Corporations Focused On Addressing Legacy Data Centers
By: Kelci Smesko
Techrealestatetrends.com
Over the past 15 years, a large number of corporations have spent significant corporate capital towards constructing and owning data centers throughout the United States to address their technology needs. A majority of these facilities were built as data fortresses at a cost of over $1,000 per square foot. For example, to build a data center of 100,000 sq. ft., a corporation could invest over $100 million. In the new era of corporations migrating to the cloud and colocation facilities, many of these properties have become underutilized with significant surplus space and power. Corporations today are looking for opportunities to optimize their data center footprint today and for the future. The current focus is to build flexibility for their future technology needs. The positive news is there is also a strong secondary market for these legacy enterprise sites with numerous operators, investors and lenders representing a healthy capital markets environment.
The result of this trend is that corporations are looking to strategically evaluate monetizing these assets to provide more flexibility in their technology portfolios. Jones Lang LaSalle (“JLL”) has emerged as an industry leader in providing corporations with valuable advisory services for data center assets globally. James P. Quinn and Michael Hochanadel, both Managing Directors at JLL have combined to complete approximately 60 million sq. ft of transactions providing advisory services for firms such as IBM, Verizon, Delta, Digital Realty, Hines, Lonestar and Level 3 Communications. We recently interviewed Quinn and Hochanadel on this topic and addressed the following areas:
Techrealestatetrends.com: What are the important drivers for corporations today with emerging technology and their existing data center facilities?
Quinn: Corporations are struggling to keep up with their technology needs with their existing data center portfolios. The challenge is to build flexibility into their technology requirements by moving away from legacy assets where significant capital has already been deployed. There is a large number of sites that are underutilized that provide reduced flexibility due to the ownership structure and the high book values associated with these sites. Also the technology in these data centers is antiquated. As a result, we have been very active in advisory services for data center monetization and implementation projects.
Techrealestatetrends.com: Can you provide an overview of the market and trends for these data center assets?
Hochanadel: The data center investor universe has grown dramatically over the last ten years. As it has grown, it has also matured with several subcategories emerging. Large colocation operators are focusing on several core data center markets looking to build campus style deployments of significant scale. Passive investors such as non-traded REITs and pension fund advisors are looking for long term net leased data centers. While opportunistic investors are looking for structured corporate dispositions providing both cash flow and opportunity for upside.
Techrealestatetrends.com: Can you provide an overview of some recent market projects?
Hochanadel: We recently completed the sale of KOMO Plaza, a 293,727 square foot, Class A office and data center asset in Seattle. GI Partners purchased the two-building plaza for $276 million. KOMO Plaza is one of just three key telecommunications carrier hotels in the Northwest and one of just two purpose-built telecommunications centers in Seattle.
Techrealestatetrends.com: How are you helping corporations address evaluating their technology portfolios?
Quinn: We provide corporations with a comprehensive analysis of the financial metrics of optimizing their technology portfolio through various scenario analysis of data center monetization, colocation, cloud and network opportunities. We provide unsurpassed intellectual capital in understanding market pricing for each critical technology metric.
Hochanadel: In tandem, we provide market valuations of data center properties, sales/pricing intelligence, landscape of active buyers and sensitivity scenarios on leaseback strategies.