Data Center Transactions: What Commercial Real Estate Developers, Investors, Sellers, Lenders and Tenants Need to Know

Data center development is experiencing unprecedented growth. Worldwide, the number of hyperscale data centers has surpassed 1,000, a figure that has doubled in just five years.¹ The United States accounts for approximately 54% of that total capacity and related U.S. data center construction reached $77.7 billion in 2025, a 190% year-over-year increase, with the average facility now exceeding $1,000 per square foot.² North American capacity hit a record 8,155 MW in the first half of 2025, yet vacancy rates have fallen to just 1.6%, with 74.3% of capacity under construction already precommitted.³

While the future impact of artificial intelligence on society is still unfolding, AI and the growth in cloud computing will drive increased data center demand for the foreseeable future. JLL’s 2026 Global Data Center Outlook Report describes an infrastructure investment supercycle requiring up to $3 trillion by 2030, effectively doubling global capacity.⁴ McKinsey projects that U.S. data center energy consumption could quadruple to 606 TWh by 2030, reaching 11.7% of total U.S. power demand⁵, while Goldman Sachs estimates that AI alone could drive a 165% increase in data center power demand over that period.⁶

Parties transacting in this space, such as developers, lenders, investors, land sellers. landlords and tenants, need to understand the legal issues unique to data centers as compared to other commercial real estate sectors. Below, we highlight some of the key issues involved in data center transactions.

1.  Power Is the Threshold Issue

In many cases, power availability now rivals or surpasses land and capital as a determining factor in site selection and overall project feasibility. Not just the quantity of power, but cost and timeline for securing it, and its reliability thereafter are critical.

Power constraints are now a central feasibility issue for data center development. In primary data center markets, JLL reports that average grid-connection wait times exceed four years⁷, while CBRE reports that power availability and infrastructure delivery timelines remain among the most decisive factors shaping data center site selection, leasing, and pricing.⁸

Power, thus, presents a large category of diligence distinct from most other real estate sectors. Some of the matters to be diligenced include the following:

• Power study reports
• Interconnection applications
• Project agreements and energy service agreements with the applicable utility company,, whether they have teeth, and what available alternatives are
• Approval letters and governmental permits
• Assignability of seller’s queue position
• The need for on-site or off-site upgrades, such as new feeders, transformers, substations and switchgear, and what party is responsible for the costs
• The need for easements or other land rights on nearby land for utility lines or other electrical equipment
• Zoning and any applicable rezoning approvals and ordinances allowing data centers use and unappealable conditional use and/or variance approval from steep slope regulations

In addition to diligence items, the need for power likely will create significant provisions and contingencies in the purchase agreement for the land. Some of these may include the following:

• Milestones with respect to both the amount of power secured or the square feet of data center density, and the timing to secure it
• Price adjustments based on the amount of megawatts secured or the square feet of data center density
• Termination rights if sufficient power is not secured within specified deadlines (including reimbursement of any deposits made by Seller in connection with ascertaining power)
• Provisions addressing the process for obtaining the power, which party is responsible for what actions and the costs thereof
• Closing conditions for entrance into (i) transmission security or similar agreements with the electrical utility provider to provide assurance of satisfaction of a data center purchaser’s electrical requirements and (ii) substation allocation or similar agreements with the electrical utility provider to confirm satisfactory location of substation at the facilities for purchaser’s intended use (and related termination rights for failure to enter into any such agreement)
• Delivery of any transmission facilities construction agreement and any related agreements between seller and the electrical utility provider as closing document deliverables, and reimbursement to seller for any costs incurred in connection therewith.
• Closing condition for any zoning approvals and ordinances needed (and a related terminated right for failure to obtain same)

2.  Zoning, Entitlement, and Community Opposition

The rapid growth in data center development has been accompanied by controversy. At the local level, some communities have concerns about water usage, energy consumption, visual impact, noise, loss of open space and air quality. Communities may restrict data centers through special-use permits, siting restrictions and moratoriums.

As to the energy consumption issue, it should be noted that in some cases, where data center developers result in the creation of additional power paid for by the project, the overall power grid can benefit through greater redundancy. Some states seek to attract data centers through tax incentives, but they still have to deal with the potential local opposition and local governments’ desire to control zoning and permitting. Parties to data center developments need to understand the political and regulatory backdrop in the relevant jurisdictions, and the strategies being implemented to help the project succeed without undue delay and cost.

3.  Financing Considerations

Lenders making loans for data center properties or projects need to factor all of the issues described above into their underwriting, and borrowers should be prepared to get their lenders comfortable on those issues. If a lender is making a bridge loan to a land seller (who may or may not be under contract to sell), or making a pre-development loan to a developer, while entitlements for a data center are being pursued, the lender needs to understand the process, the hurdles, the likelihood of success, the timing and the costs. Moreover, the lender needs to understand the value of its collateral if the pursuit fails, in light of alternative disposition strategies.

If a lender is making a construction loan to actually build a data center, the lender needs to be sure that all approvals and entitlements are in place, that all conditions to the same are satisfied, and that the overall budget and timeline make sense in light of those conditions.

4.  Leasing Considerations

Data center landlords and tenants similarly need to consider the issues described above when negotiating the lease agreement. The lease will often contain obligations and/or contingencies with respect to obtaining the necessary power, and failure to satisfy can lead to rent abatements or termination rights. If significant construction is required to make the premises suitable for the contemplated data center use, the landlord may need to supply the tenant with a completion guaranty from a creditworthy affiliate. The tenant may also receive certain step-in rights if the landlord is failing to satisfy certain prerequisites needed to obtain the power in a timely fashion.

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If you have any questions regarding data center transactions, please contact your primary Kleinberg Kaplan attorney or one of the members of our Real Estate Practice.

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¹Synergy Research, Hyperscale Data Center Count Hits 1,136; Average Size Increases; US Accounts for 54% of Total Capacity, Mar. 19, 2025

²ConstructConnect, February 2026 Data Center Report, Feb. 3, 2026

³CBRE, North America Data Center Trends H1 2025, Sept. 8, 2025

⁴JLL, 2026 Global Data Center Outlook, Jan. 5, 2026

⁵McKinsey & Company, AI’s power binge, Nov. 6 2024

⁶Goldman Sachs, AI to drive 165% increase in data center power demand by 2030, Feb. 4, 2025

⁷JLL, 2026 Global Data Center Outlook, Jan. 5, 2026

⁸CBRE, North America Data Center Trends H1 2025, Sept. 8, 2025