My dad, affectionately known as Senior, is one of the coolest guys you will ever meet. He cracks me up. If you ask him what he does, he usually replies, “I’m a dirt guy” to new acquaintances. However, when he is in a room full of doctors, lawyers and other heavily degreed professionals, he’ll reply, “I’m a gunite-ologist”. The look on the professionals face is usually perfect as they have no idea what a gunite-ologist is, but are too proud to get the joke and don’t want to appear dumb. For those of you that don’t know, gunite is sprayed concrete, or more colloquially, “shot mud” – hence the dirt guy comment. It is used in a lot of commercial applications, but you have probably seen it in an in-ground swimming pool. Now, while shot mud may not be the sexiest thing in the world, if you screw it up, the swimming pool leaks like a sieve. That’s generally frowned upon by most homeowners and costs a small fortune to fix.
So some of you are asking yourself by now, what in the world does my dad and shot mud have to do with Real Estate, one of the pillars of the Five Tool Data Center Player? Well, just like gunite, if you don’t get the real estate right, you’ve got big problems. The real estate is the least sexy part of the data center. How depressing is it that the cloud lives in dirt? But success with data centers means that you do the dirty work just as well as the fancy stuff.
Let’s start with the most talked about item – the crux issue: Location – the Technical Perspective. There have been many white papers, webinars, seminars and corporate brochures over the years going into this subject ad nauseum. Since these are the table stakes items, I’m not planning on revisiting them here but here is the quick summary:
- Good fiber
- Good power
- Limited to no disaster risk
- (BTW – I left out good water, since I don’t believe you should be using it in the first place)
Now that we’ve gotten those out of the way, let’s talk about the two things that few ever talk about, but without proper focus on them, your data center program will leak like a sieve:
- Building Shell and Core – Attributes
- Location – Real Estate Perspective
Building Shell & Core – Attributes
The phrases “white elephant” and “brand new data center” seem to reside within the same the sentence on a much higher percentage than one would expect. Why is that? Because of the wrong design and size attributes for the building shell & core. Investors and management review capital projects like datacenters over long-term horizons. Often, the day one load is 1-2MW for a datacenter, but the 10-year plan has it growing to 10, 20 or 30MW. Many make the egregious mistake of investing a fortune in a specialized building shell design to accommodate the latest fad in MEP design. That, in and of itself can be bad, but it gets exacerbated by the fact that it built out day one for the entire 10-year end-point load. In other words, not only do you build out tens of thousands of square feet of shell space that sits fallow and depreciating for years to come, but you also taint it by overspending and specializing the layout so that its only use could ever be for that original fad design. As a quick aside, while there are few things worse than a $350 per square foot basis for a building with a dirt floor and a layout that can’t be changed, Congress manages to do it with every bill they pass.
Location – the Real Estate Perspective
While the technical perspective is absolutely essential in ferreting out a location, the real estate perspective is oft neglected. The traditional real estate guys and gals can provide a lot of common sense advice during the process. Sadly, it is usually overlooked. There are a few key areas to watch out for.
Location: While the big Internets can afford to place a data center in the far reaches of modern society, most companies can’t afford the $350k base salary for the engineers that run the buildings. The simplest analogy is in the oil business. On those ocean rigs, even the latrine cleaner makes a cool six-figures. Now, just try to get the IBM mainframe support tech out there on his 4-hop flight with 2 puddle jumpers and an hour drive to the facility…
Taxes: Real estate and personal property taxes are other areas that are often looked over when choosing a location. For years, data center owners have been getting away with calling the data center a warehouse for those pesky ad valorem taxes. Now that our industry is on the front page of the NY Times and unfulfilled pension promises raid state revenue coffers, we can be certain of half Benjamin Franklin’s axiom of truth – taxes cometh. Without attention being paid to how and what you will be taxed on in the location of choice, that cheap $2.50 psf tax bill can turn into $25 psf in the blink of eye, or a reassessment.
Land Cost: Overpriced land is another blind spot for most data center folks. Now that landowners know about these “data center thingies”, nothing can raise a land speculator’s prospects faster than a data center user who views land as a rounding error. As the only non-depreciable aspect of the data center build, overpriced land can cause one of two problems: for enterprises, the dreaded write-down mark-to-market; and for service providers, a very ticked off investor who either can’t get full credit for debt on the land, or who suffers from lower returns.
Alternate Use: Alternate use is the final area in our path down the ho-hum lane of real estate based location. Now, I am a firm believer that the alternate use for a purpose built data center is a redeveloped purpose built datacenter, but I don’t run any financial institutions (thank God). The two areas of concern are when you use land that has a much higher value alternate use (say, for multifamily housing) or you use land that has no alternate use (say, that field in the middle of nowhere). In either end of the extreme, the balance sheet, CFO’s office and their banking cohorts may have some issues with your pick.
For you real estate pros out there that are finally getting your due credit from a data center guy, I would encourage you not to crow too loudly. Take the advice of Senior. When you are in a room full of IT guys with a lot more letters after their last name, don’t tell them you are in real estate. Tell them your field of expertise lies in “terra et aedificium”. They’ll probably be too proud to ask…
