Property Play: Building data centers on the moon

Diana Olick: Data centers. Home to AI, the cloud and everything we do online. They’re the hottest sector in real estate, but they burn hot too, cooling and running these behemoths sucks up more energy than some local grids can handle. So here’s the play, build and run them in space. To learn more, I talked to David Steinbach global CIO of Hines, a real estate finance and development firm, and Ross Centers, CEO of Ethos, a lunar builder. When you say space, I mean, are we talking 20, 30, 40 years from now? David Steinbach: It is. It’s happening here. It’s happening now. Certainly, we’re sitting on the Space Coast here in Florida, and this is one of the prime markets, really, in the country. That’s happened. A lot of history here, a lot of investment here has been happening since the 1960s and what’s happening now is a real unlocking of this industry. Private capital is coming in force. New companies are starting up every day to serve this industry, and they’re serving all parts of it, and they’re doing it both from a public and private perspective. Diana Olick: Well, what does that mean? Okay, we’re sitting in one of your warehouses. What am I looking at? What am I going to see a year from now? What’s the warehouse play exactly? David Steinbach: So you know, specifically, we’re in beyond gravity space here on the Space Coast. They actually leased this. We’re in the expansion space for them, so they are planning to grow significantly. But specifically they’re doing satellite satellites here. But you can go up and down the coast to see companies that are really supplying all the firms that are helping to do launches every day that’s happening. Diana Olick: But when you talk about building on the moon, so you need all the equipment, you need, I don’t know, the stuff, the space dust, the construction materials, the robotics. So it comes here, it goes up there, and that’s the play around this? David Steinbach: Right. So a real just the last few years, a real revolution has happened in this, in the industry, I’ll say industry, and it is fascinating to watch that unlock. And as things start to get unlocked, companies are looking for how they can monetize space more broadly, and there’s a lot of pieces to that. So some parts of that is the moon, and specifically, there’s going to be a lot of things happening on the moon that we never dreamed possible, such as manufacturing, such as having be a base for further exploration into space. You could see data centers being produced on the moon. Diana Olick: Why do I want to produce a data center on the moon? David Steinbach: Yeah, well, it really, it really is interesting to think about. Because, you know, we, we often think about our world and what we the here and now. And I know here on Earth, you know, we are. Heinz is also participating in the data center race. And the scarce resource is power, the carbon footprint of data centers is something that a lot of people talk about, but we also see the need, the huge wave of need for data centers. And it is interesting to think about how these disruptors are going to come from outside, and I think space is going to be one of those. And it’ll be interesting to see how how technology and how things start to adapt to the constraints here on Earth. And you could see a world that in space, you know, you think about the constraints there, there’s there’s unlimited power in space because the sun, there’s unlimited cooling with with the vacuum of space, and there’s unlimited real estate in terms of kind of where you could put these things, and so those types of things with the constraints here on Earth, you could see being unlocked with what space can do and provide clean energy in a decarbonized way to produce what we need here on Earth. Diana Olick: So just to be clear, you build these data centers on the Moon using robotics, and then you launch them into space, or deep space or whatever, or you keep them on the moon. How does the data get back? I mean, you just beam it back. David Steinbach: Well, when you think about the product, it’s digital and can be beamed back to Earth. So what better product to be trying to produce outside of orbit? Diana Olick: So instead of building these hugely energy sucking data centers all over America or all over the world, and using so much energy and having to cool them and all this. You put them in space, you get rid of all those problems. What are though–you know, when you talk to investors, which is a lot of what you do, do? They actually believe you? David Steinbach: Well it is interesting. I think, I think beyond just data centers, I think there are other other manufacturing elements that are really taking this seriously and thinking about the future and and how to produce things, you know, both economically efficient but also environmentally efficient. And so I think there’s, there’s going to be a lot of a lot of manufacturing, other things that will ultimately be in orbit. The future of industrial might be a. A war in orbit as well. And so what, in the same way I mean, I mean things that can be produced and stored outside of our atmosphere and shipped back to Earth. I think again, there’s a lot of innovation that needs to happen until we can get there. But when you think about making infrastructure investments, you think about real estate, it is such a long game to be played, and certainly the investments historically that we’ve made. You know, we have a 10 year, 1015, 20 year time horizon in these things, and so you have to be thinking about these future disruptors that could be coming, how they might be interplaying with the current world that we’re living in, and how to invest alongside that. Diana Olick: And it’s not just warehouses, though, right? What are some of the other infrastructure you’re looking at building? And it’s not just here on the Space Coast in Florida. Give us the entire landscape of the types and the geographic locations. I imagine it’s global. David Steinbach: Yeah, it is. It is interesting to think about, again, these new waves of demand. And, you know, certainly I like to think almost about the past. Just think about history. And other times we’ve had these major unlocking moments, which I think is what we’re happy having right now. And look in the railroads in 1800s I