Hyperscale leases are 10 to 20 year triple-net build-to-suit with a single investment-grade tenant. Colocation leases are 3 to 7 year multi-tenant contracts where the operator provides power, cooling, and cross-connect services. Lenders use credit-tenant underwriting on hyperscale and operating-business underwriting on colocation.
Two different underwriting frameworks
Hyperscale CTL underwriting focuses almost entirely on tenant credit and lease language. The lender treats the deal as a long-dated investment-grade corporate bond proxy with property-level downside protection. Pricing is comparable to or inside the tenant's own corporate unsecured debt yield.
Colocation operating-business underwriting focuses on customer concentration, ramp curves, churn rates, and cross-connect revenue, similar to a self-storage or marina lender's approach to operating cash flow rather than a pure real estate lender's approach to lease cash flow. Revenue per kW is materially higher than equivalent hyperscale rent on a per-MW basis, but operating costs and tenant churn are also higher.
Sources
- 2024 United States Data Center Energy Usage Report · Lawrence Berkeley National Laboratory (LBNL) · 2024
- Capital Markets Special Report: Insurance Industry CRE Mortgage Holdings · National Association of Insurance Commissioners (NAIC) · 2025-Q4