HMC Capital values Prologis suburban data center conversion at $712M

In one of the biggest commercial sales of the year in the Chicago area, Australian firm HMC Capital bought a warehouse in Elk Grove Village from Prologis for $440 million, with another $272 million on the line for the seller’s work to convert it into a data center.

HMC’s total commitment is $712 million. Once Prologis’ redevelopment of the site into a data center is complete, it will provide two more payments of over $100 million each, a prospectus from HMC shows.

Prologis is in the process of converting the 189,000 square-foot warehouse at 800 Devon Avenue into a data center along with partner Skybox Data Centers. The partners agreed to complete the redevelopment before HMC Capital steps in to run it. When completed, it will cover 176,000 square feet.

The project’s massive valuation is another example of the increasing demand for data centers as cloud computing and artificial intelligence needs rise across the globe. Companies including Google, Amazon and Microsoft have all begun projects to expand their data center infrastructure. And Facebook parent Meta last year began operating a data center slated for a $1 billion total investment west of Chicago in Dekalb.

Major real estate firms such as Blackstone, Brookfield and KKR have all followed the trend, making significant investments in the sectors.

Both HMC and Prologis are making big bets on the growing asset class. HMC in November launched the DigiCo REIT, an investment fund focused on data centers that was initially valued at $1.8 billion.

Records show a subsidiary of Prologis bought the Devon Avenue property in 2008 for $25 million. Elk Grove Village is emerging as a data center hub for the region with several similar projects in the works, including the ongoing development of a 1 million square-foot data center led by Texas-based Aligned Data Centers.

Chicago is, “a tier-one market and underpinned by long-term contracted cash flows,” HMC Capital CEO and Managing Director David Di Pilla said in a news release.

Prologis plans to spend between $7 billion and $8 billion in the next five years launching its data center business. It plans to develop 20 data centers, according to the release.

Editor’s note: This story has been updated to include additional details of the sale’s structure.