Data Center Development Series: Series Introduction & Transaction Structuring

Introduction

The data center market is moving at hyper-speed (pun intended). Data center developers, hyperscalers, and others are racing to acquire land, secure power, and deliver capacity as soon as possible. We view them as real estate deals on steroids. 

This is the first post in a series looking at data center development through the real estate legal lens, focusing on development-side considerations. Over the course of the series, we’ll cover site control and diligence (this post), tenant lease structuring (and the operational covenants required of the developer that tie everything together), a deeper dive into power, and construction contracts and delivery requirements.

Typical Transaction Structure 

Most independent developer transactions are structured with a developer acquiring land through a special purpose entity (SPE), financing the acquisition and construction, and leasing the facility to one or more hyperscalers under long-term leases. The SPE structure’s benefits are two-fold. First, on the developer side, the SPE structure isolates liability, supports the lender’s collateral package, and keeps the asset clean for a future sale or recap. Second, a hyperscaler will often require that the developer own the property in fee-simple (as opposed to merely holding a ground lease interest in the property), as an additional lease layer puts the hyperscaler’s project at risk if there is a developer default under the primary ground lease without an airtight recognition/attornment agreement in place with the fee owner.

The lease and its bankability drives lender underwriting. It is worth noting that if the developer is also providing managed services or operational arrangements, tenants will want a creditworthy guarantor behind those obligations. An SPE with no real balance sheet can’t backstop a service commitment.

Entitlements

Entitlements are a major source of risk and delay in data center development right now. Local governments are scrambling to regulate facilities that consume enormous amounts of power and water, and the results have been unpredictable. Oklahoma City is a good example: on April 21, 2026, the Oklahoma City Council passed an emergency moratorium blocking applications for new data center developments. That kind of swift action can theoretically happen anywhere. Remember the old saying that Time Kills Deals. As such, entitlement status should be a front-loaded diligence item.

Transmission Access and Substation Feasibility

As industry veterans know, and newcomers are quickly finding out, power availability is another threshold question. A development might need 100 to 500-plus megawatts of power, and the infrastructure may not be readily available at every site. Early feasibility work with applicable utilities is essential to understand available capacity, interconnection queue position, and the cost and timeline of any required substation work. The ability to deliver a site with contracted, deliverable power is most likely going to be a prerequisite to executing a lease and closing construction financing. 

Easements, Infrastructure and Water Rights

Getting power and water to the site almost always requires off-site easements, such as transmission lines, distribution rights-of-way, water main extensions, and fiber routes. These need to be perpetual, properly recorded and structured to survive any potential lender foreclosure. Utility rights across third-party parcels can be slow to acquire, particularly where competing development interests exist. Often, a developer will target sites near already existing substations to limit the risk of failing to obtain multiple required third-party easements.

Additionally, large hyperscale facilities, particularly those relying on evaporative cooling, can consume millions of gallons per day, making water availability, permitted supply, and cooling strategy critical diligence items alongside power. Importantly, in most western states, water rights are discrete interests  typically acquired separately from the land and become a key source of negotiating during the purchase and sale period. In markets with municipal water, the utility’s capacity to serve a large campus needs to be confirmed early.

Title and Survey Issues

Title and survey diligence on large data center sites are often put under a magnifying glass as compared to other raw-land development transactions. 

On the title side, developers should be cautious of existing easements that limit buildable area, use restrictions or deed covenants that could prohibit data center or ancillary uses, and any prior conveyances carving out mineral, water, or subsurface rights. Those carve outs have to be dealt with so they will not interfere with future developer or operations, which if unaddressed can make a project unfinanceable. Also, a pipeline easement or surface restriction that’s a minor nuisance in a typical development deal can be a deal-killer on a data center campus. In ALTA title insurance states, lenders will require title insurance endorsements covering these risks, which means they need to be resolved by land closing.

On the survey side, a survey of a large campus can turn up boundary issues, encroachments, or gap parcels that need to be resolved before closing. Developers or hyperscalers assembling land from multiple sellers should pay close attention to whether parcels are actually contiguous and whether any unacquired strips or road rights-of-way could affect site planning or create title defects.

Road Access and Infrastructure

Data center construction moves heavy equipment (i.e., generators, transformers, switchgear, cooling units) and the road network must have capacity to handle it. Because of the prevalence of data center development in rural markets, developers and hyperscalers need to confirm that existing access can accommodate heavy haul loads and identify any road improvements or traffic studies required as conditions of entitlement or permitting. This may mean that a developer or hyperscalers needs to negotiate access easements or road improvement agreements with local governments. 

Financeability: What Lenders Actually Care About

A developer may be willing to close with some title exceptions unresolved or a power commitment that isn’t fully papered, but a lender won’t be. Construction lenders will require clean, insurable title. Power and water commitments need to be documented in a form lenders can underwrite, which typically means that a letter of intent from a utility provider is insufficient. And lease structures, specifically any tenant termination rights, rent abatement triggers tied to power availability, or co-tenancy provisions, will be scrutinized for their effect on debt service coverage. Developers who think about financeability from the moment they put a site under contract move through financing far more smoothly than those who don’t.