Amerimar Enterprises and Abrams Capital have acquired 401 North Broad Street, the major data center and carrier hotel in Philadelphia, and will partner with telecom industry veteran Hunter Newby to own and operate the property. The new owners will invest and reposition the 1.3 million square foot, fiber-rich building.
“Over the past 30 years, 401 North Broad was strategically repositioned to become the preeminent telecom carrier hotel in the Philadelphia region under the stewardship of The Stillman Group," said Amerimar CEO Jerry Marshall. "Amerimar looks forward to continuing with the repositioning of the property through our $70 million capital improvement program. 401 North Broad, with over 80 networks, is a logical addition to our portfolio of carrier hotels, and we are very excited to partner with Hunter Newby on yet another telecom property.”
The building is about 70 percent leased and has good cash flow, according to Marshall. "The most important thing about the bulding is the connectivity," he said. "Any business coming to this city looks at this place. It should win any telecom, network deal until it’s full. It’s been in the hands of an owner who was not really set up to put a lot of capital in the property, and it will benefit tremendously."
New Meet-Me-Room to be Added
Perhaps the most noteworthy investment will be the creation of a 25,000 square foot Meet-Me-Room where tenants will be able to make physical connections between their networks. The new owners will also update the facades and putg in new windows, as well as invest in the interior by improving and putting in additional shaftways.
Amerimar specializes in redeveloping and repositioning real estate assets, with its projects including the nearby data center hub at 1500 Spring Garden in Philadelphia.
Amerimar and Newby have teamed on two other deals, both important carrier hotels - 325 Hudson in New York and Kansas City Data Hub 1102 Grand, which saw a fair share of upgrades post-acquisition. "I'd say we have an NFL city strategy is the best way to put it," said Marshall. "We want to buy the most important, or one of the most important buildings in the city where we can take it to the next level, improving the infrastructure for the tenants and implementing our own Meet-Me-Rooms. There's no monthly recurring costs for cross connects, ever. By owning the real estate and owning the business, we have a lower cost structure so it benefits the customer."
Newby is well connected in fiber and interconnection circles from his experience building the Telx Group’s business at the 60 Hudson Street carrier hotel in Manhattan.
"401 North Broad Street is an extraordinary carrier hotel,” said Newby. “Not only is it a major junction point for the north-south domestic fiber routes on the east coast, but it is also home to several transatlantic submarine cable systems, making it a renowned international gateway."
Philadelphia's Key Data Center Hub
401 North Broad was originally developed in 1931. The property was redeveloped into the major carrier neutral facility between New York and Virginia and serves as a major hub for traffic, as well as an interconnection point between carriers service providers and enterprise customers. The building is also a gateway to long haul fiber in the region and offers direct access fiber routes to Europe.
The big tenant at 401 Broad Street is Sungard Availability, which is also the dominant colocation provider in the region. The key driver for business in the region, apart from local business, is disaster recovery. Sungard’s strong disaster recovery business is the reason it’s so strong in the market. Philadelphia is located less than 100 miles from New York City and is also located less than 160 miles from a busy northern Virginia market, placing it between two of the top data center markets in the United states. The Philadelphia data center market has seen slower growth as capital tends to be deployed in those nearby markets. However, this means there is a lot of opportunity, given that it’s believed to be an underserved market.
The Philadelphia economy is based on diverse sectors that include health care and medical services, manufacturing, and financial services.
"We're very proud of what we've accomplished at 401 North Broad over the years, turning a somewhat bedraggled and relatively empty, but historically significant, building into this extraordinary asset," said Abbott Stillman, Chairman of The Stillman Group. "I am truly delighted to have passed it on to Jerry Marshall and his partners and team, who collectively will, I'm sure, take this property to the next level. They are very worthy and honorable successors, and we know they will meet with the great success they deserve.".
Long History for Partnership
The acquisition is the culmination of a longstanding partnership between Newby and Marshall, a rich collaboration that has so far rejuvenated all the properties it touches.
"Back around 1990-91, we (Amerimar) were developing a neighboring property to 401 North Broad," said Marshall. "We bought it to make it a telecom hotel. We got a couple of leases going, but it wasn't turning into a carrier hotel. I found out Hunter was doing the Carrier Neutral Meet Me Room at 60 Hudson for Telx, and reached out to Hunter and asked for his thoughts. He said 'What you have here is an amazing data center, but the telecom hotel in Philly is 401 Broad. All of the carriers are there, and there’s nothing you can do to get them to leave.' I always wanted to own 401 North Broad after I found out we couldn’t make the neighboring property a carrier hotel.
"I’d send Hunter opportunities to get his opinion," Marshall continued. "When we bought 325 Hudson, Hunter said 'I know this building, it’s very important and we can make magic with this building.' So we bought it completely full, and the magic is happening. We’re getting all the names that we would hope for. Over time we’ll continue to expand that Meet Me Room. Then I said, 'Hunter, what else?' He said 'I have a couple of friends at 1102 Grand that have a lot of value but are probably not inclined to take it to the next step.' We bought that, and we’ve been thrilled with the customer activity. We’re expanding, adding power and new customers are coming to the property. Once a week, we have a call with the business developer there, and it is the highlight of my week."
Debt financing for the acquisition was provided by Starwood Property Trust. Ropes & Gray LLP, with a team led by partner Walter R. McCabe III, represented Amerimar and Abrams Capital on the acquisition.