QTS Phoenix DC1 Data Center Feasibility Study & Investment Analysis

Introduction: This case study presents a comprehensive data center feasibility study and investment analysis of the QTS Phoenix DC1 facility at 1200 N 40th St, Phoenix, AZ. QTS Phoenix DC1 is a newly built (2023) 4-Star Industrial Telecom/Data Hosting asset, strategically located in the Sky Harbor/North Airport submarket of Phoenix. We target this report to lenders, developers, and institutional investors, focusing on the data center’s financial performance, capital structure, operating fundamentals, strategic location advantages, power infrastructure resilience, and competitive market positioning. The goal is to provide a financial analysis for data centers that highlights key metrics (NOI, cash flow, DSCR, etc.) and contextualizes the asset’s strengths in the Phoenix market for data center investment decisions.

Financial Performance Overview

QTS Phoenix DC1 is operating at 100% occupancy with robust cash flows. Table 1 summarizes the property’s annual stabilized income and expenses based on the provided CMBS financials:

Financial Metric (Annual)	Value
Base Rent	$44,604,000
Expense Reimbursements	$39,163,424
Effective Gross Income (EGI)	$83,767,424
Operating Expenses	$39,163,427
Net Operating Income (NOI)	$44,603,997
Net Cash Flow (after CapEx)	$44,572,979
Occupancy Rate	100%
DSCR (Debt Service Coverage)	1.25 ×

Table 1: Stabilized Annual Income/Expense Summary (QTS Phoenix DC1)

The stabilized Net Operating Income (NOI) is approximately $44.6 million per year , reflecting an Effective Gross Income around $83.8 million against about $39.16 million in operating expenses  . This yields a strong NOI margin of roughly 53% and an Operating Expense Ratio of ~47% , indicative of high operating efficiency. After a minimal amount of capital expenditures, the net cash flow remains ~$44.57 million annually , virtually equal to NOI (since capital costs are negligible). The asset is fully occupied at 100% occupancy , underscoring stable tenant demand (in fact, QTS operates the facility as an owner-occupier). The underwritten Debt Service Coverage Ratio (DSCR) is 1.25× , meaning the property’s NOI is 1.25 times the annual debt service – a comfortable cushion above typical lender requirements (indicating solid ability to cover mortgage payments).

Importantly, the CMBS data compares a trailing 9-month actual performance to thestabilized underwritten figures. As of the 9 months ending Sep 30, 2024, the facility had generated $40.7M in effective gross revenue and $24.6M NOI. Annualizing and stabilizing these results to the first full year of operations yields the ~$44.6M NOI used above. The 100% occupancy and jump in revenue from the partial period to the full-year underwritten scenario suggest the data center reached full stabilization in late 2024, with all capacity leased/utilized. The financial performance reflects a high-credit tenant profile (QTS and its end-clients) and a triple-net style lease structure, as explained next.

Capital Structure and Financing

The capital structure of QTS Phoenix DC1 is characterized by a large, low-leverage senior loan and substantial sponsor equity. Key loan terms are summarized in Table 2:

Loan & Capital Structure	Details
Origination Loan Balance	$500,000,000
Origination Loan-to-Value (LTV)	60.2%
Implied Property Value	~$830 million (at loan origination)
Origination Date	Nov 1, 2023
Maturity Date	Nov 9, 2025
Interest Rate / Type	6.7% variable
Amortization	Interest-only (no amortization)
Debt Service Coverage (NOI)	~1.25× DSCR
Balloon Maturity	Yes – full balance due at maturity

Table 2: Loan Terms and Capital Structure for QTS Phoenix DC1

The $500 million senior loan (current balance equal to origination) represents about 60% LTV, implying an appraised value around $830 million at loan inception. This moderate leverage suggests the owners (QTS/Blackstone) invested roughly $330+ million equity, aligning with an institutional-quality asset. The loan was originated in November 2023 and carries a 6.7% interest rate (floating). It is interest-only for the full term with no principal amortization, which maximizes cash flow to the equity during the term. The underwritten NOI DSCR of 1.25× indicates that even with interest-only payments, the debt service coverage is just above the typical 1.20–1.25× threshold – a sign that the financing is sized conservatively relative to cash flow .

