Data Center Bytes

As experienced investors in Japanese real estate know, the Tokutei Mokuteki Kaisha (TMK) is the Japanese entity used by most investors to acquire and hold large real estate assets due to its favorable tax treatment. It is also well known that the TMK is a highly regulated entity, and the laws and regulations governing the TMK are rife with traps for the unwary. For investors in Japanese data centers who use the TMK as their investment vehicle, a couple of these traps arise because of the high value of the TMK’s movable assets (i.e., the data center fit out) in relation to its immovable assets (i.e., the land and the core and shell of the data center).

Electric utilities across the country are forecasting higher than normal power demands in their service territories, driven in large part by the power needs of data centers. The US Department of Energy’s (DOE’s) Lawrence Berkeley National Laboratory estimates that data center load growth has tripled over the past decade and is projected to double or triple by 2028. These rates of growth are increasingly placing pressures on utilities, transmission planners, and grid operators to respond quickly to ensure there is sufficient infrastructure to meet the demand for power.

Merger and acquisition (M&A) activity involving data centers and digital infrastructure had a record year in 2024, and all signs point to that trend continuing in 2025. Market strategies and capital raising in this space are evolving rapidly as investors, developers, and operators seek to take advantage of the high demand. Factors that were determinative of market norms only months ago have become less relevant and new factors driving the market have emerged.

While a data center may seem similar to a large warehouse, data centers are high-intensity utility consumers that have special requirements compared to a typical warehouse acquisition project. There are several crucial items to address in negotiating purchase and sale agreements and conducting due diligence of land for the development of data centers.

A day does not go by this year without news of another major investment in data centers or the infrastructure—including facilities, power, and cooling systems—that is needed to run data centers. Notwithstanding all the data center buzz, there has not (yet) been a lot of focus on the next phase of the data center life cycle, the phase after “build,” which we refer to as the “operate” phase. With thousands of data centers already operational and many others in various stages of “build” with plans to be operational on tight time frames, it only follows that the opportunities and challenges of the data center operator will gain more attention in the evolving data center conversations.