Digital Realty and Realty Income Corporation have established a data center joint venture in Northern Virginia.

As part of the deal, real estate investment firm Realty Income has acquired an 80 percent equity interest in two data centers currently under construction in Northern Virginia, offering up to 48MW.

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Realty Income invested $200 million to acquire the stake, with Digital Realty retaining the remaining 20 percent.

The build-to-suit facilities are 100 percent pre-leased to an ‘S&P 100 investment grade client’ and expected to go live in mid-2024. The facilities have been signed with a ten-year lease with extension options.

The addresses of the two data centers have not been shared.

Construction began on the two data centers in Q4 2022; they will initially deliver 16MW of capacity, expandable up to 48MW at the client's option. Initial investments for development are $400m, growing to $800m if the full 48MW is required.

"We are delighted to partner with Realty Income, a blue-chip net-lease REIT, in their first investment in the data center sector," said Digital Realty president and CEO Andy Power.

"The formation of this development joint venture supports our customer's build-to-suit requirements with a like-minded, long-term investor as our partner. The transaction also further bolsters and diversifies Digital Realty's capital sources, while enhancing our flexibility so that we can prudently support our stakeholders' longer-term capacity requirements."

Founded in 1969, NYSE-listed Realty Income has previously mainly focused on investing in grocery stores, convenience stores, dollar stores, home improvement, and quick-service restaurants. This is the company’s first data center investment.

"One of Realty Income's core strategies is to partner with companies that are leaders in their respective industries. To that end, for our initial investment in the net lease data center vertical, we are pleased to partner with Digital Realty, the largest provider of cloud- and carrier-neutral data centers whose global platform is well respected in the industry," said Sumit Roy, Realty Income's president and CEO.

"This transaction offers our stockholders attractive risk-adjusted returns and will support the development of two state-of-the-art facilities located in Northern Virginia, the largest data center market in the world."

Realty Income was recently linked to a portfolio of Vodafone-occupied data centers in London owned by British Land, but the portfolio was eventually sold to ICG.

2023 has seen Digital Realty pursue a number of joint ventures with investors. Digital Core REIT, TPG, Reliance, and GI Partners have all acquired significant stakes in Digital Realty facilities this year.