Notably, the loan has a short tenor, maturing on November 9, 2025. This creates a balloon payment (the entire $500M comes due) and likely necessitates refinancing or take-out by late 2025. The balloon maturity and variable interest introduce some risk if interest rates rise or capital market conditions tighten, but they also present an opportunity for new lenders or investors to refinance a now-stabilized trophy asset. The current “performing” status of the loan and the strong NOI imply that the property is meeting its debt obligations comfortably. Overall, the capital stack – 60% debt / 40% equity – is typical for a stabilized core data center, providing lenders a substantial equity cushion and giving the sponsor future flexibility in recapitalization.

Operating Fundamentals and Expense Structure

The operating fundamentals of QTS Phoenix DC1 reflect a triple-net lease structure or equivalent arrangement where the tenant/operator bears most operating expenses. The property’s income is derived from two primary streams: base rental income and reimbursements for operating expenses. On the expense side, the cost structure is dominated by utilities and is largely passed through. Key points include:

• Rental Income (Base Rent): Approximately $44.6 million per year in base rent is generated by the facility . This can be interpreted as the rent paid by QTS’s operations (or an anchor tenant) for the use of the data center. Given the owner-occupied nature, this effectively represents the internal revenue of the asset’s data center services, structured as rent. MMCG estimates this equates to roughly $12–15 per SF on an industrial basis, though in practice data center rents are power-based and significantly higher effective rates due to the specialized infrastructure.

• Expense Reimbursements: The tenant (or operator) reimburses about $39.16 million annually to cover property operating expenses . This indicates a triple-net (NNN) lease scenario wherein virtually all operating costs – including taxes, insurance, utilities, and maintenance – are passed through to the occupant. In fact, reimbursed expenses almost exactly match the operating expense total (see below), meaning the landlord’s net is largely the base rent amount.

• Effective Gross Income: Combining base rent and reimbursements yields an Effective Gross Income (EGI) of ~$83.8 million per year  for the fully leased property. There is minimal other income (e.g. no significant parking or ancillary revenue). The absence of vacancy loss (100% occupied) means EGI is essentially the maximum potential income for the asset.

• Operating Expense Profile: Total operating expenses are about $39.16 million annually. Utilities are by far the largest component, at roughly $28.6 million (underwritten) . This accounts for ~73% of all operating costs – expected for a power-intensive data center. Property taxes are $4.33 million (about 11% of expenses) , reflecting Phoenix’s industrial tax rates (MBS notes $3.30/SF in taxes). Other expenses include repairs/maintenance ($2.1M), management fees ($1.9M), payroll for on-site staff ($1.05M), and insurance ($0.26M) . Notably, the financials even show a small negative general & administrative expense (possibly due to a one-time credit or accounting adjustment) , and no ground rent or janitorial expenses, etc. The overall expense structure is lean for a 337,000 SF facility – a result of economies of scale and pass-through of variable costs to the tenant.

• Net Operating Income and Management: After expenses, the NOI of $44.6M represents the landlord’s profit from operations . Since QTS Phoenix DC1 is owner-operated, this NOI essentially flows to the owner (QTS/Blackstone) or is used to service debt. A third-party property management fee (~$1.9M) is included as an expense , which might be an asset management fee to QTS itself or a proxy for management overhead. The presence of this fee suggests that even as an owner-occupied asset, the financials are modeled as if a market-rate management fee is paid – a prudent underwriting approach for accurate financial analysis for data centers.

In summary, the operating fundamentals show a highly efficient income model: the tenant covers all operating costs (especially the heavy utility burden) via reimbursements, allowing the property to maintain an NOI margin above 50%. The utility cost burden – while large in absolute terms – does not threaten the owner’s income because it’s contractually passed through. This arrangement is very attractive to lenders and investors, as it minimizes exposure to expense inflation (e.g. rising power costs are borne by the tenant). The occupancy is 100% and the facility is essentially mission-critical for the tenant, implying stickiness of cash flow. Debt service coverage at 1.25× on NOI further confirms that under normal operations, the property comfortably pays its financing and produces surplus cash flow.

