Death, Taxes, and Data Centers
Data centers have become a necessary evil (see headline) to deliver an end, be that Facebook or financial services, we learned at Bisnow’s 3rd Annual Chicago Data Center Boom.
More than 250 of you joined us yesterday at Trump International Hotel and Tower, where one panelist on our owner/developer panel compared data centers to garbage trucks. (With a better smell. Let us explain.) They are an essential service and need to be efficient and reliable, but never noticed. (Like a baseball umpire, or your liver.)
You can thank Server Farm Realty CEO Avner Papouchado for the appetizing analogy. Server Farm’s local data centers include 450k SF 840 S Canal in the city and recently acquired 194k SF Oak Brook Technology Center in the ‘burbs. Avner’s seeing pent-up demand to deploy technology, with smarter data center users looking for “just-in-time” delivery and shorter commitments. It’s still a young business, and operators are learning to incorporate leased data centers, which offer control of infrastructure, into their mix, he says.
For his next act, Ascent CEO Phil Horstmann plans to be a trout fisherman. His St. Louis-based firm developed a 250k SF multi-tenant center (CH2) in Northlake and is getting started on CH3 in the South Loop. Ascent’s historically been a more customized/build-to-suit provider. Though typical pre-leasing (think a strip center before breaking ground) doesn’t work with enterprise build-to-suits. You need the site owned, fully entitled, and ready to go with reference designs when courting a sophisticated user, Phil says. He’s seen data center outsourcing on the rise since ’03, and money flowing in has driven down the cost of capital and propelled innovation. After Superstorm Sandy, there’s been great local interest from coastal financial firms, he says.
DCP co-founder Chris Jensen, who dreams of being a professional golfer (it's all in the hips, Chris), tells us his 55k SF data center at 725 S Wells is half full. Being a smaller-sized newcomer to the business--and the market--can be a challenge, he says, since “nobody ever got fired for buying IBM.” But DCP is going after cost cutting and flexible solutions to differentiate its product. He’s also seeing more sophisticated end users than a few years back, which means increased representation and compressed pricing. DCP started out strictly wholesale, but recently built some spec space because tenants were asking for ready-built space and four to six months can allow you to lose a deal, he says.
Cedar Rapids-based Involta CEO Bruce Lehrman’s firm builds retail data centers in secondary markets like Iowa and outside Minneapolis, and he swears he thought of WhatsApp first (we kid). With the data center landscape and technology changing at a rapid rate, owners have to be like Wayne Gretzky and skate to where the puck is going, he says. Bruce is seeing many Chicago firms looking to take their secondary data center outside the city to secondary markets with more land and lower power costs, and the challenge is building out capacity as needed in a modular fashion. Price matters to savvy clients, he says, but they also consider location, reputation, and operational processes (what happens when things go bad).
True or false: moderator Todd Bateman, CBRE’s North American agency practice leader for data centers, is an aspiring men’s sock designer. False, but he was admiring the socks of our esteemed panel. Todd’s been in commercial real estate for 15 years and has spent the last seven doing data centers. He asked the panelists data’s chicken/egg question: Are data centers technology with a little bit or real estate, or real estate with a little bit of technology? (They were still debating when the event ended. We’ll get back to you later.) View more pics from our event here.