Investor caution toward debt raised for AI investment is spreading into smaller corners of credit markets, including commercial mortgage-backed securities linked to data centers.
Pricing pressure emerges in recent CMBS deals
According to people familiar with the matter, two of the last three CMBS transactions used to finance data centers had to widen from initial price discussions to attract enough demand. Those deals included issuances tied to KKR-backed CyrusOne and Blackstone-backed QTS Realty Trust.
Risk premiums on data center-linked CMBS have also moved higher across the board over the past 12 months, pointing to tougher pricing conditions for issuers and a higher compensation threshold for investors.
Pure DC drops bond plan and turns to banks
In mid-July, Oaktree Capital-backed UK data center operator Pure Data Centres, known as Pure DC, abandoned its planned record €1 billion bond sale and opted for bank financing instead.
The company had been marketing the unsecured bond at a time when demand for AI-related data center debt was already showing signs of indigestion. At the same time, CoreWeave’s stock and bond prices fell sharply after news that Meta was building its own cloud infrastructure, making investors more cautious about deal terms. Pure DC ultimately decided that the bank loan being pursued in parallel offered better conditions, and canceled the bond sale.
Investors reprice AI data center risk
The pushback has been described in the market as a “Luddite trade.” Investors are beginning to view AI data centers as a risk asset closer to traditional office buildings and retail properties, with concerns centered on overbuilding, tenant concentration and the possibility that technological obsolescence could weigh on asset values.
That marks a shift from the earlier appetite for AI-themed debt. Investors are now tightening pricing standards for mortgages tied to data centers and asking for more risk compensation. Tech companies are still spending heavily on AI, but the signal from debt markets has turned more cautious.