Powering Texas’ Data Center Boom: How C-PACE Financing is Fueling the Future

Demand for data centers has never been stronger in Texas, where abundant land and cost-effective power have positioned regions like Dallas-Fort Worth to rival Northern Virginia as the nation’s epicenter for leasing and development. 

Data center leasing reached record levels in DFW in 2023, with 530 megawatts absorbed over the course of the year – a more than sevenfold increase from 2020. The most recent data from Cushman & Wakefield indicates demand will not slow down anytime soon, with 76% of supply coming online already spoken for and vacancy rates falling to unprecedented lows. 

The potential for significant returns in the data center industry has brought operators of all sizes into the market. As more small and mid-tier players seek to plant their flag in the space, many are looking to Commercial Property Assessed Clean Energy (C-PACE) to help finance their projects. 

The benefits of incorporating C-PACE financing into the data center capital stack are twofold.  

First, building a data center is extremely expensive, with development costs ranging from $600 to $1,100 per gross square foot. C-PACE can help fill financing gaps between mortgage debt and equity and is a cheaper, more flexible alternative to mezzanine debt or preferred equity. 

Second, data centers are huge consumers of power and water. For perspective, data centers can use 10 to 50 times more energy per floor than a typical commercial office building and consume up to 5 million gallons of water per day. Those levels are only poised to grow given the energy-intensive nature of innovative technologies — artificial intelligence alone is expected to increase power consumption at data centers by 160%.  

Fortunately, C-PACE is a tool that can help finance energy efficient, water conservation and renewable energy systems that not only reduce strain on the Texas power grid and water resources but also help offset some of the massive utility costs associated with data center operations.

Just this month, Lone Star PACE administered $40M in C-PACE financing for the development of a data center in Houston. The ViVa Center project will retrofit a former office campus to make way for a data center built to serve hyperscalers in the AI and cloud computing sectors. 

We expect to see many more deals like this one in the coming years as data center demand continues to boom in Texas. For more information on using C-PACE to help fund your data center or any commercial building project, schedule a meeting with Lone Star PACE today.