National Data Center Practice

2011 Data Center Summary

SamWahba — Wed, 21 Dec 2011 15:46:17 +0000

Issues Most Impacting Data Centers During 2011

Reid McConnell Tax Act increased the number of companies spending their own capital to build out space as an alternative to turn-key data center solutions.
Due to increased competition, wholesale pricing is flat on a national basis. Downward pressure on pricing is more likely operator specific than market specific.
The increased number of developers / operators has provided additional models. Increased flexibility by developers provides tenants greater opportunities to build their desired density. Furthermore, overly dense models (200 watts/sf) will take longer to lease up in certain markets (e.g., Chicago, New York).
Wholesale speculative construction costs are down between 15-20 percent due to economies of scale and off-site modular construction.
Significant uptick in leasing activity between 400 kW and 600 kW users. This has further blurred the lines between wholesale & colocation.

Strongest Markets For Wholesale Leasing Activity During 2011

Santa Clara
Suburban Chicago

Largest Wholesale Turn Key Transactions Leases Year To Date

Zynga 9 MW Santa Clara, CA
Twitter 8 MW Atlanta, GA
RackSpace 7.9 MW Elk Grove Village, IL
Telx 6 MW Santa Clara, CA
Savvis 4.5 MW Santa Clara, CA
Equinix 4.5 MW Seattle, WA
Softlayer 3.4 MW Santa Clara, CA
Server Central 3 MW Elk Grove Village, IL
Salesforce 2.6 MW Elk Grove Village, IL
Apple 2.28 MW Santa Clara, CA
Salesforce 2.275 MW Ashburn, VA

Largest Build To Suits/Power Based Building (PBB)

Facebook, Phs II 300,000 sf Forest City, NC
Time Warner 178,000 sf Charlotte, NC
Chevron 150,000 sf San Antonio, TX
Boeing 133,000 sf Quincy, WA
Amazon 120,000 sf Boardman, OR
Disney 100,000 sf Kings Mountain, NC
Adobe 100,000 sf Hillsboro, OR
Equinix 77,000 sf Ashburn, VA
NetApp 55,000 sf Hillsboro, OR
Umpqua Bank 41,800 sf Hillsboro, OR
Walgreens (PBB) 4 MW Northlake, IL

Largest Blocks of Wholesale Space Available For Immediate Occupancy

CyrusOne 60,000 sf (20 MW) Houston, TX
CyrusOne 41,000 sf (20 MW) Austin, TX
DuPont Fabros 44,000 sf (14.1 MW) Santa Clara, CA
DuPont Fabros 60,000 sf (12 MW) Piscataway, NJ
DuPont Fabros 60,000 sf (12 MW) Ashburn, VA
Powerloft 50,000 sf (9 MW) Manassas, VA
CoreSite 45,715 sf (8.5 MW) Santa Clara, CA
Benaroya 50,000 sf (7.5 MW) Puyallup, WA
DuPont Fabros 31,900 sf (5.3 MW) Elk Grove Village, IL
T5 54,319 sf (6 MW) Atlanta, GA
Quality Technology 50,000 sf (5 MW) Atlanta, GA
Digital Realty Trust 28,254 sf (3.8 MW) Chandler, AZ
Sentinel 20,000 sf (3.5 MW) Somerset, NJ
CyrusOne 25,000 sf (2.2 MW) Dallas, TX

