Investors of all stripes are circling data centers these days, inspired by characteristics that interest real estate, infrastructure and private equity investors alike, two Ropes & Gray attorneys said.

Peter Scherer is of counsel and based in Boston, while Dima Orendarets is based in London. They both appeared on Infralogic’s latest Crossroads podcast.

Scherer is one of the authors of a recent commentary from Ropes & Gray, exploring how data center investments are classified and the dangers of investors approaching them incorrectly. The two pointed out that the approaches can be different for the same asset.

“When you look at a data center or other infrastructure asset from a real estate finance perspective, you mostly focus on the asset … which would be true for real estate, equity investors,” Orendarets said. “So real estate finance providers, they want to be close to the asset.

“It’s much more typical, historically at least, for an infrastructure investor to be investing in sort of an operating business,” Scherer said. “So they have more experience around considering operational risks and taking a go-forward perspective on the considerations when evaluating the cash flows for an overall platform versus an individual asset.”

There has already been a convergence of real estate, infrastructure and other investors in data center investment. However, Scherer said that the high-interest-rate environment of recent years has also drawn more people to the field.

“All these traditional sponsors… the machine that was expecting there to be low interest rates for the long duration, got knocked off its planned trajectory,” Scherer said. “And so you have a lot sponsors across the private markets, across historical silos, trying to fine tune and adjust their business models in response to that driver.”

In addition, data centers represent “just this enormous, enormous demand for capital and this huge potential growth market,” he said.

“So you have real estate investors [saying] ‘Hey, this looks pretty great.’ There’s demand that can raise capital. You have PE investors that are saying, ‘Hey, it’s harder to make opportunistic or value-add returns for my traditional plays. But these data center platforms look good.’ [And] you have traditional infrastructures investors saying like ‘Hey, don’t forget about me, I was here the whole time.’”

To listen to the podcast, check your preferred podcast platform or click here.