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Why Cromwell and EXS’s new data center fund is a rarity in Asia

There are only ‘a handful’ of other real estate funds currently targeting the property sector in the region.

Australia’s Cromwell Property Group and Hong Kong-headquartered private equity firm EXS Capital’s data center platform, Stratus Data Centres, are modeling their new data center fund on one of its few counterparts in Asia.

With a targeted initial gross asset value of $1 billion, the Stratus Cromwell Data Centre Fund has been structured as a Singapore unit trust and is expected to collect $300 million from investors before the end of this year. It will invest in assets in Europe and Asia-Pacific. Cromwell European REIT will also co-invest with SCDC Fund in its two seed projects in London and Frankfurt.

According to Eric Solberg, chairman of Stratus and EXS, the fund is designed to be listed as a public real estate investment trust if it can reach a sufficient size and scale. The initial $300 million would effectively be like a series A funding and as that money is committed, Cromwell and Stratus/EXS can go back to investors for another round of fundraising to continue to scale up.

Solberg told PERE the fund’s structure is modeled after the Singapore-listed Keppel DC REIT. KDC REIT was listed in 2014 and has remained the only listed data center fund in Asia. It is understood that KDC REIT was originally structured as Securus, a data center Singapore unit trust before it was listed.

As reflected in the public trading valuations of companies such as KDC, Equinix and Digital Realty Trust, investor appetite for data center REITs has been strong because of the diversification, high yields and tech elements they offer, said Solberg. “Although there are many possible exit options, our approach has been to structure for our preferred realization as a public REIT and we work backward from there. That’s generally a pretty good private equity strategy,” he added.

Data centers have been one of the best performing assets in the US REIT market this year, according to real estate brokerage firm CBRE’s latest report. It noted data center REITs generated total returns of around 19.3 percent in the first five months of 2020.

Tom Fillmore, director of data centers capital markets in Asia at CBRE, told PERE the property sector has been particularly resilient in an economic downturn like the covid-19 crisis. According to CBRE’s Asia Pacific Investor Intentions Survey 2020, around 50 percent of investors have shown interest in data centers after the pandemic outbreak in January, compared to 27 percent before.

Apart from the SCDC Fund, there are only “a handful” of data center-focused real estate funds in the region, according to the CBRE report. PERE understands that Keppel’s Alpha DC Fund, Gaw Capital’s Gaw-Centrin Fund in China and Lendlease’s $1 billion data center fund are currently in market.

Solberg explained: “It is a very specialized asset class that requires expert management as well as relationships and credibility with operators, so the barriers to entry are higher than many other asset classes.”