Largest New Wholesale/Colocation Facilities Announced During 2011

CyrusOne TBD (110 MW) Phoenix, AZ
Sabey 40 MW Manhattan, NY
i/o (PBB) 831,000 sf (30 MW) Edison, NJ
Telx 215,000 sf (28 MW) Clifton, NJ
T5 206,000 sf (16.65MW) El Segundo, CA
RagingWire 70,000 sf (14.4 MW) Ashburn, VA
Latisys 82,000 sf (14 MW) Englewood, CO
Data Gryd 120,000 sf (12.5 MW) Manhattan, NY
T5 150,000 sf (10.5 MW) Dallas, TX
Equinix (PBB) 125,000 sf (10 MW) Ashburn, VA
Fortune 240,000 sf (7.8 MW) Hillsboro, OR
Savvis 70,000 sf (6 MW) Piscataway, NJ
XO Comm. (PBB) 49,000 sf (3 MW) Manhattan, NY
CyrusOne 45,000 sf Dallas, TX
Terremark 30,000 sf Santa Clara, CA
Sabey TBD Ashburn, VA

2011 Investment Activity

Verizon purchased Terremark for $1.4 B.
Hines Global REIT purchased Fisher Plaza for $160 M. It is an office, data center and retail campus.DLR bought a 69,000-square-foot SunGard facility in Rancho Cordova, CA for $30 M or a 9 percent capitalization rate.
Carter Validus purchased a single tenant leased data center in Richardson, TX for $28.9 M or a 8.5 percent capitalization rate.
In a distressed 100,000-square-foot sale, 601 W. Polk Street in Chicago sold to Pi Data Holdings for $10 M.
Carter Validus is under contract to purchase 180 Peachtree in Atlanta, GA for $94.75 M. The 338,000-square-foot property is expected to close at an 8.2 percent capitalization rate.
Sabey purchased 375 Pearl St. in for $120 M.
DLR purchased the Red Sea Portfolio (AT&T – 900 Dorothy, Richardson, TX and Verizon – 2950 Zanker, San Jose, CA) for $50.3 M.
CyrusOne purchased its leased facility at 5150 Westway Park Blvd., Houston, TX.
There were three power based shells that sold this year.

Due to the confidential nature of this business, it is virtually impossible to reflect the accuracy of all the aforementioned information, but it is from sources deemed reliable.
For the largest wholesale transactions, the numbers set forth represent what is believed to be the total commitment of the lease agreement. The build-to-suit/new wholesale transaction size by and large part represents the total size of the shell not necessarily the technical space. This is further complicated by the multiple phases of the projects and/or the total power committed to the project versus initial build out.

Turkey, Data Centers and Dallas

David Horowitz — Tue, 22 Nov 2011 18:33:55 +0000

National Highlights

Demand continues to outpace supply, primarily by users looking for 700 KW – 1.5 MW (5,000 – 10,000 square feet).
In the non-wholesale market (under 500 KW); colocation deals are reaching $350/KW all in.

Spotlight: Dallas

Overall pricing has remained consistent since our last Dallas newsletter, as rental rates range between $125-170/KW NNN for wholesale PODs.
Stream Data Centers is under construction on Richardson II project and will deliver 20,000 square feet of commissioned raised floor in May 2012. There will initially be 2.2 MW of critical load, expandable to 30,000 square feet of raised floor and 6.6 MW of critical load.
Texas has the largest amount of wind generation in the U.S. (10,000 MWs). Iowa is second with 3,000 MWs.
RIM sold its Plano data center to Lincoln Properties and plans to deliver up to 36,000 square feet of raised floor (10.5 MW). Lincoln Properties is partnering with T5 Data Centers for the wholesale development project.
Carter Validus acquired a 100% leased data center in Richardson, Texas from Stream Data Centers for $28.9 M.
CyrusOne has approximately 20,000 square feet of available space (3.4 MW) built out in Dallas, and is in the process of bringing an additional 18 MW of power to its campus for future growth. In addition, CyrusOne is adding more space adjacent to its existing data center in Houston and anticipates approximately 50,000 square feet (7 MW) of raised floor delivered in 2012.
Digital Realty is fully leased at their first building in Richardson. They have now started construction on their second building using their POD 2.0 infrastructure which is expected to deliver 6.7 MW (6 PODs). The first two PODs are scheduled for completion in Q2/Q3 of 2012.
Avista Capital Partners acquired Databank Holdings in Dallas from Freeman Group in June. Freeman Group still owns the data center at 400 S. Akard and they have no intention of selling the property.
Mark Cuban plans to develop a number of data centers in South Dallas that will be powered by renewable energy (including garbage and sewer sludge).

