Davis Polk partner and Infrastructure Finance practice co-head David Penna discussed the increase in data center development across the U.S. and the challenges associated with financing these projects with New Project Media (NPM).

“It takes tens or maybe even hundreds of millions of dollars of development capital to get to the point where you’ll get a direct lender or commercial banks to finance construction,” David explained. He added that development typically involves putting in equity capital – whether new equity contributions or utilizing cash on the balance sheet – and/or entering into development or warehousing facilities. These facilities function as revolving credit lines to cover preliminary expenses, enabling developers to progress toward construction readiness.

“There’s a pretty high barrier to entry to the sector,” David said. “There’s a big moat around it because it is so capital intensive.”

“FINANCING: Data center developers see competition for construction finance, ABS market as off-ramp,” NPM (January 3, 2025) (subscription required)

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