Portfolio Insights

Q&A: Greg Blank and Mike Forman on the Explosive Demand for Data Centers

Blackstone acquired QTS Realty Trust for approximately $10 billion last year, representing, at the time, the largest transaction in data center history. QTS is the fastest growing U.S. data center platform¹ serving the world’s fastest growing technology companies.

The company is well positioned to capitalize on the data center sector’s massive long-term growth tailwinds, which we believe present an enormous opportunity for value creation. This deal highlights Blackstone’s ability to work across its businesses to identify and execute on attractive and large-scale investment opportunities.

We sat down with Greg Blank, Senior Managing Director, Blackstone Infrastructure Partners, and Mike Forman, Managing Director, Blackstone Real Estate, to learn more about QTS and why the outlook for data centers is so hot.

Why are data centers – and digital infrastructure more broadly – a high-conviction investment theme for Blackstone?

Greg Blank: As thematic investors, sector selection really matters. Blackstone aims to deploy capital in our highest conviction themes such as data proliferation. We believe assets in the digital infrastructure sector are positioned to perform well over the long term, particularly in a higher-inflation and rising-rate environment. QTS was a natural fit with this investment thesis.

Mike Forman: Data centers like the ones in the QTS portfolio provide mission critical infrastructure for the largest and fastest growing companies around the world. The growth in data creation and storage requirements is exponential – there has been more data created in the past three years than in all previous history combined. This data has to live in physical infrastructure. “The cloud” is not literally in the clouds; it is in physical data center assets. This all translates into unprecedented demand for data centers that is expected to grow at double digit rates over the next decade in the US and internationally.

What made QTS stand out as such an attractive investment opportunity?

MF: QTS is one of the world’s largest data center providers, with over eight million square feet across North America and Europe. We saw a high growth platform with strong development potential that had historically been capital constrained. This presented an attractive investment opportunity for us to help unlock value by providing access to our resources, expertise and global network. What also stood out was the strong culture of the founder-led management team, coupled with an industry leading service and performance track record.

What is QTS’s approach to ESG and what progress has it made in this space?

MF: We believe QTS is an industry leader when it comes to ESG. They are committed to sourcing 100% renewable power by 2025. In the current market landscape, access to renewable power is key to attracting new customers, particularly with large technology companies who demand it. QTS’ leadership position was very attractive to us as investors given ESG is one of our highest-conviction themes.

GB: Chad Williams (QTS founder and CEO) has developed a culture of servant leadership and has actively recruited and built a team of military service members and first responders. This represents roughly 20% of the employees at the company today, including a number of senior leadership positions. QTS earned a Military Friendly Employer award in 2020 and a Virginia Data Center Award Winner for hiring vets. At Blackstone, we firmly believe in supporting the employment and professional development of veterans and military families within our firm, across our portfolio and through our nonprofit partnerships. It was great to see this alignment in values with QTS.

What are the advantages of allocating long-term capital in Blackstone’s real estate and infrastructure investments?

GB: Given the opportunity for long-term value creation and continued capital deployment over time, QTS is a natural fit within Blackstone’s perpetual capital vehicles. Perpetual capital was also hugely attractive to management and positioned Blackstone as a partner of choice. We look forward to working with QTS to accelerate leasing and development, as well as support other strategic initiatives such as international expansion.

This acquisition was a partnership between Blackstone’s Real Estate and Infrastructure businesses. Can you speak about how the investment platforms came together to invest in QTS?

MF: Cross firm collaboration was a key factor to success in acquiring such a marquee business. This was a large, complex transaction requiring speed, collective expertise, and a significant equity check of over $4 billion. Given their combination of operational and real-estate intensity, data centers are at the intersection of digital infrastructure and real estate, making them particularly well-suited for a partnership between our Infrastructure and Real Estate businesses.

GB: Digital infrastructure is a pillar of Infrastructure’s business and a key focus area, as these assets represent critical network infrastructure that provide essential services, with opportunity for strong, long-term, stable cash flows.

MF: This transaction highlights Blackstone Real Estate’s focus on identifying compelling opportunities in sectors with strong fundamentals where we see outsized growth potential over long periods of time.

Greg Blank is a Senior Managing Director in the Infrastructure Group where he focuses on investments in the Digital Infrastructure sector. Since joining Blackstone, Mr. Blank has worked in both the New York and Hong Kong offices and has been involved in the execution of Blackstone investments, including QTS Realty Trust, Signature Aviation, Hotwire Communications, NCR, Kronos, Paysafe, Blue Yonder, Ipreo, Optiv, and Phoenix Tower International.

Mike Forman is a Managing Director in the Real Estate group where he currently focuses on new investment opportunities in the data center, digital infrastructure, and retail sectors. Since joining Blackstone in 2012, Mr. Forman has been involved in investments across several asset classes, including QTS Realty Trust, Sunset Studios, International Market Centers, Juniper, ShopCore, and the creation and eventual IPO of Invitation Homes.

¹ As of June 2021 based on consensus EBITDA CAGR estimates from 2020-2022