Brockton Capital, the London-based private equity real estate firm, has made a majority investment in a data centre company.
Brockton is investing in Virtus Data Centres on behalf of its second fund, Brockton Capital Fund II, it has announced.
According to the statement, the data centre operator is looking to grow to a platform value of £500 million (€574 million; $800 million), making it one of the largest data centre operators in the UK.
Virtus is a young company that has already acquired a brown field site in West London for a new-build data centre which could be operational in 2013 assuming planning permission is given.
That is a follow-up to a deal struck in 2010, when it joint ventured with another London-based private equity real estate firm, Frogmore Real Estate Partners, to develop the first phase of a centre in Enfield, north London, that became operational in March this year. The joint venture has commissioned phase two.
Jason Blank, co-founder of Brockton said: “We are investing with Virtus at the right time. Brockton Capital has found a team we want to back, in a sector with strong growth fundamentals. There are high barriers to entry to protect incumbents and Virtus are now looking to expand aggressively.”
With the global growth of IT-related consumer products and platforms that companies such as Apple are reaping huge rewards from, Brockton believes that owning data centres offers a direct way to tap into such momentum. “It offers a direct, no degrees of separation way for an investor to invest in and gain exposure to something that everyone would say offers very strong double digit growth year over year, if not quarter over quarter,” said Blank. “Data centres are, of course, basically office buildings for servers which iPads, BlackBerries, company websites, and so on, require. Real estate investors can own the buildings that all of this is happening inside of.”
He further argued that data centres were similar to office properties in that offices also had to provide air conditioning, power, connection to the internet and security.
That said, they are expensive to build and there are high barriers to entry because tenants have high specifications of the building they want to occupy, added Blank.
“We have decided not to try to create our own company, but find and buy a successful data centre company and grow our investment in the sector buy growing that business.”
Virtus chief executive officer, Michael Hall, said: “We’re delighted to have secured the backing of Brockton Capital.”
Brockton raised £500 million for its second fund in 2010. Recently, the fund has acquired an asset on Kensington Church Street with Development Securities plc, The Mailbox in Birmingham, with Milligan Retail, for £127 million, and placed a construction contract to redevelop four Grade II Listed, stucco fronted townhouses directly opposite Buckingham Palace into six large, lateral apartments and one family townhouse in conjunction with private residential development partners.
It has also sold Realpubs, the London-based pub operating business, to Greene King plc for around £54 million.
Brockton’s is not the only high profile data centre deal this year involving private equity real estate firms in the UK. In April, Apollo Global Real Estate, the property arm of the New York-based alternatives firm, exchanged contracts to buy a data centre in London’s Clerkenwell district for £60 million (€68 million; $98 million) from a group of private owners. That was Apollo’s first deal in Europe since taking over Citi Property Investors in November last year.