mean, that is a perfect analogy, maybe, to what’s happening now that took a public, private partnership that was charting courses deep into the country in places that people, probably at the time thought were a little crazy even. But as those rails got laid, you had entire new towns, entire new ecosystems got created along the way to help service the rail industry, right? And the rail industry was such an important infrastructure investment in the United States at the time that allowed a lot of economic development to ensue after that. I see a lot of similarities right now, actually, to what’s happening in space. We are in the early days of something that will be some major investments, and we’re creating these new rails, if you will, of the future. Diana Olick: But as an investment officer, of course, you’re constantly looking at the competition. What is the competition, both here in the US and, of course, globally, because China is in this space race, super heavy. David Steinbach: Absolutely, absolutely. And this is a global story to be told, which makes it interesting. And I think that, you know, I think investors are, in my mind, they’re not talking enough about how much needs to get built right now. And I think the broader economic environment that we’re in, we are looking at a moment of probably a bit more stagflation, higher rates, slower growth, more broadly. And development globally right now does not pencil. And so a lot of developers such as ourselves are just unable to make the math work, and that makes investors focus much more buying rather than building. Diana Olick: And you believe that the capital is sitting on the sidelines and that they’re willing to make a play in space? David Steinbach: I think that, I think that capital is looking for great opportunities. They’re looking for great returns and and this is one of them. Diana Olick: But when you look at the warehouse sector, specifically, the vacancy rate is actually ticking up, which is not great for investors at this point, I think we’re at 7% on the vacancy rate, which is pretty high you’re making the play in now. Is there any concern that these warehouses aren’t going to pay off, that they’re not going to be competitive enough? David Steinbach: Industrial broadly is definitely seeing some headwinds here in the United States, and certainly some sub markets are feeling that more than others, particularly the big box, a lot of the big distribution. What we’re seeing, though, is, if you sort through the signal and noise of that, there are sub markets that are very under supplied, and this is, this is one of them where vacancy rates are much lower, and we see a real path to rental growth. And so you beyond the headlines of the overall numbers, you have to get very specific and very local for what makes sense. Diana Olick: You are definitely passionate about this. What drives you? David Steinbach: Personally it is interesting to think about, you know, the new waves of change, and that, to me, is particularly interesting because I think, I think most investors Miss, miss that. I think investors fall prey to recency bias very easily, fall prey to what worked last time. And what really excites me is are things that are are experimental. They’re things that are trying new things and and I think that that that that that just that ingenuity, that creativity, people that are willing to kind of go against the grain for something that is a big idea is exciting. Every innovation, it happens within the context of the built environment, and being able to create those spaces that enable that and bring those people together, that’s exciting. Diana Olick: And you talk about yourself as being the developer and the financer, but of course, you need the builder, and that’s why I’m actually thrilled to say that we have a builder here. What a shock. Just by happenstance, the CEO of ethos, which is a California based space construction company, Ross centers. Thanks so much for joining us here. Come on in. Join the conversation. Ross Centers: Diana, thanks for having me. Diana Olick: Sure. Tell me first, what does ethos do? Ross Centers: Ethos takes the geological resources on the moon and it turns them into buildable products. So the moon is really just fractured rock, but it’s an eighth continent, right? It’s a whole new world waiting to be developed. And we develop it. We turn it into landing pads, roads, foundations for data centers and other great things. And how do you do that? The way we do it is we start right here. Diana Olick: Okay, he just happens to have his materials with him, right? Of course. Ross Centers: So this is what the moon is made of. It’s it’s a powdered rock called anorthosite, and in it, it’s shattered all the way down. It’s not bedrock, and it’s rich in oxygen, silicon and aluminum. So the first thing we do is we make a structural building material out of it. So this is useless to build on. You can’t do much with this. Diana Olick: But that’s not that’s kind of the beginning of concrete, okay? Ross Centers: And this is our version of concrete. So we take this rock and we turn it into a synthetic igneous rock. This is twice as strong as concrete, and we can use this to pave the moon. We can use this to make pre cast structures. We can use this also to further fractionate it down into the raw materials for solar panels and for conductors and everything else. You know you need to build data centers and other industrial facilities. All out of this. All out of this, okay, yeah, oh god, it’s heavy. It is heavy. Diana Olick: I was thinking candle, but it’s a lot heavier. All right, so you take this, you build a landing pad on the moon, that’s right, you use robotics to do this, because you’re not going to have a whole staff of people up there, right? Ross Centers: Really. Robotics. Yeah. Robotics are getting very advanced, and they have a strong advantage in the lunar environment, because humans are hard to keep alive in space? Diana Olick: Yes, they are. So again, and I ask this to David is, are we talking about 2030, years from now? David Steinbach: No, no, we’re not. So there’s two major forces that are coming together that means this is happening this decade. The first of them is the incredible progress in space launch technology. You can see it when you drive into Kennedy Space Center. They’ve