'A Big Data Problem': Capital Needs Education For Data Centers To Meet Demand
Uber is active in 70 countries, but when it comes to handling data, it is able to serve the entire world through its centers in the United States. But as self-driving cars move closer to a reality, it may need to completely reassess how it deals with and stores its data.
“Each self-driving car goes for around for maybe four hours [and] it goes through two terabytes of data," Uber’s head of global connectivity and telecom, Rahul Vijay, told the audience at Bisnow’s Data Center Investment Conference & Expo last week. "That’s the same amount of data the whole state of Hawaii consumes in a month. And if that becomes 3,000 or 30,000 or 3 million self-driving cars in the world, it’s a really big data problem.”
It is not a story unique to Uber. Technology, data and the way we use them are moving into a realm that would have been unimaginable just a few years ago.
With 5G data speeds now being rolled out in select cities across the U.S., companies looking to leverage artificial intelligence in their business and users demanding access to be faster than ever before, the implications for real estate over the next three to five years are going to be profound.
“New companies are starting as mobile first … You really have concentration of players wanting to expand data centers in many markets, reaching closer to the eyeballs,” Vijay said. “The 5G [rush] is going to revolutionize the new hunger for new applications and new AI.”
With these rapid changes in mind, where data centers are going to be clustered, how they will need to look and how to overcome the challenges of getting them funded were all discussed at the event.
“We are still in infancy, from a real estate asset class perspective,” Legacy Investing Vice President Justin Kline said, likening the data center space to third-party logistics five to 10 years ago.
His firm is based in Northern Virginia, and owns six data centers. Earlier this year, it joined with Silverpeak and Oaktree Capital Management to buy a portfolio of office, industrial and data center campuses in Cleveland and Cincinnati spanning 70K SF of raised floor space and 6.7 megawatts of power capacity.
“There is a ton of equity chasing the space [and] a lot of it is not as educated,” Kline said.
But insatiable consumer demands for technology won’t wait. Around 600 zetabytes — 600 trillion gigabytes — of new data is now created in the U.S. every year, meaning we will need about 4,000 new data center facilities by next year.
While many are still wrapping their heads around the implications of 5G, some companies are already working on 6G, according to Mimi Tan, the vice president of network design and architecture at Iron Mountain Data Centers.
“Human-brain-computer interface, I think, will happen when 6G becomes a reality,” she said.
She said 6G could be about 10 years away from commercial release.
“When that human brain thing happens, I am out of here,” joked Newby Ventures' Hunter Newby, who developed what is known as a “carrier hotel” at 325 Hudson St., and has several other sites in the U.S. and Canada.
Real estate companies are rushing to catch up. Right now, there is some 63.4M SF of data center space around the world, and another 4.3M SF under construction, according to JLL.
The brokerage has predicted that pipeline will explode in the next few years, particularly around urban centers as wireless networks switch to 5G. But, panelists said, while there is significant capital interested in getting into the sector, there are few who truly understand the intricacies.
“There [are] only a handful of debt providers out there that actually understand the space,” Next Tier HD founding principal David Spiewak said. "It's growing, but it becomes a challenge."
Spiewak said his firm invests in “pure-play data centers” and is actively looking to acquire more. A partnership between Next Tier HD and RedBird Capital partners last month picked up a data center in Monroeville, Pennsylvania.
“A lot of the process is education," he said. "[A] mixed-use asset [that has] a data center component to it … We are doing more traditional-type sources, it's getting them educated on what the uses in the asset are.”
In the process of trying to develop a data center in Atlanta, Next Tier worked with a group for months before the potential partnership ultimately fell over, Spiewak said.
“We probably spent four and a half months with them," he recalled. "We went through everything, and at the very end ... they said they didn’t understand the generator server, [asking] ‘What is that?’”
Landmark Dividend Senior Vice President John Regan said the funding component can be particularly challenging, and that the key is aligning the right capital sources with the investment.
“It really depends on what that thesis is,” he told the audience. “The education process, from personal experience, can be very substantial, onerous and frustrating. You're jumping through hoops to provide information to get an equity partner comfortable.”
Quynh Tran, the co-head of infrastructure finance at Sumitomo Mitsui Banking Corp., said in the last two years, she has been fielding calls from infrastructure funds that want to get into the space.
“Something like a JV with Equinix or a JV with Digital Realty is ideal for them. It's a very good marriage of capital that is out there with a strong, knowledgeable partner,” she said. “Some funds feel that to get higher returns they are backing smaller developers — sometimes it's an entrepreneur or two that has identified some land and close relationships with hyperscalers … and they are backing development capital and taking the long-term view.”
Some panelists said subsidies are having a major impact on the conversation about where data center development should take place.
“Any incentive that we can find that our customer base [can use] … is hugely important,” said TierPoint Chief Resource Officer Tony Rossabi, whose firm owns more than 40 data centers across the United States. “More incentives would be helpful.”
Landmark’s Regan said anyone looking to build a data center that is not looking at economic incentives is “making a major mistake.”
“You can spend hundreds of millions of dollars on the tech infrastructure," he said. "And if you can get a tax abatement on the personal property, that's very significant and can almost rationalize the entire cost of the data center build over the life span."