Spotlight: Other Markets

A Fortune 500 energy company recently purchased a 150,000-square-foot data center from Stream Data Centers in Westover Hills in San Antonio. They plan on two 10,000-square-foot data halls will be delivered for Phase 1. Construction has not yet begun.
Westover Hills continues to be a target location from the enterprise customers due to its less expensive power ($.05/kWh) than Dallas (approximately $.075-$.085/kWh) and other surrounding markets.
Oil and gas customers are experiencing growth with their existing providers due to disaster recovery requirements.
Houston continues to be a city that demands higher density server infrastructure compared to other Texas cities.
Austin continues to be more of a colocation market than a wholesale market as there are not many users looking for more than 1 MW of power.

Chicago – Tightest Data Center Market in the Country

SamWahba — Wed, 31 Aug 2011 19:22:19 +0000

National Highlights

As indicated at the end of 2010, the Reid-McConnell Tax Act has driven data center activity around the country with many tenants focused on the powered shell properties and incurring the capital expenses rather than interested in turn-key real estate solutions.
Chevron, Disney and Walgreens are a few of the companies that took advantage of the legislation during the first-half of 2011 for their new projects.
Wholesale lease transaction activity has been strongest in Santa Clara, Calif. and in suburban Chicago. The tenant composition has been less enterprise users and more Web 2.0 companies including, Zynga, Groupon and Server Central amongst others.
One of the biggest questions facing the industry is: “How will the Aug. 23rd earthquake impact demand for space in Northern Virginia?”

Spotlight: Metro Chicago

This year, the metro Chicago area has had one of the best leasing years ever for data center space.
Strong colocation and wholesale rental rates ($150/kwh to $600/kwh, respectively), low vacancy rates (1 percent) and continued interest by both colocation and wholesale users (22 MW of demand) has made downtown Chicago the tightest data center market in the country.
350 E. Cermak Road is fully leased! The largest multi-story data center property in the world at 1.1 million square feet is 100 percent leased as SAVVIS reportedly leased the last pod to accommodate one tenant.
725 S. Wells St. doubled the size of Steadfast Networks and is the largest absorber of space downtown year-to-date.
JRM Technology/McHugh Construction real estate project just west of 350 E. Cermak Road appears to be on hold with no preleasing nor financing.
There are several national players eyeing new opportunities downtown and we should see 15 to 20 MW announced before the end of the year.
The new speculative data center in Northlake has been very active with transactions completed by Comcast (2 MW) as well as Walgreens (4 MW). Walgreens paid as much as $35.00 per square foot annually for a powered shell.
In February 2011, 29 percent of DuPont Fabros Technology Phase II was preleased to existing tenants from Phase I. Recent expansion by Rackspace brings the property to over 70 percent leased. It’s likely the entire 18 MW will be committed to prior to its opening in early 2012 based on current market activity.
Equinix is delivering an additional 20,000 square feet in Elk Grove Village in January 2012, its third and final phase. They will continue to see competition from newly delivered space at Latisys and CoreLink.
Chicago Mercantile Exchange (CME) in suburban Aurora will be up and running on Jan. 1, 2012 for trading. CME has been leasing colocation space to firms seeking low latency solutions with the matching engine. It is estimated that the first phase is 80 percent leased.

Is the New Jersey Wholesale Market Back on Track?

Michael Mandel — Fri, 22 Jul 2011 02:54:56 +0000

Two weeks ago, without much fanfare, Sentinel Data Centers announced that it had signed three major leases with “the largest” Fortune 500 firms for an initial aggregate footprint of 50,000 SF of turnkey data center space. Since Sentinel’s first phase in Somerset, N.J. represents 50,000 sf of data center space, this means that Sentinel has effectively sold out its first phase. This press release came three weeks after The Wall Street Journal proclaimed that there was a “glut” of New Jersey data center space.

