Billionaire real estate developer waves red flag over data centers

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Fernando de Leon, founder of Leon Capital Group, started a small lot development company in 2004 with $100,000 and turned it into a $10 billion business, focused mainly on commercial real estate. He did that, he says, by predicting distress, watching the source of capital and leaning on his Harvard degree in evolutionary biology. 

While others lost their shirts in the great financial crisis, De Leon began to make his fortune. He left a job at Goldman Sachs to start his own business and was doing some deals in residential lot development. A year in, he said, he saw some of the early indications from subprime mortgages and overbuilding that this was going to be “a difficult cycle change.”

“We basically said, look, we see things here that are fundamentally unsound. We’re going to take these property positions and sell them, and then kind of wait and see what happens,” De Leon told Property Play.

“We divested, we brought back some liquidity, and then we sort of waited, and then in 2008 to 2012 we became fixers. We became people that were able to talk to banks, to life insurance companies, to businesses that had loan exposure, and we were able to solve problems for them,” he said. 

De Leon said he turned around projects that had stalled and become problematic for lenders, experience he now says informed his thinking in the early years of the pandemic. 

“In 2021, we sold a great deal, several billion dollars of real estate because prices were high, and that was a function of low interest rates and euphoria and bad incentives in the market,” he said. “Part of it is understanding where the capital is coming from. You begin to see participants in the market that shouldn’t be there … and when they match up and that funnels through the supply chain, you begin to see distortion and pricing.”

Now, De Leon said, he’s seeing the same red flags flying over data centers. 

“The thing that I can’t quite square is the data center play. 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 said. 

“Then I see large technology companies, the largest companies on the planet, with $4 trillion market cap, saying, ‘I don’t want…