Strategic Location Advantages

QTS Phoenix DC1 enjoys significant strategic advantages due to its location and site attributes. The data center is situated in the North Airport (Sky Harbor) submarket of Phoenix, an urban industrial district immediately north of the Phoenix Sky Harbor International Airport. Key location benefits include:

• Proximity to Major Transportation Hubs: The site lies just 2–3 miles north of Phoenix Sky Harbor International Airport, one of the busiest airports in the U.S. This proximity is advantageous for both physical connectivity (ease of access for personnel, equipment deliveries, and maintenance) and network connectivity (major telecom infrastructure often follows airport and highway corridors). The property also has excellent freeway access– it’s near the juncture of Loop 202, State Route 143, and Interstate 10, providing convenient connectivity to downtown Phoenix (≈5 miles away) and the greater metro area.

• Urban Infrastructure & Utilities: Being in an urban location, the site benefits from established infrastructure: high-capacity power supply, robust telecommunications/fiber networks, water and sewer service, and public services. The fiber connectivity in the area is robust – multiple carriers serve the Phoenix market, and QTS’s campus design includes a “redundant campus fiber conduit system” to bring express fiber routes to each building. This ensures low-latency connections for customers and links to major network hubs. Additionally, the central location means a large local labor pool is available for staffing the data center (critical operations technicians, security, etc.), and amenities for employees are close by in the metro area.

• Land Use and Campus Efficiency: The Phoenix 2 campus (where DC1 is located) spans 80 acres with a multi-building master plan. DC1 itself sits on a 12.9-acre parcel with a 337,334 SF single-story building. This translates to a high site coverage ratio (roughly 60% of the land is utilized by the building footprint), which is an efficient use of land in an urban setting. Unlike warehouses that require extensive truck courts or parking, a data center can utilize more of the parcel for the building and critical equipment yards. The campus design allows QTS to optimize land use through phased expansion: DC1 is the first of up to five planned data center buildings on contiguous land. This clustering of facilities yields operational synergies (shared infrastructure, security, and campus utilities) and makes the most of the prime location. From an investor’s perspective, the ability to scale on-site is a strategic advantage – it reduces the cost and time to bring additional capacity online as demand grows.

• Location Risks: The site’s central location is in a stable, industrial zone with compatible uses (indeed, the subdivision is named “Data Center Phase 2” per public records). There are minimal environmental or natural disaster risks in this area – flooding is mitigated by Phoenix’s arid climate and infrastructure, and the site is outside any 100-year floodplain (to be expected near the airport, which requires low flood risk). The flat topography and solid ground are ideal for heavy data center structures. Furthermore, Phoenix has no seismic risk (unlike California) and is free of hurricanes or tornadoes, giving it a significant resiliency edge (discussed more in the market section). In terms of land use efficiency, the campus is already entitled and under development, so there are no zoning hurdles, and the City of Phoenix has been generally supportive of data center projects (as evidenced by easement abandonments and permits granted for QTS’s development).

In short, the strategic location of QTS Phoenix DC1 near the airport and city center provides superior infrastructure, accessibility, and expansion potential. These factors enhance the facility’s attractiveness to high-end tenants (e.g. cloud providers or large enterprises requiring metro-proximate deployments) and to investors looking for well-located mission-critical real estate.