Meanwhile, we’ve heard from Digital Realty Trust , that the company is now at 100% capacity in its 3 Corporate Place facility in Piscataway (there were only a few thousand SF left), and as we announced in our last newsletter, DLR leased a large chunk of Powered Base Building space to Savvis at 365 S. Randolphville Road. That said, Digital has had a new turnkey 11,000 SF POD available in Piscataway for a very long time, and has not yet had success leasing its PBB offering at 650 Randolph Road in Somerset. DLR insiders tell us that the company is planning on building out at least one very large (20,000+ SF) pod in 650 Randolph Road which would be shared by multiple tenants with shared infrastructure. This would be a first for DLR, and according to our sources, the move is being made so that DLR can better compete on price and model with Sentinel and DuPont Fabros .

So what does all this tell us about the New Jersey Wholesale Data Center market? And, why is it that Sentinel has sold out its not yet complete Phase 1, while DuPont Fabros (which built-out over 80,000 SF of turnkey space) has had reported no activity for several months?

The answer to the first question is not simple. It seems that the New Jersey Wholesale Data Center market is improving. The good news from Sentinel and encouraging news from DLR is the most we’ve heard in quite some time, but until we hear more positive news from DuPont Fabros (fingers crossed for the company’s Aug. 3rd earnings call), it will be hard to make a proclamation that the market is heating up again.

To get the answer to the second question, I reached out directly to Sentinel’s co-CEOs Todd Aaron and Josh Rabina. They offered three factors that are attributable to their success in the New Jersey market; “quality, energy efficiency and flexibility.”

I believe the most notable differentiator for Sentinel is flexibility. According to Rabina, Sentinel’s “on demand business model enables tenants to avoid oversizing initial up-front financial commitments, yet retain fixed-price contractual options to seamlessly add space and/or power capacity in the future as needed.”. In the New Jersey market, where corporate users must accommodate the migration from low density legacy systems to modern high density environments, flexibility is key.

We’ve heard from DuPont Fabros, that they have also “gotten the memo” regarding the needs of New Jersey data center users (vs. the Facebooks, Googles, and Yahoo!s of the world), and they are willing to be flexible in accommodating the ramp up of tenants. There is no question that DFT’s purpose built facility is a high quality product, and if the company can provide the type of flexibility offered by Sentinel, they should have the same kind of success in the New Jersey market.

While it’s unclear if the momentum in New Jersey will continue, we are cautiously optimistic, and look forward to more good news moving forward.

Part II – Lower Operating Costs Drive Interest in Northwest

Greg Berry — Thu, 07 Jul 2011 20:01:49 +0000

As a follow up to last week’s post regarding data center activity in the Northwest, please read below for the effect of taxes on data centers in the Northwest region:

Data center demand has largely been the domain of the top tier 1 markets. Just as the data center industry has caught the eye of investors, so has new geographic opportunities. In recent years, eastern Washington has attracted several large data centers facilities in Grant (Quincy/Moses Lake) and Douglas (East Wenatchee) counties. Microsoft, Intuit, Yahoo, VMWare, T-Mobile and more recently, Dell Computers have developed data centers. The focus of these companies has been in Wenatchee, Quincy and Moses Lake. Oregon has attracted companies like Google, Amazon, Facebook, Verizon, ViaWest, Easystreet and Intel, which have developed data centers in Hillsboro, central and eastern Oregon.

In 2010, the Washington State Legislature passed a law exempting sales and use taxes on eligible server equipment and power infrastructure for data centers in rural counties. This exemption is effective until April 1, 2018 for eligible projects permitted before July 1, 2011.

