Blackstone's Latest Partnership Shows This Real Estate Sector Is Still Red Hot
Last year was difficult for many real estate investment trusts (REITs), but the news wasn't all bad, as evidenced by the data REIT sector outperforming expectations. Perhaps that's why Blackstone Inc. closed out the year by announcing a joint venture with data REIT Digital Realty Trust Inc. to build 500-megawatt data centers in major European and North American markets. The partnership speaks to their shared belief that the data sector will continue paying dividends.
Four Massive Data Centers In Key Markets
The partnership between Blackstone and Digital Realty is worth an estimated $7 billion and will see them build four hyperscale data centers in Paris, Frankfurt and Northern Virginia. The hyperscale data centers will provide the muscle for 10 satellite data centers, providing an estimated 500 megawatts of power for IT companies operating in those areas.
Each of the selected locations serves vital economic corridors that depend heavily on cloud storage and digital infrastructure. This is probably why an estimated 33% of the available space has been preleased and there is heavy interest in the space that is under construction. The projection is for the new facilities to deliver 20% of their total capacity by 2025, with the rest coming online sometime after 2026.
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Digital Realty Trust Defied Expectations In 2023
Digital Realty Trust is one of the world's foremost providers of digital infrastructure and data storage facilities. It operates over 300 data centers in 50 markets in 50 countries on six continents. While much of the REIT sector struggled in 2023, Digital Realty Trust experienced a banner year, with its current price of $137 per share up $30 per share compared to this time a year ago.
In other words, it had a huge year, and investors who got on board in early 2023 were undoubtedly happy with their returns. Every day, more companies depend on off-site cloud storage for their digital infrastructure needs, meaning the future of Digital Realty Trust, and the data sector, looks strong. Digital Realty's 2023 success exemplifies how astute investors can grow their wealth during challenging years by choosing the right companies in the right sector.
It also illustrates the overall strength and resilience of real estate. Even as the residential and office sectors faced severe headwinds and investors rushed for the exit doors, other real estate sectors thrived. This is why it's so important to diversify holdings, even in a relatively stable investment like a REIT.
Both REITs Are Excited About The Potential Of The Partnership
Both Blackstone and Digital Realty Trust are excited about the long-term potential of their partnership. In a press release published on the Blackstone website, Digital Realty CEO Andy Power spoke in glowing terms about the deal, saying, "By partnering with Blackstone, the world's largest asset manager, Digital Realty is better able to deliver capacity to meet the burgeoning demand of our hyperscale customers by accessing a deep pool of like-minded private capital."
Blackstone President and Chief Operating Officer Jon Gray said, "Data centers are experiencing once-in-a-generation demand growth, driven by cloud adoption and the AI [artificial intelligence] revolution. Digital infrastructure is one of our highest conviction investment themes as a firm, and this transaction with a trusted data center operator in Digital Realty is another example of how we are investing behind this trend."
How You Can Get In On The Action
Everyday investors often get frozen out of deals like the one between Blackstone and Digital Realty Trust because they typically occur between private REITs or funds that require investor accreditation to participate. In this case, investors can purchase shares of Digital Realty Trust Inc. (NYSE:DLR) and Blackstone Inc. (NYSE:BX) on the New York Stock Exchange.
It's important to remember that the past performance of either company's stock does not guarantee future returns, and the risk of loss is ever-present. Even if you pass on the partners in this deal, the data sector may be a worthwhile place to seek shelter from the stormy waters that office, mortgage and residential REITs are navigating.
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