By Federal Appraisal LLC
A New Chapter for Data Center Development
Few sectors of commercial real estate have experienced the level of growth seen in the data center industry over the past several years. Artificial intelligence, cloud computing, cryptocurrency and block chain management and the continued expansion of digital infrastructure have created unprecedented demand for facilities capable of housing sophisticated computing equipment and supplying enormous electrical loads. As a result, developers, investors, utilities, and municipalities have increasingly viewed data centers as one of the most valuable and strategically important new categories of commercial real estate.
That momentum encountered a significant regulatory development on July 14, 2026, when New York became the first state to pause permitting for new large-scale data center projects. Governor Kathy Hochul issued an Executive Order directing state agencies to temporarily suspend environmental permitting for qualifying hyperscale facilities while comprehensive standards addressing energy consumption, water usage, environmental impacts, and infrastructure planning are developed. The Executive Order generally applies to facilities requiring approximately 50 megawatts or more of electrical demand while exempting many smaller institutional facilities serving hospitals, universities, and similar users. ¹
The Executive Order follows the passage of the Responsible Data Center Development Act by the New York Legislature, which proposes broader oversight of large data center development, including enhanced environmental review, utility planning, and new regulatory requirements intended to balance technological growth with long-term infrastructure needs. ²
While policymakers continue debating the merits of these legal measures, the appraisal profession is presented with a different question altogether. Appraisers generally are not asked to opine on the wisdom of such public policy, and the impacts that may occur, such as unmet demand for utilities, electricity, computer infrastructure, real estate versus maintenance of environmental and communal standards. Appraisers are almost never asked to cross into debates over pandering government officials via NIMBYism versus captured agencies catering to short sighted business interests. Rather than evaluating whether the policy is beneficial, appraisers must determine how market participants respond to changing regulatory conditions and how those responses influence value.
Regulation Can Change Market Behavior Before Construction Begins
Many commercial real estate assets derive their value from existing income-producing improvements. Development land intended for data centers is different. Its value often reflects anticipated future development rather than current operations.
Developers routinely invest significant capital years before construction begins. Environmental studies, engineering, utility coordination, zoning approvals, fiber connectivity, and electrical interconnection planning all represent substantial investments that occur well before a building is constructed. When a regulatory change introduces uncertainty into that process, buyers and sellers may begin reassessing both project timing and overall development risk.
Importantly, a permitting moratorium does not automatically reduce market value. In some instances, temporary constraints on future supply may even enhance the competitive position of existing facilities. However, uncertainty surrounding entitlement schedules, infrastructure availability, and regulatory compliance can negatively influence investor expectations, financing assumptions, acquisition strategies, and ultimately transaction prices.
An appraiser’s responsibility is to measure those market reactions through objective analysis rather than speculation. The existence of a new regulation alone is not evidence of diminished value. The relevant question is whether knowledgeable buyers and sellers are changing their behavior because of the regulation.
Highest and Best Use Remains the Foundation of Valuation
The concept of highest and best use has always been central to real estate appraisal, particularly for development properties. The analysis requires consideration of what use is legally permissible, physically possible, financially feasible, and maximally productive as of the effective date of value.
For many industrial properties throughout New York, data center development has become a primary driver of value because of increasing demand for sites capable of supporting large-scale computing operations. Electrical capacity, fiber connectivity, available acreage, transportation access, and favorable zoning have all contributed to substantial increases in land values in select markets.
When the regulatory environment changes, however, the highest and best use analysis may require additional consideration. A temporary permitting pause does not necessarily eliminate the potential for future data center development, but it may influence the timing and certainty associated with that use. Market participants may assign greater weight to alternative industrial, logistics, manufacturing, or distribution uses until regulatory conditions become clearer.
This illustrates why highest and best use analysis must always remain grounded in market evidence existing on the effective date of the appraisal rather than assumptions regarding future political or legislative outcomes.
Regulatory Risk Has Become a Paramount Concern
Real estate investors routinely evaluate regulatory risk alongside potential return. Historically, real estate development focused primarily on construction costs, electrical availability, leasing activity, and technological requirements. Increasingly, regulatory certainty has become another important component of investment analysis. It is now recognized that throughout the United States, that we are short on development of all types of property, from housing to electricity generation and other infrastructure to now data centers. Many social policy experts believe this is in no small part due to the inability of developers to complete the regulatory process in a financially timely manner because the regulations are too onerous to be completed by developers in a in a financially timely manner. Since developers can no predict when or if approvals will come, they increase their risk assumptions and return expectations, which reduces value and reduces the financial feasibility of development projects
Developers considering future acquisitions must evaluate how permitting timelines could affect project schedules, whether additional environmental requirements may increase development costs, or whether future utility infrastructure improvements will be required before construction can begin. Lenders also underwrite assumptions such as entitlement risk which becomes a larger consideration during development financing.
