With Unprecedented AI-Driven Demand, New Financing Solutions Needed

FORT LAUDERDALE, Fla., March 24, 2025 — Investors and lenders are developing innovative financing structures to meet the unprecedented capital demands of the data center industry, according to financial experts speaking Feb. 25 at the MetroConnect conference here.

"In 2024, we're seeing something like 6.7 gigawatts of data center demand, which is more than six times what it was in 2020," said Kush Urs, managing director of telecom and digital infrastructure investment banking at Guggenheim Partners. "We haven't seen this kind of growth ever in this sector, and the capital markets are still trying to rapidly get their head around how to finance all of this growth."

The panel, moderated by Sean McDevitt, partner and head of USA telecom, media and technology practice at accounting firm Arthur D. Little, explored how capital markets are adapting to finance an industry transformation requiring billions in new investment.

Ted Mocarski, senior partner and head of digital infrastructure at Novacap, an investment bankng firm, who focuses on smaller market opportunities, described leading with equity investments first before bringing in debt later. "The debt products that are available to the lower end of the market take time to put in place, and sometimes we just don't have the function of time to wait for the debt to catch up when there's an interesting opportunity," Mocarski explained.

Panelists noted that traditional funding approaches are insufficient for the scale of investment needed. They highlighted joint ventures, yield vehicles with stabilized asset drop-downs, and other creative debt structures as strategies gaining traction.

"You're seeing a lot of operators and investors across the spectrum finding creative ways to finance these buildouts," Urs said. "The market has to come up with something innovative because the breadth and depth of capital required to meet the demand is unprecedented."

For larger construction projects, Pim Rothweiler, head of telecoms and technology for the Americas at Natixis, a global financial services firm explained that deals have traditionally been done with "a debt service coverage ratio, loan-to-value, post-stabilization metrics where the banks that invest make sure that at the end of the lease they can get their entire debt repaid."

These deals typically require contracts with investment-grade tenants like Microsoft, AWS, or Google on 15-20 year terms, experienced operators, and confirmed power availability. "There's actually a very deep market now to get bank liquidity," Rothweiler noted, adding that a recent deal attracted interest from as many as 100 different partners.

However, when projects involve newer cloud players, AI trading operations, or lower level tier 3 or tier 4 markets, traditional financing becomes more challenging. "As you start to shift those variables around, your pool gets a little less deep," Rothweiler said.

The panel also addressed how they evaluate the risk of AI-driven demand potentially cooling off.

While acknowledging some uncertainty, Sean Kennedy, managing director at AB Private Credit Investors, said that data center financing faces different challenges than the fiber sector did: "We saw this in enterprise fiber where when growth was very good, pricing compression was offset by growth for a while, but that industry had gotten to a point where many businesses were very highly leveraged."

A key concern raised was what happens when contracts come up for renewal in five to seven years. "That's really the biggest question," said Mocarski. "Most of the underlying contracts are anywhere from five to seven years, so what happens when they come up for renewal?"

Also participating on the panel was Syed Ahmed, managing director and head of digital infrastructure at Apterra, an infrastructure capital investor.

Correction: An earlier version of this story improperly attributed a quote by Mocarski, about the time frame for contract renewal, to Ahmed. The story has been corrected.