Colony Capital, a US real estate firm turned digital infrastructure specialist, led a group of investors this week in a $1.2 billion deal to partner with Vantage Data Centers.
The deal features Colony committing $200 million from its own balance sheet, along with $1 billion provided by co-investors, according to a statement the companies released. Described as a strategic partnership valued at $3.5 billion, the deal gives Colony and its investors exposure to 12 data centres located throughout North America.
Colony, a Los Angeles-based investment firm managing $50 billion in assets, is in the process of shifting its entire portfolio from real estate to digital infrastructure, according to Justin Chang, the firm’s global head of private equity.
“As we exit our legacy real estate investments and move completely to digital infrastructure, we’re reducing our exposure to traditional real estate assets,” Chang told Infrastructure Investor. In 2018, he said, legacy real estate accounted for 98 percent of the firm’s AUM, which at the time stood at $42 billion. Today, 40 percent of its $50 billion of assets under management is invested in digital infrastructure.
“By 2022, we expect our AUM to be 100 percent digital,” he said.
The firm first entered the sector in 2018, when Chang said Colony made a strategic decision based on “where we wanted to be in five or 10 years”.
“We started looking at digital infrastructure, businesses that had a lot of similarities and characteristics that we already liked about real estate,” he explained. “The sector is a really interesting combination of downside protection, with up to 20-year leases with investment grade tenants, along with growing your business with your customer.”
Colony announced a partnership with digital infrastructure company Digital Bridge, led by industry expert Marc Ganzi. The two companies launched Digital Colony Partners, which would close the following year on $4.05 billion. This fund is 73 percent deployed across 10 investments.
After final close, Colony announced it would fully acquire Digital Bridge, bringing sector expertise in-house, and now Ganzi has been tapped to lead the firm as chief executive. In December 2019, Colony closed its first direct deal in digital infrastructure, a $185 million investment in a data centre company called Databank.
Digital Colony is reportedly gearing up to come back to market with its second digital infrastructure fund, which is targeting some $6 billion with a November first close in the works.
Colony Capital declined to comment on fundraising.