Power Infrastructure and Resilience

A data center’s value is heavily tied to its power infrastructure and resilience. QTS Phoenix DC1 is designed with robust power and backup systems to ensure continuous operations, which is vital for lender/investor confidence in uninterrupted cash flows. The campus is served by the local utility Salt River Project (SRP), with an electrical infrastructure plan supporting 210 MW+ of critical load for the campus. The key elements of power and resiliency include:

• Utility Power Supply: SRP, a major public utility in Arizona, is the energy provider to the campus. The development of QTS Phoenix 2 included coordination with SRP to deliver up to 210 MW across the multi-building campus, indicating likely construction of new substation capacity or dedicated feeders for the site. This high power capacity is sufficient for the planned five data center buildings. The utility feeds are typically diverse and redundant – for example, dual independent substation feeds or looped distribution – so that an outage in one source does not take the facility down. QTS has publicly committed to sourcing 100% renewable power by 2025 for its portfolio, so SRP’s ability to provide green energy (through solar, etc.) adds to the appeal for sustainability-minded tenants. From an investment standpoint, having a major utility partner (SRP) with flexible pricing and reliable delivery is a de-risking factor; indeed, SRP worked closely with QTS to tailor power solutions for this project, recognizing that “data centers bring a very large, very steady load...with 95% load factors, which is fantastic for [utility] base load”.

• UPS Systems (Uninterruptible Power Supply): The facility employs large-scale UPS systems to condition power and provide ride-through in case of any momentary utility loss. These UPS units (battery or flywheel based) ensure that even a brief power glitch doesn’t affect IT equipment. At QTS Phoenix DC1, the power design is at least N+1 redundant, meaning there is one extra UPS module for every required module to support the critical load. In practice, this could mean if the IT load requires, say, 8 UPS modules, one additional module is installed as a spare. The N+1 configuration allows maintenance or a failure of one UPS without impacting operations. The UPS systems are backed by the generators (described next) for longer-term outages.

• Backup Generators: The data center has an extensive backup generator farm, likely using diesel generators with thousands of kW of capacity. The design is N+1 (or better) generator redundancy – i.e., at least one extra generator beyond the number needed at full load. This ensures that if one generator fails or is down for service, others can carry the full critical IT load. Typically, a facility of this size might have multiple 2.5 MW or 3 MW diesel gensets. For a campus capacity of 210 MW, the generators are probably organized by building; DC1’s portion (potentially tens of MW of IT load) would have a corresponding generator plant (e.g., if DC1 had ~40 MW IT load, it might have 10 × 4 MW generators N+1, as an illustrative configuration). The on-site generators are equipped with fuel storage (often able to sustain 24–48 hours of full-load operation), and QTS maintains multiple fuel supply contracts to ensure refueling in case of prolonged outage. In essence, the asset can run off-grid indefinitely if required, with refueling logistics in place – a critical resilience factor for lenders.

• Power Redundancy and Tier Level: Overall, the power architecture supports at least Tier III reliability(99.982% uptime) or higher. The N+1 redundancy on all critical components (utility feeds, UPS, generators, cooling) means the facility can tolerate a failure or maintenance event on any single power path without downtime. Additionally, QTS often implements dual-power path (A/B feed) to each server rack, meaning two separate electrical paths from independent UPS/generator systems supply the IT equipment. This further enhances fault tolerance. While an official Uptime Institute Tier certification isn’t cited, the design is congruent with Tier III standards (and possibly Tier IV in some aspects if multiple utility feeds exist).

• Cooling and Other Resilience: Although power is the focus, it’s worth noting the cooling infrastructure is also redundant (likely CRAH/CRAC units with redundant chillers or evaporative cooling units in N+1 or N+2 configuration). This ensures temperature control is maintained if one cooling component fails. The building itself is a hardened structure with robust physical security (reinforced walls, secured access). QTS employs “multiple layers of protection” including biometric access controls, 24x7 on-site security, CCTV monitoring, and advanced fire suppression – all of which contribute to operational resilience.

In summary, QTS Phoenix DC1’s power and MEP (mechanical/electrical/plumbing) infrastructure is engineered to mission-critical standards. For investors, this means the facility can uphold service level agreements and avoid downtime penalties, thereby protecting revenue streams. The presence of N+1 UPS and generators, redundant utility feeds, and extensive backups provides confidence that the asset’s cash flow is resilient against power outages or equipment failures. The design underscores why this data center is considered a premium 4-Star asset – it marries efficiency with high reliability.

