Real estate, M&As seen as prime investment opportunities for LatAm datacenter players

The data center segment in Latin America continues to offer important and diversified investment opportunities for funds, sector consolidation, and real estate investment groups.

“The Latin American market offers very high potential for real estate [for datacenters]. The arrival of large cloud providers has geographically diversified the installation of datacenters, traditionally very concentrated in Brazil,” Rodrigo Couto, regional head of datacenter and logistics at US real estate investment (REIT) firm CBRE told BNamericas.

Founded in 1906, CBRE claims to be the world’s largest REIT firm, with operations in over 100 countries and over US$142bn in assets under management. The groups data center segment is booming, specifically land and property acquisition projects for data centers across Latin America.

CBRE is involved in 80%-90% of the incoming large data center projects in Latin America, according to Couto, helping companies define site location and purchase the land. Customers include cloud providers, such as AWS, Google, Microsoft, as well as data center developers for these companies.

Cuoto said Brazil corresponds to 70% of total installed power capacity for data centers in Latin America, up from around 50% four years ago. Current installed power for data centers in the region is around 501MW, he said.

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Despite Brazil’s predominance, Mexico, Chile and Colombia are emerging as important data center markets, with several projects up and running and many others under development, he said. Couto added that smaller markets in Latin America are starting to attract some interest of investors for land for data centers.

The potential is still great. Brazil is expected to double installed data center capacity by the end of 2025 as new data center projects emerge, while Colombia, Chile and Mexico are expected to triple or even quadruple theirs in the next three years, Couto said.

“The fact is that the real estate market as a whole (offices, properties, buildings, logistics) is very much related to the size and performance of an economy. And while many of the economies in the region are relatively large, they still have a real estate capacity far below their potential.”

He added, however, that the search for an adequate data center Location also involves factors such as ensuring constant energy supply, the client’s project go-live deadline, proximity to competitors’ sites and tax and regulatory issues, among other more specific requirements.

ACQUISITIONS

But beyond land availability and potential for cloud and data services, both fueling greenfield projects, opportunities for brownfield investments also exist.

The lease-back model under which operators or banks sell data centers to third parties and lease them back also remains widely used.

In addition, as competition grows, so does consolidation.

Recently, two big portfolios attracted investors’ interest: Odata, a hyperscale-focused data center company, 90%-controlled by Brazilian fund Pátria Investimentos; and Nabiax, a company created by Spanish investment fund Asterion after its purchase of Telefónica’s datacenters.

ODATA

Though not confirmed by Pátria, sources requesting anonymity told BNamericas that the group wants to sell its Odata stake. Contacted by BNamericas, Odata declined to comment.

Founded in 2015, Odata has three data centers in Brazil and one in Colombia, and is building one in Mexico’s Querétaro state and another in Santiago de Chile. CEO Ricardo Alario BNamericas told last year that the company was also seeking opportunities in other markets.

Pátria contracted financial advisory DH Capital to oversee the Odata sale, according to one source.

DH Capital is one of the world’s main private investment banking partnership and M&A advisory firms in the digital infrastructure and telecom market and reports having completed over 190 M&A deals and private capital placements to date for datacenters, managed hosting, cloud, software-as-a – service, digital media, cable television and telecom projects.

The remaining 10% of Odata belongs to global data center group CyrusOne, recently acquired by US fund KKR for US$15bn, in what is considered one of the biggest deals in the history of the digital infrastructure sector – co-advised by DH Capital.

Patria’s Odata stake could be of interest to hyperscale datacenter builders in Latin America like Ascenty, Scala, Lumen, HostDime or Equinix.

“It’s an interesting asset, but for us, this purchase, I guess, would have made more sense a couple of years ago. We are now powering on while the go-live of their projects takes a little longer. What’s more, Odata seems to be a little overvalued. But for the right price, why not?,” the CEO of one of the most active hyperscale groups in Latin America told BNamericas, requesting anonymity.

This executive said Pátria was mostly assessing Odata’s market valuation, betting that CyrusOne will be taking the whole of it.

CyrusOne’s datacenter portfolio – now part of KKR – is heavily concentrated in the US and Europe, with over 50 facilities for colocation, build-to-suit, hyperscale and applications edge, whereas the only datacenters counted as its own in Latin America are Odata’s.

The deal would also allow CyrusOne’s new owner KKR, increasingly active in Latin America, to plan a flag in the region’s booming data center segment.

Although it has investments in data centers in other markets, in Latin America, KKR has until now directed most of its telecom infrastructure investments to fiber, as in the joint ventures with Telefónica in Chile and Colombia.

“We see significant opportunity ahead for CyrusOne to build on its market-leading position and impressive track record of delivering state-of-the-art data center solutions around the globe, at a time when the world is increasingly dependent on them, at a rapid pace,” KKR partner Waldemar Szlezak said in a release on the purchase of CyrusOne.

NABIAX

Nabiax controls 14 data centers bought from Telefónica. They are in Spain (3), Argentina (2), Brazil (2), Chile (3), the US (1), Mexico (1) and Peru (2), totaling 24,000m2 and 30MW.

Asterion paid around 550mn euros (US$578mn) – equivalent to 18.3x its Ebitda – for them in 2019. In May last year, Telefónica sold two datacenters in Spain and two in Chile, in exchange for a 20% stake for its subsidiary Telefónica Infra in Nabiax.

The CEO of a datacenter investment group with presence in Brazil told BNamericas that Nabiax’s assets perfectly suit their strategy, although he did not confirm being engaged in talks with Asterion.

“Nabiax’s sites, as they are telecom-oriented assets, are in line with our strategy. It’s a beautiful asset, certainly, very similar to ours,” this executive told BNamericas.

According to another source, though, Nabiax/Telefónica’s data centers in Latin America need a lot of retrofitting and modernization.

“As Asterion was not focused on Latin America, their mandates did not allow them to invest in anything outside Europe. They bought [the Latin American datacenters]but didn’t invest a single dime in the region,” this source said.

This executive said that Telefónica had excellent sites in Spain, providing services including hyperscale for Microsoft, but that it packaged its portfolio, assets in Latin America and Europe, in a single bundle for the sale.

“Besides, Nabiax’s price expectation … I mean, to recover what they paid to Telefónica, I find it very difficult for them to find a buyer,” the executive added.

Asterion did not immediately reply to a request for comment.