Private Equity Giants Enter $4B Conditional Negotiations to Build Data Centers on Military Installations

In a partnership that bridges institutional capital with defense infrastructure, the U.S. Army has entered exclusive negotiations with The Carlyle Group and KKR — through its data center affiliate CyrusOne — to develop approximately $4 billion in data center facilities across two military installations. The initiative responds to the military branch's rapidly expanding artificial intelligence and high-performance computing requirements.

Key Details

The two firms bring formidable data center expertise to the table. KKR is participating through CyrusOne, a major data center operator it acquired, giving it substantial operational capabilities in the sector. The Carlyle Group similarly maintains extensive investments in digital infrastructure and technology-oriented real estate assets.

The arrangement, which has not yet been finalized, will position new data center developments at two specific Army installations: Fort Bliss in Texas, where Carlyle is slated to develop approximately 1,384 acres with 2.5–3 gigawatts of capacity targeting a fiscal year 2027 delivery; and Dugway Proving Ground in Utah, where CyrusOne on behalf of KKR would develop roughly 1,201 acres with 1 gigawatt of capacity targeting fiscal year 2029. The parties are in an exclusive negotiation period to finalize leases and terms, with the Army set to receive a percentage of facility capacity under 50-year leases without direct investment.

According to Bisnow, the Army's artificial intelligence and machine learning workloads are driving substantial demand for computing infrastructure, necessitating this private sector partnership.

Market Impact

For commercial real estate professionals, this federal initiative carries multiple implications worth monitoring:

Institutional validation continues: Having tier-one private equity firms deploy billions into data center infrastructure alongside the federal government reinforces the asset class's standing as a core institutional investment category rather than an alternative or niche play.

Federal partnership models expand: Success with this Army initiative could establish a template for additional military branch and federal agency collaborations. The General Services Administration and other government entities may explore comparable arrangements, unlocking new deal flow for qualified developers and investors.

Security-focused development gains prominence: The emphasis on hardened, on-base facilities highlights a growing market segment where data sovereignty, physical security, and compliance requirements shape development strategies more than traditional location metrics.

Land constraints reshape strategy: As prime data center sites in established markets become scarcer, unconventional locations—including federal properties—may emerge as viable alternatives for hyperscale deployments.

The partnership demonstrates how government infrastructure needs and private capital can converge, potentially creating a roadmap for future collaborations that address both national priorities and investor return requirements.

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Conditional Negotiations Are an Early Stage

The Army's decision opens negotiations; it does not yet establish a $4 billion construction program. Final economics will depend on site-control terms, security requirements, power procurement, environmental review, network access, and who owns the improvements at the end of the agreement.

Military installations also introduce operating constraints that differ from private campuses. Developers will need to coordinate access, contractors, data security, and mission continuity. Signed leases or development agreements, utility commitments, and construction notices will provide the clearest evidence that the concept has advanced from selection to an executable real estate project.