Arizona’s Competitive Advantage in Power Costs and Reliability

When evaluating data center investments, power cost is a decisive factor – it directly affects operating expenses for tenants and overall market attractiveness. Arizona (specifically the Phoenix area) offers a competitive advantage in power costs relative to other major data center hubs like California, Texas, and Northern Virginia. This competitive edge, combined with reliability and a pro-business environment, makes Phoenix a booming data center market.

• Low Electricity Costs: As of 2024–2025, Phoenix’s power rates average around $0.065 to $0.075 per kWh for large users. Even after a recent uptick (rates rose ~17% in the past year), the cost remains roughly 7.5¢/kWh. This is significantly lower than California, where industrial power often exceeds 14¢/kWh due to higher generation costs and regulatory add-ons. Phoenix power is also on par with or slightly cheaper than Northern Virginia, which enjoys ~$0.06–$0.08/kWh electricity from Dominion Energy (though Northern Virginia saw a sharp 34% increase recently in its power costs, narrowing the gap). Compared to Texas (Dallas), Phoenix is competitive as well – Dallas power rates are about 5–6.5¢/kWh in the ERCOT market, but Texas’s deregulated market can be volatile. Arizona’s rates, provided by utilities like SRP and APS, are stable and predictable under regulated tariffs, which many large tenants prefer for budgeting certainty.

• Energy Supply and Sustainability: Arizona benefits from a diverse energy mix (including nuclear power from Palo Verde, natural gas, and a growing solar portfolio) and utilities that are receptive to large customers’ needs. For instance, SRP has shown flexibility in offering economic rate plans and renewable energy options to data center operators. This allows companies like QTS to meet sustainability targets (e.g. 100% renewable) without sacrificing cost competitiveness. In the sustainability report for QTS, the company highlights working with utilities to source renewables and efficient equipment incentives. By contrast, California’s push for renewable energy has come with higher costs and sometimes strained grid reliability, and parts of Virginia are starting to face power delivery constraints due to the massive concentration of data centers. Phoenix’s ability to “keep the economic advantage of power” while delivering sustainable solutions (as noted by industry executives) positions it favorably.

• Reliability – Minimal Natural Disasters: Arizona’s power grid is geographically insulated from many natural disasters. Phoenix has no hurricanes, virtually no earthquakes, and very infrequent major weather events. The climate is hot but dry – which can stress cooling systems on peak days, but does not threaten grid infrastructure the way hurricanes (e.g. in coastal Texas or Southeast) or winter storms (as seen in Texas 2021) do. The stable geology means the risk of earthquakes (a serious concern in California) is negligible. EdgeCore’s SVP noted: “Phoenix is a key data center market because of its proximity to Southern California, economic cost of power, minimal natural disasters and other reasons.”. This combination of low cost and low risk is compelling. Northern Virginia, while low on natural disasters, did experience some power transmission constraints and even emergency curtailments in recent years due to the sheer load growth – something Phoenix has managed to avoid so far by proactively expanding infrastructure. In short, Arizona’s grid reliability and risk profile provide a competitive advantage over California’s strained grid and Texas’s weather-exposed grid.

• Tax and Regulatory Climate: Although not explicitly about power cost, it’s worth noting Arizona offers tax incentives that further improve the economics. Arizona has programs that exempt sales tax on data center equipment for qualifying projects, reducing the upfront cost for operators and indirectly benefiting tenants and investors. Texas and Virginia also have similar incentives (Virginia has a 6% equipment sales tax exemption, Texas often negotiates abatements), but California is generally higher-taxed. Moreover, Arizona’s regulatory environment is considered business-friendly with streamlined permitting for data centers, meaning lower soft costs and faster time to market.

In conclusion, power cost and reliability are a major reason Phoenix has emerged as a top data center investment destination. Phoenix offers near West Coast proximity with power costs roughly half of California’s, and conditions that rival or beat traditional markets like Dallas and Northern Virginia on a total cost and risk-adjusted basis. For QTS Phoenix DC1, this means operating in a region where its single biggest expense (electricity) is as low as anywhere in the country, and where the risk of prolonged outages or disruptions is minimal. These factors enhance the asset’s long-term value proposition to tenants (lower operating cost) and investors (lower risk of expense spikes or downtime).