done 56 launches so far this year. They’re on track for 1000 tons, and we’re going to be moving up to a million tons a year of launch capability. That’s going to be reusable rockets actually called ships, that are supposed to go back and forth across the ocean of space to this new continent, the moon and this new world, Mars. That’s happening, that technology is coming. The second thing is the policy and political end, America is going back to the moon like we’re very, very clear on that. We’re going back to the moon to stay we’re going back to the moon to commercialize it. And the thing that is going to make us have to do that is China is doing the same thing. China is going to land astronauts on the moon by 2030 so we’re back in the race. It’s not Russia, it’s China, it’s China. It’s all that all over again, but we’re going to do it better this time, because we’re doing it with reusable ships, and we’re doing it with commercialization. Diana Olick: And again, we see rockets blow up a lot. That’s what I see on the news. But that’s not really what’s happening. You said that you’re seeing 1000s of successful launches of rockets that can take things up to the moon? Ross Centers: Right from my hotel room last night, I got up right boom, it went off. Non event. Didn’t make the news like the webcast was only five minutes long. That’s how routine This is. That rocket carried a whole bunch of satellites to give everybody communications. But the next generation of rockets are going to be landing on the Moon and Mars. Diana Olick: So you’re going to work with David, eventually, you’re not yet, right? David, how will you serve Ross? David Steinbach: Well, hopefully we’re going to be the infrastructure provider to what they need. I mean, all of these, all these businesses, have a lot of inputs that in order to be able to do what they do, and it comes together into a launch. But there’s a lot of things that happen in the supply chain. All the stuff happens behind the scenes. So we’re really the infrastructure support behind that. Diana Olick: So you’re looking for a company like ethos to be a client eventually? David Steinbach: Exactly, I mean, so we’re– Diana Olick: See we are making a match here. David Steinbach: Yeah, carefully monitoring, you know, the the the tenants that are in the market and need space. Diana Olick: But Ross, what are some of the hurdles right now? Because you’re not up there yet. You’ve got the rock, you’re ready, you have the technology. We can build it, we can make it, but we’re not there. Why aren’t we there yet? Ross Centers: Well, the reason we’re not there yet is that the ship and the Artemis program aren’t ready to land yet, right? So NASA is going to be first to the moon. It’s going to be the Artemis program that first puts us there. But very quickly, it’s going to be a transition to commercialization. And what we’re doing is we’re putting together the full stack of private and public partnership to take this all the way from just boots on the moon, flags and footprint mission to a growing and expanding lunar industrial economy that’s here to stay and makes an incredible return. Diana Olick: So you’re going to eventually, not too far in the future, see these robots through whatever visuals we have up on the moon, building launch pads first, then building maybe a warehouse, I don’t know, then building a data center, and potentially even launching that data center into space, or just running that data. Data Center on the moon. Ross Centers: That’s right. We’re going to see all of that, and in the time frame that we’re going to see it towards the latter end of this decade, and really growing quickly in the beginning of the next we’re also going to be seeing demand for energy and for compute. Just go vertical, right? You can see it with AI infrastructure is just really going vertical. Diana Olick: And what do you mean by going vertical? Ross Centers: Well, right now, data centers occupy just a few percent of our power. But we’re expected in 2030 for data centers to perhaps occupy 40% of US power generation. Diana Olick: And we don’t have that. Ross Centers: We don’t have that. Diana Olick: And he’s shaking his head, like, no way. David Steinbach: That’s a big problem. Ross Centers: It’s infrastructure. It’s really serious problem. And China has over three times the amount of installed power base we have, and they have no qualms about just paving the Gobi desert with solar panels, right? So we’re gonna have to find new ways of generating power that are not tied to Earth and are not tied to our very careful land use process. In the history of electricity, we’ve had it for 150 years. The first 50 years we went 1,000x the second 50 years, we went to 1,000x and in the last 50 years, we’ve done 20x right? So we’re plateauing out on what we can do. And we can do another 20x but we can’t do another 1,000x the moon can do 1,000x and we have to get started. Diana Olick: And just finally, though, given that we are now pulling back on some of that clean energy infrastructure, on solar, especially in the US, given what the administration has does is that setting both of you back in this play, David Steinbach: I think, look, I mean, I think that the market will find a way, and we’ll find a way to capitalize things. Water will always find its own level, and so we just need to give the market a bit of time. I’m quite confident there’s a lot of work to be done, a lot of capital needs to be invested in these things, but it’ll find a way. Diana Olick: Do you agree with that? Ross Centers: The market will find a way. You know, the cost of solar in particular is declining so quickly that if you remove the subsidies, you slow it down by a few years, but eventually you get to that same point on the curve. In the meantime, nuclear is picking up. We may have fusion soon. We’re going to solve our basic energy problems, but the demand for power is infinite. I think that’s what it shows. You know, it’s almost as if GDP is almost a linear function of energy availability. So more is better. Diana Olick: And being a startup, though, you are seeing the capital that’s interested in this? Ross Centers: people are really excited about this vision. Like this is something that people have been looking for. It’s not every generation that you get a whole new continent to unlock you.