Industry Experts Discuss Navigating Data Center Development

Data centers have become critical infrastructure, but bringing new projects online is becoming increasingly complex.

Additionally, underwriting title for these projects takes specialized expertise across the transaction process from land acquisition to project completion. It's one of the reasons Stewart's Energy and Infrastructure Group has become a leader in the space.

Industry experts came together for a discussion on data center development during a recent Title Tenets webinar hosted by Stewart Title National Commercial Services (NCS). The panel included leaders across hyperscale development, AI infrastructure, cloud computing, digital law and land acquisition.

Stewart NCS facilitated conversations around navigating the approval process, what stakeholders should understand as data center development expands and the future for this commercial asset class.

Watch the recording of the webinar, Voices of the Industry: Data Centers, Investors and Title for CRE professionals.

Webinar Overview

What’s Changing the Pace of Data Center Development

Navigating Resistance From Communities and Local Governments

What Stakeholders Need to Understand

What’s Next for Data Center Development

What's Changing the Pace of Data Center Development

Jeffrey Moerdler, Partner at Haynes Boone, discussed how power shortages, organizing land assemblages for data centers and the development of the neocloud business model have driven significant demand for data centers.

In turn, this rapid growth impacts organizational planning, financing and support for new projects.

Data Centers Are Now Essential Infrastructure

How is the approach changing for developers pursuing unprecedented projects measured in hundreds of megawatts and, increasingly, gigawatts?

As data center companies expand and competition for capacity intensifies, stakeholders are reassessing longstanding assumptions about growth, timing and project scale.

Moerdler noted this about the progress of data center development, “We've now seen the growth in demand and desire for capacity lead to 100 MW to GW to multi GW sites and campuses being in demand and refocusing on those, which I think at the same time has created an opportunity on the other side for demand for more urban and suburban data centers.”

The change is not limited to project size. Maria Poyer, Principal at Strategic Programs & Global Expansion at CoreWeave, explained that the scope of underwriting has expanded along with the asset class, “So five years ago we might have [underwritten] the land, cost of construction and the output. And today we underwrite the deal, the electrons and everything else that follows.”

“…it's actually the way that these deals are structured that has become unique.” Poyer added regarding the evolving complexities of these projects.

Navigating Resistance from Communities and Local Governments

As community awareness increases, developers are addressing public attention with innovative strategies. Local governments and public interest now shape the conversations between project teams, jurisdictions and community stakeholders.

Adam Kramer, Head of Data Centers at Panattoni Development Company, talked about how Panattoni is navigating the new environment of data center development, “…when we look at the biggest challenge in the data center space today…you obviously have power, but entitlements [and] dealing with this backlash.”

The Benefits Communities and Economies Are Weighing

Why do some jurisdictions actively pursue data center investment while others proceed more cautiously?

Communities evaluate several factors when considering approving new projects including incentives like:

• Economic development
• Infrastructure investment
• Tax revenue potential

How local communities weigh the advantages and disadvantages of data centers, however, varies vastly from one market to another.

Kramer discussed how community relationships have changed regarding data center development, “I think that what's happened when you have a gold rush like this, everybody fancies themselves a developer all of a sudden, and they go into communities and they treat them like a piggy bank. They don't treat them like a partner.”

Kramer added, “All development is local. You're developing in somebody's backyard, whether it's yours or someone else's.” Building trust, however, also requires addressing the concerns communities are raising.

The Concerns Communities Are Raising

Why are people saying no to data centers?

Questions about power demand, water use, sound, project scale and long-term community impact are all part of the discussion with developers. The panel examined the issues drawing attention from residents, elected officials and regulatory bodies, including concerns that can affect entitlements, approvals and project timelines.

With more community involvement in data development, transparency and communication are held to a different standard. Transparency now includes both the substance of a project and the way information is distributed.

Maria Poyer noted that communities increasingly expect digital access while still requiring communication methods that reach residents who are less technology-oriented, “But the demand now from communities is live streaming. That’s having a website, making Facebook posts, making sure all the information that you're sharing is also online.”

