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Blackstone spearheads $25 billion data center empire fueling AI revolution

U.S. Dept. of Energy | Rawpixel

Private equity giant Blackstone Inc. began construction on a $25 billion data center empire to capitalize on the growth of the artificial intelligence craze. 

Blackstone is developing data centers throughout the United States and other countries, hoping to profit from big rents and market share.

The move is a staple in Blackstone’s real estate strategy — identifying areas with rising demand for properties with few who can meet the demand — and comes after the recent craze in artificial intelligence and data centers.

QTS Realty Trust Inc. is a leading provider of data centers that helps companies collocate to one of its large mega data center spaces, spanning over 9 million square feet. 

Collocation is when one or multiple businesses rent out and place their servers in a physical data center owned by a third-party entity.

QTS was acquired by Blackstone in 2021 for $10 billion to meet the “rising demand of data centers” and is developing data centers in Arizona and Virginia for large-scale tech companies to rent and store their servers.

“So it bought QTS Realty Trust in 2020 [the merger happened in 2021] and kind of got really lucky by sort of rise of generative AI that really just made demand explode,” Kara Wetzel, senior editor at Bloomberg News said in an episode of Bloomberg Technology. “So now it’s going all in on this bet, giving QTS a lot of money to rapidly expand and become the biggest data center provider in the US.”

Previously, Blackstone announced a $7 billion partnership with Digital Realty — a real estate investment trust that owns and operates data centers worldwide — to create four hyper-scale data center campuses in northern Virginia, Paris and Frankfurt.

However, Blackstone and QTS are facing challenges from the public on the economic and social impact the data centers can have on local communities. QTS estimates its data centers will consume six gigawatts of electricity — equal to 4.5 million households’ worth of electricity — resulting in campuses and communities installing new power lines, increasing the cost to others on the grid.

“People are willing to make larger investments on data centers,” Brian Pryor, managing director at Houlihan Lokey, told Bloomberg. “There can be public backlash if you suck up power and resources with clear and direct benefits to the local community.  

Additionally, Blackstone and QTS faced heavy backlash in Northern Virginia — known for its intercontinental fiber-optic cables — with protests and county staff claiming QTS’s plans lacked details on the infrastructure changes.

“There is a lot of data center growth happening and that growth is not evenly distributed across the US,” Arman Shehabi, a scientist at California’s Lawrence Berkeley National Laboratory, explained to Bloomberg. “It’s consolidating in certain locations, and this could create a power crunch in those areas.”

Blackstone President Jon Gray noted that the company’s recent real estate transactions, both in data centers and other areas of commercial real estate, are “just the start” and cited the $65 billion in dry powder its real estate fund has to “invest into this dislocated market.”

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