Professional investors eyeing data center opportunities may want to consider adaptive reuse of vacant real estate assets. A recent Chicago transaction demonstrates how power provisioning and strategic repositioning can unlock value in underutilized properties, particularly as demand for data center facilities expands.
Value Creation via Conversion Readiness
- A six-story former headquarters at 400 S. LaSalle St., Chicago (ex-Cboe Global Markets headquarters) recently sold for $40 million after being acquired for $12 million in July 2024.
- The buyer, Legacy Investing, is planning for a 33 MW data center coming online late next year, with prior owners materially enhancing value by securing additional power and initiating pre-conversion work.
- As Legacy’s Daniel English noted, assuring adequate power supply was pivotal amid a nationwide power shortage, illustrating that power access is the gating item for data center conversions.
Macro Drivers Supporting Urban Reuse
- Data storage and processing demand is at an all-time high, propelled by artificial intelligence and ongoing cloud expansion; some projects now scale to multibillion-dollar footprints with massive power requirements.
- Vacancy in data centers reached all-time lows, and developers could deploy up to $1 trillion in North America by 2030, per JLL—an outlook that favors rapid-to-market conversion strategies.
- Capital commitment from market leaders—e.g., Nvidia’s $100 billion pledge to OpenAI for data center expansion—signals durable infrastructure demand.
Why Urban Assets May Work
- Smaller urban facilities remain in high demand for short response time uses (e.g., trading, streaming, and gaming), where proximity to users, networks, and interconnection nodes is critical.
- Urban locations benefit from legacy power and connectivity infrastructure, shortening delivery timelines—akin to last-mile logistics.
- The Chicago project is relatively modest by hyperscale standards but attuned to user demand in the Chicago Loop.
Investment Thesis: Mitigating Risk Through Power and Specification Readiness
- Early-stage value creation can be achieved by (1) enhancing power capacity and redundancy; (2) initiating design and enabling works; and (3) packaging a turnkey spec offering to minimize tenant ramp up time.
- Moving an asset from “office vacancy” to “power-secured data center candidate” can improve value of an asset even before lease-up, particularly in markets where office demand is historically weak but network adjacency is strong.
- Executing “spec” builds with installed equipment can attract tenants seeking speed-to-service in tight markets, supporting lease-up without lengthy fit-out cycles.
Risk Filters and Diligence Priorities
- Power scarcity is a central constraint; investors are prioritizing interconnections, substation upgrades, and realistic energization timelines over mere building discounts.
- Market selection should weigh demand clusters against urban conversion complexity and entitlement timelines.
Office-to-Data Center as Part of Broader Adaptive Reuse
- The Chicago-based transaction stands out in a market where downtown offices rarely trade at premiums due to weak demand and higher borrowing costs. Repositioning real estate assets for data center use may shift this dynamic where power and connectivity are available.
- Sponsors active in major urban reuses (e.g., Prime/Capri’s Thompson Center redevelopment) illustrate the playbook: acquire obsolete office assets with a clear path to higher-and-better-use anchored in digital infrastructure or tech tenancy.
Bottom Line for Investors
- Power is the new “location.” Securing and demonstrating viable, scalable power at urban assets can create enhanced value before lease-up.
- Urban, smaller-footprint data centers can deliver compelling returns by serving users near dense demand and carrier facilities.
- With all-time-low data center vacancy and massive capital commitments to AI infrastructure, speed-to-market conversions of vacant buildings represent a timely component of the sector’s growth curve.