For stakeholders asking, "What is the downside of having a data center?" the panelists’ discussion provided important context without reducing the conversation to simple answers. Regarding responding to the communities’ concerns, Poyer commented about accessibility of information, “And you need to also think about and anticipate the diversity in your audience and making information accessible through multiple routes.”

What Stakeholders Need to Understand

“There are no standards anymore. Every deal takes a different twist and turn and has a different structure…” – Jeffrey Moerdler

Power rights may make a site attractive, but the panel indicated that they no longer make a transaction certain. Entitlement and vesting risk are changing when some developers are willing to close.

As Kramer points out, “Now we won't close on a land until our permits are done and our lawyers tell us we're fully vested on the site and we're ready to go vertical.”

Moerdler described staged-sale and option structures in which the initial payment may be only a small portion of a much larger potential price. He cautioned sellers to consider who controls permitting, approvals and utility agreements, as well as what happens if the buyer walks away. These deal structures make one constraint especially important: securing reliable power.

Why Power Is Now the Critical Constraint

Is land still the most important factor in a successful project or has another limitation moved to the forefront?

Power availability is influencing site selection decisions, investment strategies and project feasibility. As data center infrastructure requirements continue to evolve, stakeholders are reassessing how they evaluate risk and opportunity.

Moerdler spoke about the increased power constraint, “Those two events [referring to power shortages and increased power demand from AI] created snowballs, rolling of demand for data center power and capacity while dealing with a shortage of the power.”

Yet power is only one of several risks that can disrupt a project.

The Development Risks Keeping Teams Up at Night

What can delay or derail a project after a promising site has already been identified?

Commercial real estate projects can be delayed for several reasons. Entitlements, moratoriums, permitting, due diligence, labor availability, water considerations and evolving regulations can all delay or derail a project.

For Chris Colver, Senior Land Manager at Coval Infrastructure, early risk identification also includes bringing title into the process before financing or closing pressures narrow the available options, “And it's important to get in front of your title company as quickly as you can with those risks and so that they're aware and can help navigate those risks to be able to qualify for financing in a way that's acceptable.”

The panel also challenged older assumptions about schedules and contingency. Even well-optimized plans remain exposed to policy shifts, newly identified site conditions and changing jurisdictional requirements.

As Poyer pointed out, “Contingency is really for price fluctuation in the market because of all the things that we can't control.”

The panel shared examples of seemingly promising sites undermined by conditions no amount of capital or negotiation could readily solve, including major subsurface infrastructure and nearby operational hazards.

What's Next for Data Center Development?

The Emerging Issues Stakeholders Should Watch

What challenges are likely to shape the next generation of projects?

The panel looked ahead to emerging issues involving water, sound, community standards, regional differences and changing stakeholder expectations. As projects grow in scale and visibility, future success may depend on more than technical execution alone.

Water may become more than a design consideration. Poyer pointed to jurisdictional costs, interstate water-sharing questions and infrastructure timelines as factors that could make it a threshold site-selection issue.

Kramer contrasted water-constrained areas such as Texas, Arizona and parts of the Southeast with some Midwestern communities that retain water infrastructure originally built for steel mills. He said certain communities may see new large users as a way to distribute fixed infrastructure costs more broadly.

Panelists agreed that acoustics will receive more attention as facilities move closer to population centers, but there are different view points on how the issue should be framed and evaluated.

As data center development evolves, successful projects will require careful coordination across power, land, entitlements, community engagement and title.

Stakeholders who identify risks early and bring experienced partners into the process will be better positioned to move complex projects forward.

Watch the Title Tenets CRE Webinar about Data Center Development

Hear how leaders in development, hyperscale expansion and legal strategy are navigating the issues influencing data center projects across the country.

Watch the full webinar to hear the complete discussion from professionals actively navigating today's data center market.

Never miss another Title Tenets event for CRE professionals. Stay informed with exclusive access to industry webinars and white papers.