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Neocloud demand strains data center financing with riskier tenants
Neoclouds posted 223% year-over-year revenue growth in the fourth quarter, but some data center executives say their business models make lease-backed financing harder.
AI-focused computing providers known as neoclouds are the fastest-growing slice of the U.S. data center market, but some data center executives are questioning whether the tenant business models are financeable on the same terms as traditional big tech leases, according to Bisnow.
As data center development has surged across the country, capital has largely stayed risk-averse, backing the safest projects with investment-grade hyperscalers already under contract, such as Amazon, Microsoft, Google, or Meta. However, neocloud operators are taking a larger share of demand, with major players including CoreWeave, Core Scientific, Nscale, and Lambda, and with more than 190 operators in the ecosystem, according to JLL.
Bisnow reports that neocloud-anchored projects can be difficult to fund because development financing has traditionally required a lease from large, investment-grade tech tenants, leaving riskier operators to face financing challenges. To address that, industry leaders at Bisnow’s Data Center Capital Markets Summit on July 16 at the New York Marriott Marquis said developers and data center providers are increasingly using creative lease structures and service agreements, sometimes with investment-grade guarantors or significant upfront collateral.
Despite the rapid expansion, even CoreWeave, which is publicly traded, is not characterized as an investment-grade tenant in the traditional sense. The outlet also notes that neoclouds have driven fast growth, including 223% year-over-year revenue growth in the fourth quarter, citing Synergy Research Group, while a new class of investors and lenders has emerged with more tolerance for higher-risk segments.