American Real Estate Partners Closes $309M Fund Focused on Data Centers

Northern Virginia-based American Real Estate Partners (AREP) has closed its fourth fundraising round with $309million that will be largely used to increase the firm’s footprint in the datacenter space across the U.S.

The firm closed its fourth fund, AREP Strategic Opportunity Fund IV, on Tuesday and nearly doubled its total previous collective fundraising rounds.

Brian Katz, co-founder and president of AREP, told CO that his firm secured equity commitments largely from repeat investors, and that 80 percent of the capital will enter into the data center development space.

“What was nice was a number of existing investors from previous funds were re-ups into this vehicle, so it’s a mix of two investor classes: ultra-high-net-worth investors and institutions,” he said. “They’re interested mostly in the data center sector, which is where we’re probably spending 90 percent of our time, doing data center development, so I think that’s what’s attracting investors to our platform.”

Katz said AREP capital is used exclusively for common equity in these deals, and that the firm usually engages in joint venture investments with “a number of large-scale private equity real estate and infrastructure firms” across the country.

AREP entered the datacenter scene in 2016, when it partnered with hedge fund Davidson Kempner Capital Management to acquire Quantum Park — the former UUNet-MCI WorldCom site — for $212 million. Other data center investments the firm has made since include a 15-megawatt data center in Ashburn, Va.; a 1.8million-square-foot, 400-megawatt data center campus in Louisville, Ky; and a3.5 million-square-foot, 300-megawatt campus in Spotsylvania, Va.

Katz told CO that because his firm is headquartered in Tysons Corner, Va., roughly 15 miles from the “Data Center Alley” of Loudoun County, they had a firsthand look at watching the asset class grow and evolve over the last 30 years.

“That [Quantum Park deal] put us in there circa 2016, and over the next few years we started to change the profile of what we were doing and how we were doing it,” he explained. “We saw the bloom is off the rose in the office investment world, and between 2018 and 2020 we made a decision to develop and invest in datacenters.”

AREP has invested in data center deals in the Carolinas, Texas, Nevada and Virginia, according to Katz. He added that once it wasn’t until power constraints hit Ashburn in recent years that the firm decided to switch tactics in Fund IV to focus on previously powered land it could put into production for data center use around the country.

“That was driving tenant demand and hyperscale demand and is why we went from developing around Ashburn to a national platform,” he said.

Katz began AREP in2003 with his partner, Doug Fleit, and has since invested more than $12 billion of capital across different states in acquisition deals that span more than 31 million square feet. For  the first 17 years of its existence, AREP was a value-add office investor and operator, and it wasn’t until 2020 that it started to shift focus to data center and residential development, including build-to-rent projects, and townhome products in Sun Belt markets.

“We’re not just looking at building ground-up residential projects. We have office-to-residential conversions, including a large-scale, 200-unit project in old time Alexandria [Virginia],” Katz said. “Our residential strategy is more niche than the typical residential ground-up developers, but our primary driver and growth engine in the company is in data center development.”

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