As the exemption winds down, a measure to extend the exemptions until 2023 was introduced in the Washington’s last legislature session. The bill passed the Senate on a vote of 41-1, but was unable to reach the House floor before the legislature adjourned for the year. It remains unclear if the failure to extend the sales and use tax exemption will affect the momentum that eastern Washington has enjoyed. The exemption will likely be brought back for consideration at the next legislature session in January of 2012, but there are no guarantees.

In summary, it’s all about TCO (total cost of ownership/operations). In Santa Clara, where power costs are about 9 cents/kWh, the breakdown is about 1/3 rent (or construction cost), 1/3 power, and 1/3 sales and property tax (on IT equipment, which gets refreshed every 3+ years). End-users have realized that by going to Oregon (which has no sales tax, and has eliminated property tax in the Enterprise Zones for up to 5 years) or rural Washington, they could fully eliminate the 1/3 tax cost (in addition to the lower power costs).

Two big differences between Washington and Oregon relates to taxes. Oregon has a state income tax; Washington does not. Washington has a retail sales tax that applies to construction and the acquisition of servers and other data center equipment; Oregon does not. The sales tax rate in Washington varies from county to county from $.075 to $.095. Both states have personal property taxes levied at the county level that vary from district to district within the respective counties. In general, personal property taxes are based upon a millage rate for each $1,000 of market value. Computer equipment is depreciated according to schedules from the Department of Revenue for each state, although rates are not significantly different from state to state. Washington has more favorable power costs by $02- $03 per kWh.

Oregon has enterprise zones in rural parts of central and eastern Oregon that offer tax incentives. These incentives include abatement of real property and personal property taxes for three to 15 years. In addition, the governor can grant waivers for income or corporate excise taxes based upon the gross payroll for a new facility. Therefore, we are likely to see most future data center activity go to Oregon, as opposed to eastern Washington.

Stay tuned in the next few weeks for future posts regarding comparison of other states.

Data Center Activity Reins on the Northwest

Greg Berry — Thu, 30 Jun 2011 17:05:36 +0000

At the height of the telecom and Internet expansion during the 90s, the Northwest was considered a Tier 2 region because of its physical distance to other major cities and the limited population mass. For most carriers, it was the last piece of the national telecom network before the market crashed. When data centers began to proliferate a few years ago, the Northwest was still seen as the domain of local enterprise users like Boeing, Microsoft and Amazon. Recently, there has been strong interest by national data center developers and enterprise users for data centers in Washington and Oregon. The demand for new data centers in the Northwest is driven by the promise of lower costs.

Several of the large enterprise users with data center operations in the Northwest are from Silicon Valley. The high cost of doing business in California for large-scale DC operations continues to grow. By contrast, the Northwest is in the same time zone as California and served by direct flights from several air carriers to most West Coast cities or regional hubs in the Midwest. This is not only relevant for California based companies. Companies headquartered on the East Coast or beyond seeking a West Coast hub no longer look just to California.

Further, the combination of lower power costs and a temporal climate allows the extensive use of ambient air at least 70 percent of the year, resulting in more favorable operating costs. In addition, a significant amount of the power comes from renewable sources allowing greater price stability and the ability to garner LEED certification without excessive cost penalties.

Douglas and Grant counties own and operate their own hydro-electric dams. As a result, the cost of electricity is $.02 per kWh versus a national average of $.06 per kWh. Only one utility in Chile has cheaper power than these two counties in Washington.

In Oregon, utilities are unregulated and electricity costs range from $.03 – $.12 per kWh. Companies considering Oregon as an option for their data centers often look for green energy alternatives. One company which went to Oregon found they were able to obtain long term price guarantees from one particular power company, in part, because of the manner in which that utility was structured.

From a personnel standpoint, companies which have located in the Northwest are surprised by the number of qualified applicants which are available to work or willing to relocate to rural parts of the Northwest for jobs and an unhurried lifestyle.

