Leon Capital’s Fernando de Leon Sounds Alarm on Data Centers

As data centers cement their status as commercial real estate’s hottest asset class, billionaire developer Fernando de Leon is urging investors to slow down and take a harder look under the hood.

De Leon, founder of Dallas-based Leon Capital Group, is putting the capital-heavy large-scale data center deals under the microscope, according to CNBC’s Property Play newsletter. The developer pointed to untested deal sizes and misaligned incentives as reasons he’s avoiding the sector altogether, even as the biggest names in private equity push deeper into the space.

“The thing that I can’t quite square is the data center play,” De Leon said. “I look at a data center that’s $10 billion, right? First of all, there haven’t been any exits above, you know, $4 billion or $5 billion, you haven’t seen comps, so that worries me quite a bit.”

He’s also troubled by the stance of the end users driving demand: large technology companies with astronomical market capitalizations that don’t seem interested in owning the data centers.

To De Leon, that reluctance signals uncertainty about how long today’s infrastructure will remain valuable. He argued that artificial intelligence hardware evolves rapidly and that the real worth of a data center lies less in its structure than in the technology inside it.

As a result, the long-term leases backing many deals may prove weaker than advertised. He described the 15- and 20-year agreements underpinning underwriting as “Swiss cheese” leases, vulnerable to erosion over time.

The stakes, he added, extend well beyond private equity balance sheets.

“When they say, ‘I’m going to own this asset and lease it back to one of the hyperscalers,’ they’re putting other people’s money at risk,” De Leon said, pointing to pensions for teachers, police and firefighters as major capital sources.

Leon Capital has grown into a roughly $10 billion real estate platform by leaning into downturns rather than riding peaks. De Leon said he sidestepped major losses during the Great Financial Crisis by selling early and later buying distressed assets from banks and insurers. He took a similar approach in 2021, unloading billions of dollars of property when interest rates were low and investor appetite was running hot.

De Leon remains bullish on real estate capital markets overall, predicting massive inflows from pensions, sovereign wealth funds and family offices. But for now, he sees data centers as a trade where caution, not conviction, may prove the smarter bet.

— Holden Walter-Warner