Asset Class & Submarket Positioning

QTS Phoenix DC1 is classified as a “4-Star” Industrial property (Telecom Hotel/Data Hosting), denoting a Class A, high-quality facility within its asset class. This top-tier classification is evidenced by its modern construction (built 2023), mission-critical infrastructure, and strong tenancy. The asset is not a generic warehouse; it is a purpose-built data center with specialized improvements, placing it in a niche with high entry barriers but growing demand. Its positioning in the Phoenix data center market and local submarket further strengthens its investment profile:

• Growing Data Center Market (#2 in U.S.): Phoenix has rapidly become one of the largest and fastest-growing data center hubs. By 2025, Greater Phoenix hosts 100+ data centers with ~1,380 MW of multi-tenant commissioned power, making it the second-largest U.S. data center market behind Northern Virginia. The market has seen tremendous absorption from cloud and hyperscale operators. JLL reports Phoenix had 740 MW of data center inventory at YE2023 with only ~24.5 MW vacant (a mere ~3% vacancy by power) – effectively “sold out” of ready capacity. Furthermore, 703 MW under construction and another 634 MW planned show a robust pipeline, yet much of that is pre-leased due to demand. This context means QTS Phoenix DC1 entered a seller’s market for capacity – its quick lease-up to 100% reflects that environment. For investors, Phoenix’s ascent as a data center hub ensures a deep demand pool and liquidity for assets; in fact, Phoenix data center rents have been climbing (rates jumped 17–30% in 2H 2023 for large requirements) amid tight supply.

• North Airport/Sky Harbor Submarket: Locally, QTS DC1 sits in the Sky Harbor submarket, which historically was an infill industrial area. Now, it’s proving to be fertile ground for data centers due to proximity to city fiber routes and power. The submarket’s industrial vacancy is around 6.6%, well below the Phoenix market’s 12.7% overall industrial vacancy. This indicates strong demand for space in this area. And specifically for data center use, vacancy is effectively 0% – QTS DC1 itself is 100% occupied, and any new data center space is absorbed quickly. The submarket is benefiting from Phoenix’s growth as companies seek alternatives to the congested Ashburn (VA) and Santa Clara (CA) markets. Being in an urban submarket also means land is relatively scarce; QTS’s 80-acre campus is a rare large landholding here, giving it a near-monopoly for large-scale data center in the immediate vicinity. The submarket’s rent for industrial space averages ~$16.54/SF (3-5 Star), which is on the higher end for Phoenix industrial – a sign of the area’s desirability. For a data center like QTS DC1, the effective rents (when accounting for power) are much higher, but the fact it’s situated in a high-rent, low-vacancy pocket underscores the premium nature of the location.

• Asset Positioning and Tenancy: As a 4-Star data hosting facility, QTS Phoenix DC1 is positioned as a hyperscale and enterprise-grade data center. QTS (backed by Blackstone) typically serves Fortune 1000 enterprise clients and hyperscale cloud firms in its centers. Although details of the tenants are confidential, the 337,000 SF DC1 likely houses one or a few very large anchor customers (such as cloud service providers) in addition to QTS’s colocation clients. The single-tenancy designation in CMBS suggests one primary occupant (which could be QTS itself leasing to its operating subsidiary or a single hyperscale tenant). Either scenario bodes well: if QTS is the master tenant, they carry investment-grade credit (effectively Blackstone-backed); if a hyperscaler (e.g. a cloud giant) is the tenant, the credit and long-term lease are attractive to lenders. The owner-occupied status also implies the property is effectively built-to-suit for its use, with bespoke features for QTS’s platform – a positive for operational fit, though it means the asset’s cash flow is tied to QTS’s performance.

