estate investment firm, is making moves in the data center sector, having recently closed $56 million in financing for three land development projects in Arizona, Ohio and Virginia.
Due to the terms of the agreement with the sponsor of the projects, Cottonwood was unable to disclose specifics of each project but Mark Green, chief investment officer at Cottonwood, said two of the deals were acquisitions and the other was a recapitalization.
“The timing for these investments was ideal, given the sector’s explosive growth trajectory and Cottonwood’s bullish outlook on digital infrastructure,” Green said. “As demand for data centers accelerates, we are well-positioned to deploy capital in a sector that continues to show immense growth.”
The projects’ locations also attracted Cottonwood, which dubbed Virginia “a global hub for hyperscale data centers” and recognized Ohio’s low energy costs and Arizona’s “solid industrial base” in a press release.
Supply and demand
Global data center demand will likely increase between 19% and 27% from now until 2030, according to an October report from McKinsey & Co., a management consulting firm. Without additional data center projects aside from what is already planned, the United States could be looking at a 15-gigawatt supply deficit in five years.
This increased demand is a result of advancements in AI, machine learning and IoT technologies, Green said, adding that the U.S. will likely lead this growth.
“Data centers are an extension of our broader strategy to align with high-growth sectors underpinned by secular trends, such as the digitization of the global economy,” Green said. “Beyond financial returns, we view our investments as an opportunity to contribute to the critical infrastructure that drives economic innovation and connectivity.”
In line with seeking out growing markets, Cottonwood also recently provided $33 million in financing for the development of a 350,000-square-foot industrial warehouse in Atlanta.
“While this project differs from data center land development, it shares key characteristics: a focus on high-demand property sectors and a strategic location in a growth market,” Green said.
Alexander Shing, founder and chief executive of Cottonwood, said the firm is “forward-thinking” in its investments.
“Our disciplined approach is rooted in extensive research and market analysis, enabling us to identify opportunities not only where growth is evident today but where future potential is most promising,” Shing said.
Green said the firm will continue to pursue opportunities in both the data center and industrial sectors. Familiarizing themselves with digital infrastructure over the last year in particular, Green said Cottonwood’s team has “refined our expertise in this space.”
That said, Cottonwood remains active in the housing market, an area the firm has a long history with. Just after the new year, it closed a $248 million senior bridge loan facility – the majority of which will be used for a 425-acre mixed-use development in Austin, which features multifamily and single-family housing alongside retailers and restaurants.
