Which type of financing is commonly used for expansions in the data center sector?

Construction financing is commonly used for expansions in the data center sector because it provides the necessary capital to fund the development and construction of new facilities. Data centers require significant investments in infrastructure, including building physical structures, installing servers, and implementing the specialized technology required for data storage and management.

This type of financing is typically short-term and is specifically tailored to cover the costs associated with the construction phase until the facility is completed and operational. Once the data center is up and running, it can generate revenue, thereby allowing the operator to transition to longer-term financing options if needed.

Equity financing involves raising capital through the sale of shares, which could be less suitable for immediate construction needs. Bridge financing, on the other hand, is used to provide temporary funding until permanent financing can be arranged, but it does not specifically target construction-related expenses. Refinancing typically involves replacing existing debt with new debt—this is more relevant after a project is completed rather than during the expansion phase. Hence, construction financing directly addresses the needs associated with building and expanding data centers.