Arkansas teachers are buying into Digital Realty's AI data centers at a 9% to 11% target return
A pension board paper has surfaced the terms of Digital Realty's next hyperscale fund: about $3 billion sought at a 9 to 11 percent target net IRR. The same week, a manager who rode the stock from US$140 to US$178 explained selling it over exactly that risk.
Vincent Jiang · 2 min read
A board paper put a price on hyperscale
Arkansas teachers' $26.3 billion pension has approved $100 million for the Digital Realty Flagship Fund Americas, an open-ended fund buying North American hyperscale data centers, and the terms sit in a board paper prepared by Aon 71. The fund seeks about $3 billion in cornerstone commitments and targets a 9 to 11 percent net IRR, a 4 to 6 percent dividend yield, 40 to 50 percent loan-to-value, average deals of at least $550 million, and at least 10 percent of the equity from Digital Realty itself 1. ATRS also committed $75 million to Long Wharf Real Estate Partners VIII, a mid-market US value-add fund targeting 12 to 14 percent 1.
Hyperscale core-plus targets 9 to 11 percent net, three points under plain value-add
- Target low
- Target high
Data
| Target low | Target high | Change | |
|---|---|---|---|
| DLR Flagship Fund Americas (core-plus) | 9% | 11% | +22.2% |
| Long Wharf VIII (value-add) | 12% | 14% | +16.7% |
The fee machine behind the terms
This is the second hyperscale vehicle from the largest global data center owner and operator 2. The first closed at $3.25 billion in March, with Digital Realty keeping a 20 percent stake and the manager's seat 3. June added a roughly $485 million, mostly-stock deal for investment firm Columbia Capital to accelerate the private capital platform 4. The pull showed on the Q2 2026 call: core FFO of $2.13 a share, up 14 percent, a record $1.9 billion backlog and more than $20 billion of projects under development, 63 percent pre-leased 5. Private capital, the CFO said, funds capacity "while generating fee income" 5. Pensions supply the balance sheet; the listed owner keeps the fees.
The professional who sold the landlord
Jeff Olin's Vision Capital, overseeing about $700 million, bought DLR at an average US$140 in May 2024 and sold in September; the stock closed at US$178.55 on October 2 2. His stated reason is the fund's own product: expected regulatory headwinds on power and AI's national-security risks fall disproportionately on hyperscalers, so he rotated into colocation names such as Equinix and Digital Core REIT, with "more resilient growth profiles if AI adoption slows" 2. The headwinds already vote: Loudoun County, flush with data center tax dollars, paused new applications for 12 months by a 7 to 1 vote, one of hundreds of US moratoriums, with the formal resolution due October 20 86. Digital Realty itself flagged "increasing public scrutiny and regulatory challenges" on that call 5.
Cornerstones, a first close, and the next seller
Digital Realty declined to comment on the new fund 1. Three markers decide this trade: cornerstone commitments against the $3 billion target, Long Wharf's first close in the second half of 2026 1, and whether more managers follow Olin out of the stock even as pension money follows ATRS in.
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