• Submarket Growth Prospects: The Sky Harbor area is poised for further growth in tech and data-centric developments. It’s close to downtown and Arizona State University, potentially attractive for edge computing sites and R&D facilities. The Phoenix metro’s aggressive economic development (such as attracting semiconductor fabs and large tech offices) will generate additional demand for data center services. With Phoenix’s population and businesses expanding (~8-9% projected growth in nearby population and households in 2024-2029), the need for local data processing and cloud connectivity will grow, benefiting facilities like QTS DC1. Moreover, QTS’s own campus expansion (with DC2, DC3, etc., on the way) means future capacity will be available on-site, allowing existing tenants to expand seamlessly and new tenants to come online without relocating – a competitive advantage over single-building competitors.

In summary, QTS Phoenix DC1 is a flagship data center asset in a thriving market. It combines the physical qualities of a 4-Star, purpose-built facility with a location in a low-vacancy, high-demand submarket. The Phoenix market dynamics – strong absorption, rent growth, and limited immediate supply – position the asset for rental rate appreciation and high occupancy for the foreseeable future. Its status as part of a larger campus further enhances its strategic value (campus-scale ecosystems tend to attract more customers). For investors and lenders, the asset class and market positioning translate to lower leasing risk, strong tenant credit, and excellent prospects for income growth, all within a sector (data centers) that is increasingly viewed as a core real estate investment due to the digital economy’s expansion.

Conclusion

In conclusion, the QTS Phoenix DC1 data center represents a highly feasible and attractive data center investmentopportunity, blending strong financial fundamentals with strategic advantages:

• Financially, the asset generates nearly $45 million in NOI with a high NOI margin and full occupancy, supporting a solid 1.25× DSCR. The debt structure is moderate (60% LTV) with an upcoming refinance opportunity, indicating both stability and potential upside for new financing.

• Operationally, its triple-net lease structure and pass-through of expenses protect the owner’s cash flows from volatility in costs (notably energy). The facility’s operating performance – high rent, reimbursed expenses, and efficient management – is exemplary for a data center feasibility study model.

• Strategically, the location near Sky Harbor Airport and downtown Phoenix offers superb connectivity and infrastructure access, while the 80-acre campus allows scalable growth. The design’s power and resilience features (N+1 redundancy, robust UPS/generators) ensure mission-critical reliability, a non-negotiable for this asset class.

• Market-wise, Arizona’s low-cost, reliable power (approx. 6.5–7.5¢/kWh) and minimal disaster risk give it an edge over markets like California, Texas, and even Northern Virginia. Phoenix’s data center sector is second only to Loudoun County, VA, and is growing fast, meaning liquidity and demand for assets like QTS DC1 should remain high. The local submarket’s low vacancy and high absorption underscore the strength of this particular location.

For lenders, developers, and institutional investors, QTS Phoenix DC1 stands as a case study in what a successful data center investment entails: strong financial metrics, secure capital structure, operational excellence, strategic location, and favorable market conditions. As the industry continues to expand, this asset is well-positioned to deliver stable income and long-term value appreciation. The forthcoming refinancing in 2025 will be a key moment, but given the performance and market trends, the property is likely to attract competitive interest from debt providers and possibly even serve as collateral for a future data center-focused CMBS or institutional portfolio. In sum, QTS Phoenix DC1 is a prime example of a modern data center with a feasible, bankable investment profile, combining the best of real estate and infrastructure characteristics in the digital age.

June 8, 2025, a collective of authors at MMCG Invest, LLC, a feasibility study consultant

Sources:

• CMBS data

• QTS Data Centers – Phoenix 2 Campus Overview (Campus size, power capacity, expansion phases)

• Inflect Data Center Marketplace – QTS Phoenix 2 Description (Infrastructure redundancy: N+1 power, security)

• AZ Big Media / JLL – Phoenix Data Center Market Ranking (Market size, power cost comparison, vacancy rates)

• Site Selection Magazine – SRP & Phoenix Data Centers (Utility partnership, 210MW project, sustainability, low natural disaster risk)

• Brightlio Data Center Report 2025 – (Power cost in AZ vs VA vs TX, incentives)

• Newmark Phoenix Industrial Report 1Q23 – (Construction of QTS DC1, Sky Harbor submarket context)