Voters’ stunning rejection of Republican leadership in Tuesday’s election also served as a rebuke of the policies that have allowed for the unfettered development of artificial intelligence infrastructure.
Democratic candidates in the country’s biggest data center markets, including Texas Gov.-elect Gina Hinojosa, incumbent Georgia Sen. Jon Osoff and Sen.-elect Sherrod Brown of Ohio, made accountability around data center development a pillar in their campaigns. The newly minted leaders echoed community demands for more transparency, fewer tax breaks and stricter regulations around water and energy use for the projects.
The backlash against data center development extends beyond party lines — and nowhere are the stakes higher than in Texas, which edged Virginia out of its spot as the nation’s top data center market earlier this year. While both states have about nine gigawatts of existing inventory, Texas’ pipeline of under-construction capacity is triple that of Virginia.
But the resistance to data center development — whether driven by NIMBYism or demands for greater transparency and accountability — is becoming a nationwide phenomenon rather than a Texas-specific issue developers can escape by hopping the border into Louisiana or Oklahoma.
As developers and investors wait with bated breath to see whether newly elected officials will make good on promises to ban or restrict data center construction, they’re already considering their options — and identifying silver linings.
“This is a major change in the landscape that could have dramatic effects on the ability to develop new data centers or expand existing data centers,” said Jeffrey Moerdler, a commercial real estate lawyer at Haynes Boone focused on data center development.
The Lone Star State is home to over 300 operating data centers with nearly 290 more in the pipeline, according to an investigation by the Texas Tribune. It’s also home to headquarters for three of the top data center developers: Plano-based Aligned Data Centers, Dallas-based CyrusOne and Austin-based Digital Realty.
At a conference two days after the election, Moerdler adjusted a slide on data center receptivity in different states, moving Texas from “favorable” to “in flux.”
“Not negative — ‘in flux,'” he said. “We really don’t know today what the impact of this is going to be.”
Looming crackdown
On the campaign trail, Hinojosa made banning data center development a central part of her pitch to Texans, capitalizing upon widespread protests against what some community groups see as a lack of transparency and local control over where and how the projects are built.
In the days following her shocking defeat of Republican Gov. Greg Abbott to become the first Democratic governor of Texas since the 1990s, data center developers and investors are scrambling to understand what the new administration will mean for the hundreds of data centers in the development pipeline.
An immediate ban on data centers could lead some companies — especially hyperscalers racing to build more computing capacity as fast as possible amid an AI arms race — to shift early-stage projects to a state where they wouldn’t have to wait out a moratorium, sources said.
While Hinojosa’s campaign messaging painted her approach to data centers in stark contrast to Abbott’s, the governor reversed his own pro-data center position over the summer in response to community outrage, pausing permitting, ordering an audit of data center water and electricity use and pledging to support a stricter set of regulations for the industry — a rare move for a governor known for his pro-business, small-government ideology.
The vast energy and water demands of many data center projects, coupled with the industry’s rush to keep up with the AI boom, have fueled community resistance across the country. In response, political leaders on both sides of the aisle are pushing for stronger regulations to ensure the expansion doesn’t lead to spiking energy prices or water shortages.
“Even prior to the election, there were both Republicans and Democrats across the country, certainly in Pennsylvania, that were looking for ways, some through legislation, to provide some form of guardrails for the communities and for the local municipalities,” said Igal Feibush, founder and CEO of Pennsylvania Data Center Partners.
“You’re not going to get away from the community, regardless of where you are,” said Suhail Tayyeb, clinical assistant professor at NYU’s Schack Institute of Real Estate. “You can’t run and hide.”
Even with a stricter regulatory framework for data center development, many of Texas’ advantages still remain. There’s still lots of land, water and energy.
If developers have the ability to wait out the expected ban, a more well-established regulatory process could even benefit the industry in the long run, Tayyeb said, bringing more predictability and community buy-in.
Silver lining
Developers who aren’t building data centers could see an unexpected silver lining from a potential future slowdown in data center development: relief from soaring construction costs.
The development frenzy in Texas has inflated the cost of labor, and, as Crow Holdings’ Michael Hyun put it: “You’re competing with many of the same contractors to develop your site and guess who can pay more?”
The answer is tech giants like Amazon and developer Aligned Data Centers, which was acquired by BlackRock’s Global Infrastructure Partners, tech investment firm MGX and AI Infrastructure Partnership, whose members include Microsoft and Nvidia.
Hyuh’s comment was made during a real estate panel at Dallas’ Bloomberg Invest conference the week before the election. While he pointed to this possible benefit of increased regulation, he clearly wasn’t angling for politicians to take this route, calling a strict data center crackdown “economic suicide” for the state.
A spokesperson for Digital Realty said in a statement to The Real Deal that the company is looking forward to working with Hinojosa’s administration, pledging community engagement and transparency.
The Data Center Coalition, an industry group representing data center companies including Amazon, CyrusOne, Digital Realty and Google, shared its own statement of goodwill toward the governor-elect.
“The data center industry is committed to advancing America’s digital infrastructure, including here in the Lone Star State, as well as supporting energy reliability and affordability and promoting long-term, responsible economic development,” said Jess Heck, Texas director of government affairs for the group. “DCC looks forward to working with state leadership along with local officials, stakeholders, and Texas communities to continue building trust and supporting responsible data center growth.”
Elizabeth Cryan contributed to this report.
Read more
This article originally appeared on The Real Deal. Click here to read the full story.
