ESR Exceeds $1B in Capital for First Closing of Inaugural Data Centre Fund

Real asset manager ESR announced on Monday that it has raised more than $1 billion for its first financing vehicle dedicated to data centre projects.

Having assembled a pipeline of eight projects representing over 300 megawatts in capacity across Asia, ESR says its Data Centre Fund 1 has received support from some of the world’s largest institutional investors, including sovereign wealth and pension funds, with the partners having an option to add another $1.5 billion in equity.

“APAC is the prime market for data centre development and investment in the new era of digitalisation,” said ESR co-founders and co-CEOs Jeffrey Shen and Stuart Gibson in a statement. They added that, “The substantial first close of our inaugural data centre fund marks a significant milestone for ESR as we continue to grow and scale our digital infrastructure business.”

In addition to the $1 billion already committed, ESR says it will raise a separate discretionary capital sleeve to co-invest in the fund, which it expects will boost the vehicle to its hard cap of $1.5 billion. With the upsize option, and after adding leverage, the Warburg Pincus-backed investment manager expects Data Centre Fund 1 to have a total investment capacity of as much as $7.5 billion over time.

Regional Pipeline

ESR reached its funding milestone less than a year and a half after launching its data centre business with a $2 billion data centre project in Osaka, Japan. Now the company’s digital infrastructure development portfolio also includes projects in Hong Kong, Tokyo, Seoul, Sydney, Mumbai and Singapore, according to the announcement.

Earlier this month, the company won permission from Hong Kong authorities to convert the Brilliant Cold Storage Tower 2 in Kwai Chung district into a data centre after acquiring that facility in May last year with plans to develop 40 megawatts of capacity in the industrial asset.

In May of this year ESR took on its second data centre project in Japan as it announced plans to install 20 megawatts of capacity after acquiring a site in western Tokyo’s Higashikurume City.

In today’s announcement the firm, which is focusing its investments on “new economy” assets, says that its Osaka asset is being developed as a multi-phase data centre campus which could provide up to 95 megawatts of IT load for both hyperscale and co-location customers.

Industrial Strength

After building one of Asia Pacific’s largest portfolios of logistics properties, ESR moved into data centres last year looking to leverage its abilities to source sites and develop industrial buildings to compete in one of the few sectors which is growing faster than e-commerce warehouses.

“As the largest New Economy real estate platform in APAC, we are looking to play into the critical need for digital infrastructure in a big way going forward by leveraging our core competitive advantages – our deep land sourcing capabilities, best-in-class design and construction capabilities, an integrated fund management platform as well as commitment to sustainability – with a singular focus to support our capital partners and customers to thrive and capitalise on the continued rise of the New Economy and digital transformation in APAC,” Shen and Gibson said.

The firm pointed to research from CBRE which shows that data consumption in Asia has grown four-fold in the past five years, while direct investment in data centres in Asia Pacific totalled $4.8 billion in 2021 – a figure which more than doubled the record of $2.2 billion set a year earlier.

Funds Pour In

During last year data centre operators in Asia Pacific brought online some 1.5 gigawatts of capacity across the region, according to Knight Frank, with more projects set to enter the market as funds pour into the sector.

ESR’s Warburg Pincus stablemate Princeton Digital Group raised $505 million earlier this year to expand its Asia data centre network, led by a $350 million commitment from Abu Dhabi’s Mubadala Investment Company.

In February Blackstone invested an additional $250 million in Beijing-based data centre operator VNET, betting on demand for more server capacity in mainland China.