Digital Realty and Realty Income Corporation announced that they have established a joint venture to support the development of two build-to-suit data centers in Northern Virginia. Realty Income invested approximately $200 million to acquire an 80% equity interest in the venture, while Digital Realty maintains a 20% interest. Each partner will fund its pro rata share of the remaining $150 million estimated development cost for the first phase of the project, which is slated for completion in mid-2024.
The build-to-suit facilities were 100% pre-leased to an S&P 100 investment grade client prior to construction and are expected to generate a 6.9% initial cash lease yield upon lease commencement in mid-2024. The two build-to-suit data centers commenced construction in the fourth quarter of 2022 and are slated to deliver 16 megawatts (MW) of initial data center capacity, which is expandable up to 48MW at the client's option. The budget for the first phase of these yield-on-cost developments is approximately $400 million. The client maintains the option to expand the projects up to 48MW of total capacity during the initial lease term, which could increase the budget up to $800 million, based on current development cost estimates.
Morrison Foerster advised Realty Income Corporation in connection with the creation of a joint venture with Digital Realty Trust to support the development of two build-to-suit data centers in Northern Virginia. The MoFo team advising Realty Income Corporation was led by Washington D.C. corporate partner David Slotkin, New York real estate partner Alfred Williams and Washington, D.C. corporate associate Maggie Bradley.