Eastern Washington and all of Oregon is in Seismic Zone 3, whereas the Puget Sound region is Seismic Zone 4, the same seismic zone as the Bay Area. Most of eastern Washington and central/eastern Oregon are outside the 500-year flood plain, which further limits risk of natural disasters.

The Northwest also has stronger and shorter fiber connections to Asia, and as a result, the region offers lower latency than California.

Lastly, the economy of Northwest businesses has, at its core, a strong technology base resulting in a growing demand by smaller, local companies for colocation and hosting services. Currently, the colocation and hosting opportunities are concentrated in the Greater Seattle and Portland areas.

The Future of Manhattan Data Centers – Part 3 – More on 111 Eighth Avenue

Michael Mandel — Tue, 14 Jun 2011 21:59:29 +0000

In The Future of Manhattan Data Centers – Part 1, I mentioned that “the jury is out for the future of data center tenants” in the building, but that it was unlikely that Google would try to remove these tenants entirely. We have now uncovered some new information that supports this theory, and sheds some light onto Google’s plans for the building.

On Google’s Jobs page they have listed a position in New York of “Strategic Negotiator, Network.” The role of this position is to “spearhead the acquisition and allocation of Google’s global networking infrastructure,” and ” interact closely with outside vendors to design, develop, and deliver [. . .] contracts for dark fiber, colocation, peering, voice, and data services.” More specifically the job description notes that the candidate will “Develop and execute on a vision for continuously improving the distinction of 111 8th Avenue as a premier location for telecommunications carriers, data center and colocation facility operators, and their customers.”

So, perhaps the jury is still out on the extent to which data center tenants will have a place in 111 Eighth Avenue, but it certainly appears that these tenants are part of the vision for the building’s future.

Have you heard any news regarding tenants in the building? Please leave a comment and let us know!

The Future of Manhattan Data Centers Part 2 – The Next 111 Eighth Avenue?

Michael Mandel — Mon, 06 Jun 2011 14:12:47 +0000

In my last blog post I mentioned that new data center users and expanding tenants will likely not have any options in 111 Eighth Avenue. Google has indicated that it plans to expand in the building and has taken all available space off the market. Meanwhile, quality data center space in Manhattan is in high demand. The most recent sizable data center spaces that have come to the market in Manhattan leased at very high rents after bidding wars – the former Lehman Brothers space at 85 Tenth Avenue and Digital Realty Trust’s space at 111 Eighth Avenue. Most recently, XO has leased a raw floor at 32 Avenue of the Americas, where it will have to make a significant investment to convert the space for data center use.

With the uncertainty around 111 Eighth Avenue, recent strong activity in the market, and an overall stock of data center space in Manhattan that is outdated and inadequate for modern users, many developers, owners and operators are bringing new data center opportunities to the Manhattan market. These speculators are planning something never before tried in NYC, they are building turn-key wholesale data center space and powered shell space on spec.

375 Pearl Street – Sabey

The most well known of these new opportunities is 375 Pearl Street, a 1 million square foot former Verizon switching building. The property is currently under contract by a partnership of Sabey and NY developer Young Woo and is expected close within the next week. Sabey is still formulating its strategy for the building, but the first phase is expect to include four floors (36,000 sf each) of turn-key data center space and 9 floors of shell data center space. Verizon will also continue to maintain a 3 floor condo interest in the building. 375 Pearl shares a lot in common with 111 Eighth Avenue, with its huge elevators, very high ceiling heights, abundance of shaft space, and heavy floor loads.

121 Varick Street – SoHo CoLo

The second new opportunity on the Manhattan data center scene is SoHo CoLo at 121 Varick Street (full disclosure, we exclusively represent the landlord to lease their space). SoHo Colo is initially offering six floors of 13,250 sf each in a building that is being completely repositioned for data center use. 121 Varick Street sits atop the Hudson Street/Ninth Avenue “fiber highway,” and as a former printing building, has the floor loads, freight capacity and ceiling heights to handle virtually any use. The building already houses a small data center aptly named Data Center NYC. The owners plan to take the building to the next level by bringing in 15 MW of power from Con Edison, installing an entire-building double-interlocked pre-action sprinkler system, and delivering power and ample chilled water to each floor. Construction has begun for the building repositioning and the new power vaults should be fully operational in six months. Space in the building will be offered as either powered shell or turn-key depending on tenant needs and demand.

