Data Center Bonds Claim 8% of New CMBS Market as Underwriting Shifts

Issuance reached $17 billion since the start of 2025, more than triple the prior two years, as investors develop new stress tests for power capacity and technology obsolescence.

By the Family Office Real Estate Daily Desk·Thursday, September 17, 2026·2 min read

Editorial summary of reporting byYahoo Finance Our editorial standards →

The answer · checked against Yahoo Finance

How big is the data center CMBS market and what risks should bond investors underwrite for?

Data center CMBS issuance has reached approximately $17 billion since the start of 2025, more than triple the prior two years, and now represents roughly 8% of new commercial property bond deals. Investors are expanding underwriting criteria to include power access, cooling capacity, tenant concentration, and technology obsolescence. Citigroup forecasts issuance will rise approximately 50% next year, reaching $18 billion to $20 billion.

Key facts

Approximately $17 billion of data center CMBS has been issued since the start of 2025, more than triple the amount sold during the previous two years, according to Bloomberg.
Data centers now represent roughly 8% of new commercial property bond deals, according to Bloomberg.
Barclays data show AAA data center bonds averaging 1.65 percentage points over their floating-rate benchmark, compared with 0.93 for office, 1.05 for retail, and 1.25 for industrial.
A recent $356 million bond on a 30-megawatt Illinois facility priced wider than initial guidance, according to the source.
Citigroup expects data center CMBS issuance to rise about 50% next year, with a forecast of $18 billion to $20 billion.
Big tech has issued more than $429 billion of debt globally this year to fund AI infrastructure, according to the source.

Data Center Bonds Claim 8% of New CMBS Market as Underwriting Shifts — Image: editorial illustration · Story sourced from Yahoo Finance

Data center financing is reshaping the commercial mortgage-backed securities market, with about $17 billion of data center CMBS issued since the start of 2025. That is more than triple the amount sold during the previous two years. Data centers now represent roughly 8% of new commercial property bond deals, with billions more in the pipeline.

Most data center CMBS deals use single-asset, single-borrower structures. One large mortgage often backs a single facility or complex. That concentrates risk around a small number of tenants and highly specialized buildings. Power availability, grid capacity, cooling systems and computing density now sit beside familiar property metrics.

Alex Killick of CWCapital said his firm is developing new stress tests for the sector. Traditional property can be re-underwritten using familiar operating metrics, he said. Data centers can change much faster as technology, power needs and tenant requirements evolve. Steven Jury, portfolio manager at Axonic Capital, said the firm keeps data centers a small portfolio allocation and emphasizes diversification across tenants, uses and geographies. Axonic also questions what these facilities will be worth in five, 10 or 20 years, Jury said, pointing to changes in technology, tenant demand and supply as major uncertainties.

Lease economics can determine how much cash remains available for debt service. Power costs, capacity commitments and downtime provisions decide who absorbs unexpected expenses. Tenant identities and lease details may also remain confidential. Ben Hunsaker of Beach Point Capital Management said that opacity complicates underwriting.

Location analysis is different as well. Prime sites depend heavily on cheap electricity and available transmission capacity. Those factors can matter more than transportation links, amenities or proximity to a city center. They can also determine how competitive a facility remains when the loan matures. Confidentiality can make those risks harder to price because hyperscale tenants often limit disclosure. The same opacity can make lease rollover analysis less straightforward than in office or industrial deals.

Barclays data show AAA data center bonds averaging 1.65 percentage points over their floating-rate benchmark. Office averages 0.93, retail 1.05 and industrial 1.25. A recent $356 million bond on a 30-megawatt Illinois facility also priced wider than initial guidance. The wider spreads indicate investors are demanding more compensation for the sector's unfamiliar risks.

