Even as fund sizes climb steadily in private real estate, $1 billion remains a significant hurdle, particularly for first-time fundraisers. Yet IPI Partners cleared that mark handily when it closed its debut vehicle on $1.5 billion in 2017.
Digital assets under management
Who’s in their corner: Institutional investors such as the New Jersey and Connecticut state pension plans, and the New Mexico State Investment Council through a $3.8bn commingled fund
Of course, the Chicago-based firm had an equally rare offering when it hit the fundraising trail: a pureplay vehicle focused on data centers.
Five years later, the field is much more crowded. Private equity powerhouses such as Blackstone and KKR shelled out billions of dollars in 2021 to acquire data center platforms and countless other diversified managers have incorporated the property type into their strategies.
“While demand for data centers was growing steadily prior to covid, the pandemic has rapidly increased that demand,” Partner at IPI Partners Matthew A’Hearn tells PERE. “We’ve seen a pretty significant shift in how we live, work and play, and all those things have helped further emphasize the importance [of data centers].”
IPI was formed through a joint venture between San Francisco-based technology and real estate investment firm Iconiq Partners and Washington, DC-based asset manager Iron Point Partners, which had been investing in data centers through its diversified funds for nearly a decade. A’Hearn, IPI’s top decision maker, credits the reputation of the two controlling parties with the firm’s early success.
IPI’s founding principle was to use institutional capital to address the needs of end users, particularly hyperscale cloud storage providers, A’Hearn says. That tenant-first mentality is also an advantage over its better-capitalized peers, he adds.
“This is mission critical infrastructure for the large end users. This is where their businesses operate,” A’Hearn says. “They’re really looking for a trusted partner. It’s not an area where you could go and call yourself a data center investor and be able to get a lot of traction, especially as you think about development. You need to have that track record.”
Through its Data Center Partners Fund I, IPI acquired and developed 22 data centers in the US, according to a November 2020 memo from the New Jersey Division of Investments. To that point, the fund had achieved a 13.2 percent net internal rate of return. New Jersey committed $150 million to IPI’s second fund, which closed on $3.8 billion in 2021.
IPI has used its new war chest to expand globally. Last March, it purchased Italian colocation provider Supernap Italia, then followed that up by acquiring Nordic owner, operator and developer DigiPlex. A’Hearn says the firm has also expanded into Asia and plans to consolidate its holdings under its STACK Infrastructure brand.
“These large-scale partners are global,” A’Hearn says. “Their customers are global, and they’re looking for groups like us who can help provide that solution and infrastructure for them globally.”