What is the typical loan-to-value (LTV) range for data centers?

The typical loan-to-value (LTV) range for data centers tends to fall within the 50-60% range primarily due to the unique characteristics and risk profile associated with these types of properties. Data centers are specialized facilities that require significant investment in technology and infrastructure, and lenders take into account several factors when determining LTV.

The moderate range of 50-60% reflects lenders’ perceptions of risk, considering factors such as the stability of cash flows generated by tenants, the location of the data center, operational expenses, and the volatility of the technology sector. Lenders prefer a conservative approach to minimize potential risks, resulting in lower LTVs compared to traditional commercial real estate sectors like multifamily or retail, where LTV ratios might be higher due to perceived stability and demand.

In comparison, higher LTVs may indicate a greater willingness to accept risk, but for specialized assets like data centers, lenders typically opt for a more cautious stance to ensure they are adequately protected against market fluctuations or technological changes that could impact the value of the asset.