Private equity firm Novacap is taking a contrarian approach to data center investment, targeting power-constrained markets through its newly formed joint venture with Colorado-based H5 Data Centers.

While many developers prioritize areas with abundant power supply, Novacap sees an opportunity in regions where demand exceeds available electricity, allowing it to charge premium prices for its facilities.

“We’re looking at markets where there is more demand for power than there is supply, and where that delta is likely to increase over the next couple of years,” Ted Mocarski, senior partner and head of digital infrastructure at Novacap, said in an interview with NPM.

Novacap and H5 are not acquiring new land blindly; instead, they are taking a flexible approach to market entry. This includes building new data centers, acquiring existing facilities, or leveraging sale-leaseback agreements with enterprises that have unused power capacity.

While standard pricing for data center capacity hovers around USD 150 per kilowatt, Mocarski said the firm expects to price above that benchmark in high-demand locations.

“ I can price above the average in those markets, because the pricing is done on a very geographic-specific basis,” he said.

The investment in H5 is being made through Novacap’s recently closed USD 1bn digital infrastructure fund, its first dedicated vehicle for the sector. In addition to Novacap and H5, the joint venture includes undisclosed co-investors, who are limited partners in Novacap’s fund. “We have some co-investors who have partnered with us in this deal,” Mocarski said.

Mocarski declined to comment on how much Novacap invested in the H5 JV, but said the new fund will make investments between USD 50m USD 150m—with a sweet spot of USD 75m to USD 100m. It has already backed companies in fiber networks, wireless towers, and public safety communications infrastructure.

H5 will provide management services for the facilities in the JV with Novacap. Meanwhile, Novacap’s capital markets team will explore financing options, including project financing, for future expansions, Mocarski said.

The company has 27 data centers across 22 markets in the US, encompassing over 4 million square feet, according to its website.

It recently acquired Yahoo’s 43-acre, eight-building data center campus in the Town of Lockport Industrial Park, New York for USD 49m. The deal is a sale-leaseback agreement, according to a news report, allowing Yahoo to continue operations at the facility for at least five years, with renewal options.

*This story was originally published exclusively for NPM US subscribers.

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