Technology can shorten the useful life of the underlying real estate. New AI chips can require sharply more power and cooling. A facility built around one hardware generation can therefore lose competitiveness within a few years. Stephen Buschbom of Trepp said these assets resemble infrastructure and technology plays more than conventional property. Local opposition adds another layer of uncertainty, as communities debate utility costs and infrastructure strain from new projects. Big tech has issued more than $429 billion of debt globally this year to fund AI infrastructure. Citigroup expects data center CMBS issuance to rise about 50% next year, with a forecast calling for $18 billion to $20 billion of issuance. Citigroup warned that rising supply creates longer-term mark-to-market risk, which would become more important if demand becomes less certain.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

Co-GP and direct ownership routes are both viable, but each demands sector expertise the typical family office lacks in-house. A platform-capital commitment alongside an experienced data center sponsor lets you share due diligence on power contracts, cooling redundancy and tenant creditworthiness. Direct acquisition or programmatic joint ventures require dedicated technical underwriting—electrical engineers, utility lawyers and hardware-cycle analysts—which few single-family offices can staff. An LP commitment to a diversified fund dilutes the upside but also spreads tenant and obsolescence risk across multiple facilities and geographies.

Run the debt-service arithmetic on every deal. The source reports AAA tranches at 165 basis points over benchmark, compared to 93 for office. If the all-in coupon is 7.5% and loan-to-value is 65%, equity returns must clear a mid-teens hurdle to justify the concentration risk and the technical re-leasing cost. The $356 million Illinois bond priced wider than guidance, signaling that even strong tenant demand does not eliminate investor caution. Underwrite a 200-basis-point refinancing penalty at maturity and model a 24-month re-tenanting window if the anchor leaves.

Avoid single-tenant, single-asset exposure unless you control the asset and can verify lease terms, power commitments and capex reserves in writing. Tenant confidentiality agreements prevent bondholders from seeing the economics that determine cash available for debt service. If you cannot read the lease, do not write the cheque. Prioritize facilities with multiple tenants, disclosed power contracts and access to cheap, abundant electricity. A site in a jurisdiction debating data center moratoriums—more than 600 have formalized restrictions, according to related coverage—carries political risk that no spread can price away.

Pressure-test hardware obsolescence by modeling a five-year useful life for any AI-focused buildout. New chips can demand materially higher power and cooling density. A 30-megawatt facility designed for last year's hardware may need $50 million in retrofits to accommodate the next generation, and that capex may not be recoverable from rent. Price in the possibility that strong current demand becomes weaker future demand if $18 billion to $20 billion of new supply comes online next year, as Citigroup forecasts. Mark-to-market risk is acceptable if you are buying the building, not the bond—equity owners can re-tenant or redevelop, but bondholders cannot.

Questions this story answers

01How large has the data center CMBS market become and how fast is it growing?

Approximately $17 billion of data center CMBS has been issued since the start of 2025, more than triple the amount sold during the previous two years. Data centers now represent roughly 8% of new commercial property bond deals. Citigroup forecasts issuance will rise about 50% next year, reaching $18 billion to $20 billion.

02What spreads are data center CMBS bonds pricing at compared to other property types?

Barclays data show AAA data center bonds averaging 1.65 percentage points over their floating-rate benchmark. That compares with 0.93 percentage points for office, 1.05 for retail, and 1.25 for industrial. A recent $356 million bond on a 30-megawatt Illinois facility also priced wider than initial guidance.

03What are the main underwriting risks specific to data center CMBS deals?

Investors are widening their underwriting lens to cover power access, grid capacity, cooling systems, computing density, tenant concentration, and technology-driven obsolescence. Beach Point Capital Management's Ben Hunsaker said tenant identities and lease details may remain confidential, which complicates underwriting. CWCapital's Alex Killick said his firm is developing new stress tests for the sector.

04How is Axonic Capital approaching data center CMBS exposure?

Axonic Capital has responded cautiously and keeps data centers a small portfolio allocation, according to portfolio manager Steven Jury. Axonic also emphasizes diversification across tenants, uses, and geographies. Jury said Axonic questions what these facilities will be worth in five, 10, or 20 years, citing changes in technology, tenant demand, and supply as major uncertainties.

05What does Trepp say about how data center assets should be classified for investment purposes?

Trepp's Stephen Buschbom said data center assets resemble infrastructure and technology plays more than conventional property. Technology can shorten the useful life of the underlying real estate, and new AI chips can require sharply more power and cooling, meaning a facility built around one hardware generation can lose competitiveness within a few years.

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Original reporting

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