A few hints on Data Centres in Spain
01 October 2021
Data centres represent a new category of real estate asset which particular features and requirements make them special when compared with traditional commercial real estate. In a nutshell, data centres are facilities used to house computer systems and other components, such as storage systems and telecommunications. The fact that their operation require specific locations and infrastructures aimed to ensure efficient and uninterruptable power supply, cooling, network connectivity and security make them an hybrid between industrial shell buildings and infrastructure assets which, as such, require high amounts of capital expenditure. In contrast with commercial real estate which describes rents in euros per square metre (or floor space is measured in square metres), data centres figures use the euro per kilowatt or capacities measured in megawatts as the variables of reference.
We have seen in recent years an increased focus on digital infrastructure generally and on data centres particularly. This growth had already led digital infrastructure to be considered a separate asset class prior to the pandemic, and the consequences of the pandemic have dramatically increased the relevance of and focus on such asset class. Moreover, Spain is currently being considered for many reasons, above all due to geography and connectivity, the ideal place to become a technology hub in Southern Europe for this sector, although it lacks of the necessary incentives and institutional willingness to definitely launch these investments.
2.- SOME FINANCING, TAX AND ZONING ASPECTS
When it comes to financing these assets or the acquisition thereof, players can take very different approaches, looking at the financing from a project finance angle (greenfield or brownfield), from a real estate finance perspective, from a leveraged angle or even as a receivables financing, and even look at possible securitisations down the line in CMBS form or as asset backed commercial paper (ABCP). The underlying business model is inevitably extremely relevant, and the approach is different if we are looking at a lease to a single hyperscaler or if the route is to use the data centre as a colocation facility (obviously the approach is completely different when the hyperscaler is buying the asset directly):
The wide difference in the business model and the structure of the transaction will also impact the aspects that become relevant for the lenders:
In short, we are far from seeing a standard in data centre financing, and hence an understanding of the dynamics and approach of both lenders and sponsors to the financing is key to determine the overarching issues in the structuring and documentation phase.
The particularities of data centres might represent a challenge in the context of zoning regulations that in most cases are not up to date on the rapid evolution of the market and the new asset classes being demanded. In addition Town Halls' criteria may vary when identifying the zoning use which permits the implementation of data centers projects: some might consider the "industrial use" as the right one while others might considered them as "private equipment". Therefore, the right analysis of the relevant zoning regulations and the way they are interpreted by the authorities are critical when developing data centres, with this being a relevant issue for lenders as well.
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Readers should take legal advice before applying it to specific issues or transactions.