- Fernando de Leon, founder of Leon Capital Group, says data center valuations are inflated and lack proven exit strategies — calling them “Swiss cheese” deals.
- Despite a wave of investment from major firms like Blackstone and KKR, de Leon is steering clear, citing fundamental concerns over long-term asset value and lease structures.
- De Leon warns that many investors are deploying capital from pensions and sovereign funds into risky, potentially obsolete infrastructure.
- While bearish on data centers, he remains bullish on commercial real estate overall, driven by increasing capital inflows from institutional and private wealth sources.
Skeptic in the Boom: Why One CRE Billionaire Is Staying Out of Data Centers
According to CNBC, Fernando de Leon has made a career out of spotting risk before it hits. Now, the billionaire founder of Leon Capital Group, with a $10B portfolio built on commercial real estate savvy, says he’s waving a red flag over one of today’s most hyped assets: data centers.
While institutional giants like Blackstone, KKR, and Bain Capital are ramping up their exposure, de Leon is sitting on the sidelines. His concern? The numbers — and the narrative — don’t add up.
“Where’s the Exit?”
De Leon points to a fundamental issue: there haven’t been any major exits above $5B in the data center space, even as valuations for some new projects approach $10B.
“You haven’t seen comps,” he said. “That worries me quite a bit.”
He also questions why the world’s largest tech companies — the same ones driving AI demand — aren’t buying these assets outright.
“If this is the critical infrastructure of the future, why do hyperscalers want someone else to finance and own it?” he asks. “What do they know that we don’t?”
Tech Obsolescence and “Swiss Cheese” Leases
A key concern is the rapid obsolescence of AI infrastructure. De Leon argues that the actual value of a data center lies in its internal tech — not the real estate. With AI evolving at breakneck speed, today’s assets may underperform before long-term leases run their course.
He suspects many of those 15- to 20-year lease agreements are fragile. “Swiss cheese leases,” as he calls them — full of holes once tested by time or tech shifts.
The rush into these deals mirrors broader trends in commercial real estate, where legacy assets are being repositioned or privatized to meet new investor demands and demographic shifts.
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Caution for Capital Managers
De Leon is particularly wary of how data center deals are being funded — often with capital from pension funds, sovereign wealth funds, and family offices.
“These are teachers’ and firefighters’ pensions,” he said. “You can’t play fast and loose with their money chasing hype.”
From Biology to Real Estate
De Leon’s caution comes from decades of experience — and a unique perspective. A Harvard-trained evolutionary biologist, he credits his background in human behavior for helping him navigate complex business dynamics.
“Commercial real estate is about incentives,” he said. “And when incentives misalign — that’s when you get distortions.”
The Bigger Picture
While bearish on the data center space, de Leon is optimistic about the broader future of commercial real estate. He sees major tailwinds from institutional capital flows as allocations to real estate continue to rise.
“If real estate allocations go from 3% to 6%, that’s an additional $4 trillion of capital chasing finite assets,” he said. “That creates opportunity — if you’re disciplined.”
Bottom Line
De Leon’s warning doesn’t dismiss the potential of data centers — but questions whether current valuations and investment structures are sustainable. As capital floods in, his message to investors is clear: don’t ignore the fundamentals, no matter how shiny the asset class looks.