60 Hudson Street – Name TBD

Finally, an as of yet unnamed entity is believed to be in talks to acquire a four-floor 240,000 sf block of available space at 60 Hudson Street. 60 Hudson Street is well established as one of the most prominent carrier hotels in the world, but has historically been occupied by low density telecommunications users taking advantage of the building’s interconnection opportunities. This new project could bring new life to the building with high-density modern data center users.

It is unclear whether demand for new data center users is sufficient to meet all of this potential new supply. However, it is our opinion that at greatest risk are NYC landlords with outdated data center space. If these new entrants to the market can price their space fairly it would stand to reason that tenants of outdated data center space will jump at the chance to move in to the 21st century.

The Future of Manhattan Data Centers Part 1 – 111 Eighth Avenue

Michael Mandel — Tue, 31 May 2011 22:07:48 +0000

Back in September, when 111 Eighth Avenue – one of the world’s premier carrier hotels was up for sale, I mentioned in a blog post that “an astute purchaser [of the building] will see

the inherent value in great tenants with excellent credit (like Google), and data center tenants.” I did not predict at the time that Google itself would purchase the building. Now that Google has purchased the building, and has shown its intent to expand its presence in the building as quickly as possible, many of our clients have asked us what Google intends to do with the building’s data center tenants.

Google has not had much to say on this topic other than a statement from CEO, Larry Page:

“I think our primary reason for purchasing the building there was not the Internet infrastructure there but rather the office space that we really enjoy using. The Internet tenants are great, well-paying tenants. We appreciate having them there, but that’s not the primary reason why we purchased the building.”

What we do know, as we reported in our last New York Metro report, and was further reported by Datacenter Dynamics and Seeking Alpha, is that Google has taken all available space in 111 Eighth Avenue (aside from retail space) off the market. We have heard rumors that current tenants without renewal options have received letters from Google indicating that they should not expect to renew in place, and real estate industry sources claim that Google tried unsuccessfully to buy Nike out of its sixth floor lease. We have also heard from a data center tenant in the building, that the company received an ultimatum to the effect of – we will let you renew your POP space if you agree to terminate your office space early.

The jury is out for the future of data center tenants, but it certainly appears that new data center users and expanding tenants will not have any options in the building. So, this leaves me wondering, if I were Larry Page (oh if only!), what would I do?

The short answer is, that I would let the data center tenants stay, albeit at very high rents. In explaining this to a colleague, I started by attempting to explain “latency,” “hops,” and 111 Eighth’s place in the Internet’s infrastructure as an “ecosystem” of carriers and networks. He replied, “so it’s sort of like the Grand Central of the internet?” I love this analogy.

If you compare 111 Eighth Avenue to New York City’s public transportation system, the building is like Grand Central, Penn Station and the Port Authority combined. If Amtrak purchased Penn Station, it wouldn’t kick out New Jersey Transit and the Long Island Railroad, because so much of the value in the building is the ability to easily connect from one form of transportation to the other. If Amtrak didn’t want to lose the commuter business that goes through the building, it would have to provide the same services that New Jersey Transit and the Long Island Railroad provide.

In the same vein, if Google wanted to kick out XO, Abovenet, Telx and others, it would need to get into the interconnection business (to a much larger extent than it already is). This is certainly possible, but not highly likely. What I believe is more likely, is in the event that Google wants/needs the space occupied by data center tenants, it will allow these tenants to keep their Points of Presence to maintain the building’s ecosystem. What these tenants may lose, is their office space and perhaps some colocation space. It’s like leaving the railroad tracks, but getting rid of the “waiting rooms, concessions and ticket desks.”

