Public protests in communities ranging from rural, deep-red Texas towns to blue cities like Detroit and Nashville, Tennessee. Moratoriums on large data centers passed by New York and advanced by several other states. Anti-data center candidates beating pro-data center candidates in primary elections.
The groundswell of opposition to unchecked data center development has made it more challenging to finance projects, with many lenders unwilling to put up cash until they have greater assurances developers can overcome any potential community obstacles.
Fueled by concerns over higher electricity bills, environmental impacts or the rise of artificial intelligence in general, scores of state and local governments in a matter of months have enacted data center restrictions ranging from increased oversight and community input on projects to outright bans.
Attorneys who work on data center development told Law360 that as a result, local approvals and permitting have zoomed to the top of the project risk list, especially in the eyes of potential investors.
"Community opposition at this point, it's no longer just a political or public relations issue," said Ammad Waheed, who leads the Houston real estate practice at Norton Rose Fulbright and works extensively on data center development. "It's really become a project delivery risk, and therefore it's a credit risk."
A couple of years ago, attorneys said, a lender's primary concerns would be whether a proposed data center has sufficient control of its project site and can secure enough power. Now, a big question is how politically durable these arrangements are over the life of the project's financing.
"Developers, investors and hyperscalers are all asking me what happens if the regulatory environment changes after the land, power or offtake agreements have been signed," said Duane Morris LLP partner Robert Montejo, who focuses on data center development.
That very situation is now playing out in Texas, a hub of U.S. data center development. [...]
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