Hi everyone,
We are looking at some data center deals, including both new developments and stabilized ones. I wonder if you have any resources/primer on investing in data center that you could share. If you have any experience with this type of assets, please share things that are unique or require a very closed look at. Do you see any premium/discount in pricing of this asset type?
Thanks.
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Also very interested
I have looked at financing these types of assets before.
Generally, CMBS shops typically view these as single tenant in nature, and most major banks usually won't put this on their balance sheets. The primary factor here will be who the tenant is, a Google, AT&T and Verizon will viewed much more favorably than Joe's Data Center.
However, you also want to look at the lay out of the building for the amount of space used for servers or data routing technology. Obviously the higher the percentage dedicated to data management the better.
Followed by the redundancy technology such as the number of power supplies the building has.
Lastly but I think most importantly is bandwidth currently in the building, what it can scale to, and how much of it is actually being used on a daily basis.
CBRE has an okay national data center team based in Denver - you might find some literature on their website
Data center REIT annual reports might have some good nuggets
The data center wikipedia article is fairly comprehensive
This may be obvious but... Idk what your angle on development/acquisition is but from what I recall seeing some data center deals in CMBS a while back, depending on the quality you're building to and the tenancy you're aspiring for, these assets can be somewhat operationally intensive - not quite like hotels, but sometimes centers employ onsite IT staff, that sort of thing, to help service the "tenants." And you really want to know what tenants are going to need - it's not like conventional CRE where I can have a 30' by 60' box and I'm going to lease it out to joe schmo who just needs to me put a toilet in and he'll take care of the rest - this is some highly specialized shit - I'd want to really know what I was doing or be partnering with an operator that does
These are looked at very different than any other asset - but I'll draw a connection that hopefully makes sense of it all.
There are different types of data centers and different tiers. Some data centers are used by a single enterprise, some rent computing capacity (measured in kWh), and some rent rack space by volume (don't have much experience in this one, but I imagine you'd find cubed foot market rent, just a guess).
Data centers that are used by single enterprises or rent their computing capacity are both looked at the same way (I like to think of it as virtual sq. ft.). Data centers have something called a critical IT load, measured in MW. Let's say a data center has a critical IT load of 1.0 MW. That means it is capable of renting out 1,000 kWh / month. Believe it or not, kWh have a market rent that can be comped out. It can be anywhere from $70 / kWh / month to $160 kWh / month.
Market rent for a given data center is derived much like any other asset.
First, the tier (class) of the building. There are 4 tiers: Tier I (Class C), Tier II (Class B), Tier III (Class A), Tier IV (Trophy). Each tier is a step up in value e.g. back up generators, physical and cyber security, redundant power, raised flooring, backup HVAC, office space, etc..,.
Second is market (location). Data centers are more or less valuable depending on which market they are located in. Data centers on the coasts are very valuable because they literally connect continents via subsea cables since data travels at a certain speed, data travels faster from one country to another. Data centers in the middle of America are valuable as well - they serve as convenient and widely accepted midway points for coast to coast data transmission. Lastly, within a given market data centers can have charge more or less based on location (away from airports, close to power grids, common sense stuff)
Lastly, just like any other property, market rent is determined by lease type - NNN vs gross etc.
I think data center investments are a great idea, i especially like Nevada. Good luck, pm me if you guys want some leverage.
Hey!, Have a question regarding a lease for a data center
In the lease that I am reading, base rent is not $/SF. It says base rent is $XXX per kW per month multiplied by the amount of Tenant Critical Power delivered to the tenant according to ramp schedule.
And the ramp schedule is like
Phase 1- tenant critical power of xxx KW, target phase delivery date-xxx rent commencement date-xxx
phase 2- tenant critical power of xxx KW, target phase delivery date- xxx rent commencement date-xxxx
And there are 5 phases. So, from the above information-Can I arrive at a $ number for rent from the above information?. I a little clueless on this, would so appreciate any help!, thank you so much!!!
TBH I'm not an expert in data center leases, but it looks to me like its works similar to lease expansion. It looks like the landlord is building out the data center in phases and each phase will result in a higher Critical IT load (MW), maybe by adding more generators, who knows. With each new phase complete, the tenant will pay more per month in rent as a function of $ per kWh x kWh. So you could make a monthly schedule using that formula and increasing the kWh during the appropriate months and get an annual rent figure by adding the monthly rent. I believe 1,000 kWh = 1 MW.
Again, not very familiar with data center lease structure.
Take a look at some of Green Street's Data center comments
Thanks guys, this is a good list of data center REIT (http://investsnips.com/list-of-publicly-traded-technology-focused-real-…). Equinix and Digital Realty (http://investor.equinix.com/phoenix.zhtml?c=122662&p=irol-EventDetails&…, http://investor.digitalrealty.com/investor-relations/news-and-events/ev…) have very comprehensive investor presentation package!
One more thing to look at when evaluating data centers is where their income is coming from. Many data centers, especially colocation centers, will derive a lot of income from selling "services" to the tenants. These are typically based around the mechanical systems in the building -- HVAC, chilled water, power,etc. You will also gets weird line items like roof rent. This typically consists of tenants paying the landlord to rent space on the roof to install their own mechanical systems. It can be a bit tricky to trace all the "other income" back to each tenant sometimes.