In my next post, I’ll touch on how other data center operators and landlords are looking to create “The Next 111 Eighth Avenue,” and where the opportunity lies in New York City.

Data Center Activity Heats Up In Manhattan

Michael Mandel — Wed, 18 May 2011 19:28:00 +0000

Spotlight New York:

Since Google’s acquisition of 111 Eighth Ave., all available space in the building has been taken off the market. The most recent data center transaction in the building was Digital Realty Trust’s sublease of 53,000 square-feet to Telx shortly before the building’s sale.
Sabey and local developer Young Woo are under contract to purchase 375 Pearl St., a 1-million-square-foot former Verizon switching building, for an estimated $100 per square-foot from M&T Bank. The building is well-suited for data center use, with very heavy floor loads, high ceiling heights, limited windows, and abundant shaft space. Verizon will maintain a three-floor condo interest in the building.
60 Hudson St., a major carrier hotel, has a 240,000-square-foot block of space available for lease that has attracted attention from both data center and office users.
XO Communications has leased the entire eighth floor at 32 Avenue of the Americas. The 49,000-square-foot deal marks the first major data center deal in the building since Coresite leased the seventh floor. Meanwhile, Verizon is marketing the entire 10th floor of the building for sublease, bringing approximately 45,000 square feet with 2 MW of power to market.
Telehouse leased Lehman Brothers’ 60,000-square-foot former data center at 85 Tenth Ave., for 15 years. The lease includes all of the equipment and infrastructure left in place by Lehman Brothers and former tenant Level 3 Communications.
SoHo CoLo has begun marketing a new data center project at 121 Varick St., a 155,000-square-foot facility with six floors of 13,250 square feet each, available for data center use. SoHo CoLo will be installing the first 10 MW of a 15 MW power commitment this spring. The building’s location along the Hudson Street/Ninth Avenue corridor allows for low latency connection to NYC’s major carrier hotels and networks.

Spotlight New Jersey:

i/o Data Centers has leased the 830,000-square-foot former New York Times printing facility in Edison, with plans to rollout the first wholesale data center property dedicated to its own modular data center container solution. The property is next to a major PSE&G switching station and a wealth of fiber located along the NJ Turnpike.
Digital Realty Trust leased half of its available powered shell space at 365 South Randolphville Road in Piscataway to Savvis, leaving 56,000 square feet of powered shell space and 11,000 square feet of turnkey data center space available for lease.
Sentinel Data Centers has delivered and commissioned its first 10,000-square-foot data center pod to Pfizer. The company has also announced the closing of a $90 million loan led by M&T bank to complete its New Jersey facility and a commitment from Kelso & Company to fund up to $300 million of equity capital for further expansion.
DuPont Fabros has delivered Phase 1 of its NJ facility. The first of two phases is 18.2 MW of which approximately 4 MW has been leased to three different tenants.
Colocation providers in New Jersey continue to pursue opportunities. Recent announcements include Telx adding an additional 15,000 square feet of raised floor space in Clifton, QTS expanding its Jersey City facility to 50,000 square feet total and Net Access Corporation opening a new 50,000-square-foot facility in Parsippany. Equinix is expected to open its newest location in Secaucus in early 2012.
Development projects in New Jersey also continue to move forward. Russo Development has announced a data center development on 71 acres in Somerset. Mountain Development Corporation has filed plans to construct a 213,000-square-foot building next to its existing facility in Clifton (Telx is expected to be the single tenant of the building), Blue Vista Properties is moving forward with plans to redevelop a 270,000-square-foot former industrial building in Edison, and DCI Technology has begun a $4 million renovation of its existing 55,000-square-foot data center facility in Teaneck, which it is marketing for lease.
To view New York /New Jersey newsletter in pdf format, click here.