Key Takeaways
- • Global data center investment exceeded $580 billion in 2025, a 27% increase from 2024, outpacing multifamily (9.1%) and overall commercial real estate (14.4%) growth, according to Mayer Brown.
- • Power availability, not capital, is the primary constraint on data center development: only 12 GW of U.S. data center capacity is expected in 2026, with roughly one-third under active construction and close to half of 2026 builds projected to be delayed or cancelled.
- • Mayer Brown argues behind-the-meter (BTM) power assets fit a build-to-core strategy well suited to closed-end real estate funds, despite these assets having predominantly been held in open-end structures.
- • A ground lease structured to satisfy IRC Section 856 'rents from real property' rules can make a BTM site marketable to open-end REIT funds at exit.
- • Entitlement timing and restrictive covenants are the key diligence risks, given a closed-end fund's finite term and the lack of clear permitting guidelines for large-scale BTM sources.
Summary
According to a Mayer Brown legal update, power availability has become both the largest constraint on data center asset value and an emerging opportunity for real estate investors. The article cites projections that data center demand will triple by 2030, representing trillions of dollars in total investment, and that data center power usage could rise to 219 GW over the next five years, enough to power more than 180 million U.S. homes. The existing grid cannot accommodate this load, which is strained by household consumption, electric vehicles, and existing industrial and data center uses.
Behind-the-meter power, which lets a consumer generate, store, and control its own energy and maintain operations during grid outages, has attracted growing investor interest. Mayer Brown notes that BTM assets share infrastructure-like characteristics, including high capital requirements and long useful lives, and have mostly been pursued through open-end funds. The firm argues that assumption is overstated and that closed-end funds can pursue build-to-core strategies, in which a fund acquires land, builds the asset, stabilizes operations, and then sells to a core infrastructure buyer, with the acquisition, entitlement, construction, and stabilization period representing a distinct value-creation phase.
On structure, the article recommends that sponsors make BTM assets marketable to open-end REIT funds from the outset. A ground lease, under which the fund leases land to an operator that owns and runs the generation facility, is presented as a well-recognized, financeable structure. Under IRC Section 856(c)(2) and (3), ground lease rent generally qualifies as good REIT income if it does not depend on the tenant's income or profits from the land.
The article identifies two significant risks. First, because a closed-end fund's term is finite, entitlement uncertainty can consume years of the investment period before groundbreaking, compressing the build-to-core window; Mayer Brown notes that clear permitting guidelines for gas turbines, fuel cells, small modular nuclear reactors, and battery energy storage systems are still being developed. Second, restrictive covenants in deeds, declarations, or reciprocal easement agreements may not contemplate BTM generation and could invite challenges from neighbors, a concern that can impair exit marketability. Mayer Brown concludes that the legal and structural tools to accommodate BTM investments within closed-end vehicles exist today, though diligence must be rigorous.
Behind-the-meter power, which lets a consumer generate, store, and control its own energy and maintain operations during grid outages, has attracted growing investor interest. Mayer Brown notes that BTM assets share infrastructure-like characteristics, including high capital requirements and long useful lives, and have mostly been pursued through open-end funds. The firm argues that assumption is overstated and that closed-end funds can pursue build-to-core strategies, in which a fund acquires land, builds the asset, stabilizes operations, and then sells to a core infrastructure buyer, with the acquisition, entitlement, construction, and stabilization period representing a distinct value-creation phase.
On structure, the article recommends that sponsors make BTM assets marketable to open-end REIT funds from the outset. A ground lease, under which the fund leases land to an operator that owns and runs the generation facility, is presented as a well-recognized, financeable structure. Under IRC Section 856(c)(2) and (3), ground lease rent generally qualifies as good REIT income if it does not depend on the tenant's income or profits from the land.
The article identifies two significant risks. First, because a closed-end fund's term is finite, entitlement uncertainty can consume years of the investment period before groundbreaking, compressing the build-to-core window; Mayer Brown notes that clear permitting guidelines for gas turbines, fuel cells, small modular nuclear reactors, and battery energy storage systems are still being developed. Second, restrictive covenants in deeds, declarations, or reciprocal easement agreements may not contemplate BTM generation and could invite challenges from neighbors, a concern that can impair exit marketability. Mayer Brown concludes that the legal and structural tools to accommodate BTM investments within closed-end vehicles exist today, though diligence must be rigorous.
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