Data Centers (Originally Posted: 12/05/2016)
Has anyone here financed a data center before? Our group has had a couple deals come across the table and no one really knew what to say. I saw a thread a little while back talking about how they are leased out and different tiers, but are there some general guidelines you have seen? Even from an acquisitions standpoint would be interesting to hear.
bump would also like to hear more about this asset type. People have been talking about potential growth opportunities in other threads given where we are in the cycle. This has to be one right? Who are the big Data Center developers/operators out there? Is it built spec or do they try to land a digital 'anchor tenant' if you will...
Big guys are Equinix / Telecity (merged early this year), Global Switch, Interxion, DLR and Telehouse and then a couple of others. Equinix / Telecity, Interxion, Telehouse are the main players in Retail, while Global Switch, DLR are more on the Wholesale side, but lines are not as clear and you see a bit of everyone on both sides.
Main European centres are Frankfurt, London and Amsterdam with growth at c. 10% p.a. Loads of smaller companies are PE-owned and the big strategics are craving for new space.
Interested.
Going off on a limb here, isn't this kind of business threatened by Moore's Law (i.e. in 10 years the space needed to store and process information could be decreased by significant percentage)?
I would tend to agree but with all the data that is being collected off of us, wont demand also increase at a semi-comparable rate? I guess what I'm saying is, as computers become more efficient and affordable won't more companies demand data storage? Obviously not at the same rate as computers develop, but at least for the next maybe 15-20 yrs?
Also, there are many data centers focused on high-powered computing as a opposed to data storage, like Verne Global.
I haven't done data centers but have briefly discussed them with others that have and one important aspect I can comment on with this asset class is that due to its highly specialized use, it's considered very risky as it's difficult to repurpose it into other potential uses. For that reason, it's an incredibly niche space with relatively few players.
Haha read your post after I posted. I agree 100%. +1
Let me start off by saying I have zero experience with data centers.
From where I am sitting though I get jittery when thinking about investing in these niche asset classes. The buyer pool has to be very shallow compared to the four food groups. I'm not saying I wouldn't do a BTS deal and flip it to someone because I would. I'm just saying I wouldn't be a buyer of the stabilized asset.
Thinking about it, I guess you could rationalize that it be looked at similar to a nnn retail building. These are highly specialized buildings with high credit on (probably) long term leases. As a developer I would love to get in on that,as long as there are buyers on the exit.
What would you call the four food groups? Office, MF, Retail, and Industrials? That leaves out Hotels? or are you leaving out MF because it isn't institutional clients?
I was speaking with a guy last week and he used to be in tech but need up being one of the biggest REPE players in my market. He built a load of data centres outside the city and then managed to get Google and a series of other strong covenant tenants and then made 10's of millions by selling them to Chinese investors.
PM me
To add to above_and_beyond he market's big players are the following (keep in mind there's varying breakdown of services):
-Real Estate/Co-location Providers (Ping/Power/Pipe only, aka physical space and network access): Equinix, DRT, NTT, CyrusOne, Switch/SuperNAP, DuPont Fabros, etc. -Managed Service Providers (value added services): your standard OEM's like HP, IBM, Verizon/AT&T, etc.
-Geography: Your big US hubs are NoVa (Dulles Technology Corridor), PHX, NJ/NYC (e.g. finance direct market access and low latency needs), ATL, Silicon Valley
-Current Market Trend: Keep in mind you have a large number of Fortune 500 starting to move to public cloud services like Amazon, Salesforce, Microsoft Azure, etc.... so while Data Center demand has no end in sight for physical space/capacity/data, deals client-side will be less as their appetite to own their own real estate/kit/etc. will decrease in lieu of managed arrangements (cloud providers will lease space from these same data center hosting providers, or in many cases build their own).
-Acquisition: From an acquisition perspective, there is a lot going on here. Existing providers are buying others (Google CenturyLink sale, Savvis, CyrusOne/MCE, etc.), and new construction isn't even coming close to keeping up with new order requests by business customers, demand remains high...
I looked into it once, found out pretty quick that you can make money but its a loosing game for those who don't know exactly what the fuck they are doing.
interesting what Equinix is doing > http://www.datacenterknowledge.com/archives/2016/12/06/equinix-buying-v…
bump
What are the typical lease structure? I'm assuming they'd be 10yr+ NNN, but wondering what's industry standard and difference (if any) for say a data center in major metro area compared to one in the middle of a desert.
bump- anybody here have any insight on typical lease structure?
Im guessing for retail colocation- modified gross and for wholesale- typically NNN but tenant pays for electricity? Would really appreciate any help here, thank you!
Big bump - any input from someone who has completed recent acquisitions will greatly be appreciated.
Same, the more info I could gather on how to evaluate how these things are underwritten, who is in the market to purchase, who finances them, would be greatly appreciated!
I am in data center asset management. Happy to answer a couple questions.
I have some good primers I can share if someone can tell me how to upload files.
Hi! I would love to read your primers. Would you want me to pm you my email? I really appreciate any help! Thank you so much!
Would also love to take a look at those primers as well. PM'd you.
Interested as well. Can DM if you still have handy.
Sorry man - was for a case study in school way back when and don't have them anymore. If you want to get quick idea of KPIs / operating environment, would take a look at Cyrus One, Equinix, & Digital Realty investor presentations / earnings calls.
read my post from like 2 years ago above.
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