Despite AI hype, Wellington finds the risk/return for data center construction loans unappealing. Spreads have compressed by 200 bps while leverage has surged to 90% LTV. The firm is cautious about the terminal value and exit risk if a primary tenant leaves, making most current deals a "pass."

The massive demand for AI data centers is pushing unconventional property owners, like a Pennsylvania haunted house proprietor, to pivot. They de-risk the initial stages (zoning, grid connection) to create valuable, shovel-ready sites for hyperscalers, showcasing a new real estate niche.

While Silicon Valley preaches asset-light models, the real estate industry's slow adoption of data creates a unique arbitrage. Instead of joining the crowded field of data providers, the bigger opportunity is to become a capital-intensive buyer that leverages data to outperform traditional players.

The perception of net lease as a retail-centric investment is outdated. The asset class has expanded into mission-critical industrial, data center, and medical properties. This pivot connects net lease investments directly to major secular growth trends like e-commerce, AI diffusion, supply chain shifts, and an aging population.

Real estate investors focus on AI for operational efficiency, but its largest financial impact will be on the underlying assets. AI will fundamentally alter property values by changing work patterns and residential demand, an effect that dwarfs any potential operational savings from automating management.

The insatiable demand for data centers is creating an upstream bottleneck: access to power. With grid connections backlogged for years, the most valuable asset is becoming 'powered land'—parcels where developers can bring their own power sources, creating a new and crucial real estate sub-market.

VC Joe Lonsdale argues investors are overly focused on software 'infinity stories' that could be worth trillions. Meanwhile, the 'real economy' (construction, quarrying, manufacturing) represents 85% of capital and is ripe for AI-driven transformation. These less-hyped applications represent a massive, misunderstood, and less competitive investment area.

The insatiable demand for data centers is leading developers to acquire and convert non-traditional properties, including a haunted house attraction in Pennsylvania and Hollywood sound stages. This illustrates the sheer physical scale of the AI build-out and how it's tangibly reshaping the physical landscape in unexpected ways beyond typical industrial zones.

The next generation of category-defining real estate businesses will likely originate from the tech world, not the traditional property sector. This is because creating value in areas like edge computing requires a deep understanding of how technology reshapes the fundamental use of physical space.