These concerns do not exist independently from market value. They influence how market participants allocate capital, negotiate purchase prices, and evaluate investment opportunities. Consequently, they also become relevant considerations during the appraisal process.
Comparable sales occurring before significant regulatory changes require careful analysis to determine whether they remain representative of current market conditions. Likewise, capitalization rates, discount rates, and development assumptions warrant additional consideration if investors begin pricing increased uncertainty into the marketplace.
Infrastructure Has Become Part of the Real Estate Conversation
One of the most notable aspects of New York’s recent regulatory initiatives is the recognition that data centers affect far more than the properties on which they are constructed. Large facilities require substantial electrical capacity, transmission infrastructure, cooling systems, water resources, and long-term utility planning. But they also serve vast ranges of businesses, and private and communal parties, who have legitimate needs.
The Responsible Data Center Development Act directs regulators to evaluate many of these infrastructure considerations while also proposing a separate utility rate classification for qualifying facilities. ² These provisions recognize that data centers have become integral components of regional and national infrastructure planning rather than isolated commercial developments.
From an appraisal perspective, utility availability has always been an important element of site analysis. Increasingly, however, market participants are evaluating not only whether power exists today, but whether future electrical capacity can be delivered reliably, economically, and within anticipated development schedules.
As artificial intelligence continues driving demand for computing capacity, infrastructure planning is likely to become an even more significant contributor to market value.
Existing Facilities May Respond Differently Than Proposed Developments
The implications of regulatory change are unlikely to affect every property in the same manner.
Existing data centers operating under established permits may experience different market dynamics than undeveloped sites awaiting approval. If future development slows temporarily, existing facilities could become relatively more attractive because they already possess operational infrastructure, established utility connections, and regulatory approvals.
Conversely, future operational requirements adopted through subsequent legislation could influence long-term operating costs or expansion opportunities for existing facilities.
These possibilities reinforce an important appraisal principle. Market value is determined through analysis of actual market behavior rather than broad assumptions about how every property within a particular category will respond to regulatory change.
Each assignment must consider the property’s individual characteristics, competitive position, and the actions of informed market participants.
Independent Valuation Becomes Even More Important During Regulatory Transition
Periods of regulatory uncertainty frequently increase the need for credible, independent appraisal services.
Developers considering acquisitions require objective analysis of changing market conditions. Lenders seek reliable opinions of collateral value before committing capital. Municipalities may need support during assessment appeals or infrastructure planning. Attorneys representing property owners, governmental agencies, or investors often require valuation experts capable of explaining how regulatory actions influence market value in litigation.
In each of these situations, the appraisal process provides a disciplined framework for separating measurable market evidence from speculation and politics. Rather than if a regulatory change automatically creates either positive or negative impacts, appraisers evaluate comparable sales, market interviews, development activity, income expectations, and investor behavior to determine how knowledgeable participants are actually responding within the marketplace and how value and risk is actually changing.
This independent approach is particularly important in emerging property sectors where market conditions evolve rapidly, and historical sales alone may not fully explain current investor sentiment.
Looking Forward
The continued expansion of artificial intelligence and cloud computing suggests that demand for digital infrastructure will remain strong for years to come. Although New York’s permitting pause represents a significant local regulatory milestone, it also reflects broader national conversations surrounding electrical infrastructure, and real estate development in general and reflects needs for environmental stewardship, and sustainable development.
Other jurisdictions are already evaluating similar questions as utilities work to balance rapidly growing electrical demand with long-term reliability and economic development. Consequently, the valuation issues emerging in New York today are relevant throughout the country.
For appraisal professionals, these developments underscore the importance of understanding not only real estate fundamentals but also the regulatory and infrastructure factors that increasingly shape complex property markets. Whether the assignment involves development land, an operating data center, litigation support, tax appeals, financing, or eminent domain, credible valuation depends upon careful analysis of how market participants respond to changing conditions, not merely the existence of those conditions themselves.
At Federal Appraisal LLC, we specialize in the valuation of complex commercial real estate and special-purpose properties where infrastructure, regulation, and market forces intersect. As industries continue to evolve and public policy adapts alongside them, independent appraisal remains an essential tool for measuring market value with credibility, objectivity, and market-supported analysis.
References
- Associated Press. New York becomes first state to temporarily halt permitting for large AI data centers through executive order. July 14, 2026.
- New York State Senate. Responsible Data Center Development Act (S10642/A11560). https://www.nysenate.gov/legislation/bills/2025/S10642
- The Verge. New York becomes the first state to enact a data center moratorium. July 14, 2026.
- Axios. Governor Hochul signs executive order pausing large-scale data center permitting. July 14, 2026.
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