How digital tenancies drive revenue in your real estate portfolio
A digital tenancy exists when a company pays you – a real estate portfolio investor – rent to install and maintain technology infrastructure on your property. Any related capex is typically covered by the digital tenant, and the tenancy is almost always “set-it-and-forget-it” for a period of 10-20 years – meaning little to no resource drain on your property team.
“Technology infrastructure” is broadly defined as any equipment that supports the transmission, storage, and computation of data. This infrastructure forms the foundation of global connectivity (think mobile phones, online gaming, smart cars, and IoT devices like your next-gen light bulbs and washer/dryers, etc.).
Why do digital tenancies exist in the first place – isn’t technology infrastructure in far-away data centers and massive, remote antennas?
It is, but it’s not enough. There is a rapidly increasing need for technology infrastructure to be in as close of proximity as possible to the end user it serves. That line is called “the Edge,” otherwise known as “the last mile.”
Demand for the processing and storage of data at the Edge – in the form of digital tenancies – continues to increase exponentially every year.
Consider, for a moment, how many more devices you own now vs. five years ago, and how much more processing power they have. None of this exists in a vacuum – the “cloud” merely means that the servers previously located in your office are now located off-premises. These computers are often located a significant distance from the end user, which can result in lower reliability and higher data lag. This distance can also result in more energy use and less security. For certain use cases that require high reliability and quick data transfer, such as teleconferencing, faraway computing can harm the consumer experience.
Thus we have digital tenancies: companies that pay rent to install and maintain physical equipment in the “nooks and crannies” of properties to support their technology businesses. These are “set it and forget it” tenancies, with limited to no property management involvement, with any pre-deployment capex investments almost always covered by the incoming digital tenant.
Digital tenancies enable technology infrastructure companies to service this
demand, and real estate portfolios who get on board now will profit
Within a property, technology infrastructure can include:
- Rooftop antenna towers and similar fixtures like 5G or microwave antennas
- Exterior facade fittings like small cell antennas and sensors
- Building conduit and riser access
- Interior features like cross-connects between network equipment, fiber, colocation racks or cabinets, and termination panels
- Refrigerator-size racks of computing equipment
- Telecom tower solutions and modular data center facilities installed on excess land
Let’s talk numbers:
- Let’s say your current NOI at a given asset is $100k, and if you disposed the asset now at a cap rate of 7%, your asset value would be $1,428,571
- Now, say Raeden brought you two small scale deployments, each with an additional $1,000/month per digital tenancy
- Your NOI increases +$24k/annum at the asset, and with that same cap rate of 7%, your new asset value = $1,771,428
- That’s a 24% increase at disposition, and this is the impact on just one property
Not only are digital tenants a source of NOI for real estate investors, they also enable better connectivity and differentiated technology service options that benefit your traditional tenants and give you a competitive edge in leasing discussions. Digital tenants deliver short-term revenue and long-term defensive portfolio positioning.
Who are the digital tenants?
Digital tenants are the wide variety of companies that deploy digital infrastructure – they run the gambit from multinational telecom, fiber, and cloud computing companies, to hyperscalers, to car manufacturers. They want two things: deployments at the Edge, and ease of doing business.
Historically, this has not been easy due to the fragmentation of the real estate industry and the reality that real estate and technology speak different “languages.” As a result, each deployment has historically required extensive and costly ground work to simply find suitable locations for the deployments. After a suitable site is found, these companies then have the arduous task of negotiating with building owners and property managers who simply do not speak the same language.
What’s Raeden’s relationship with the digital tenants?
The Raeden Marketplace is the only platform that enables users to easily search and compare thousands of deployment-ready locations for any type of technology infrastructure, from wireless towers to edge colocation to cross-connects. We operate using a single platform, and a single Global Master Services Agreement, enabling these firms to easily take out digital tenancies against sales orders – without the tedious and resource-intensive contract reviews and negotiations for each deployment.
On the real estate side, you work directly with the Raeden team, assessing each potential digital tenancy we bring you on a deal-by-deal basis, and retaining the right to final sign-off without jeopardizing your existing service provider contracts.
Ready to get started? Drop us a line at IncreaseNOI@raeden.com.