If you are a corporation that has a data center that’s reasonably up to date, this may be a good time to sell it.
You’ll get out of the business of data center management, recoup millions of dollars of capital, and prevent losing any more money to depreciation. If you sell it, you can stay in the facility as a tenant and use the money you made from the deal to upgrade the infrastructure.
That, essentially, is the case Sean Brady, senior director at the commercial real estate firm Cushman & Wakefield, is making in an appeal to operators to consider a data center sale-leaseback transaction. Benefits of the sale aside, now is a good time to sell simply because there is currently a number of buyers in the market seeking such deals, money in hand.
“They are primarily private equity firms, who have got a technology background and have invested in data center companies over the last several years,” Brady said about the buyers. “They understand the industry, and they understand real estate, and they are very confident in buying.”
They want data centers, because a data center is a very stable asset, where the likelihood of a lease renewal by the tenant, who has spent millions upon millions on equipment inside, is very likely.
Brady said he was currently involved in three such deals. One data center is owned by an enterprise, the second by a service provider, and the third by a local landlord, he said.
Some of the biggest examples of active data center buyers are Carter Validus Mission Critical REIT and GI Partners, a private equity firm. The former’s modus operandi has been buying occupied data centers and hospitals in exactly the kind of sale-leaseback transactions Brady is talking about. In fact, the real estate investment trust announced its most recent data center purchase just this month: a $56.7 million acquisition of a data center in Alpharetta, Georgia, that was built for a financial services company.
These companies don’t limit themselves to corporate data centers. Carter Validus, for example, bought two data centers from IO in the Phoenix market last year, leasing them back to the colocation provider. Also last year, GI Partners acquired service provider Peak 10 and its 24 of its data centers.
A corporate data center that is not nearing its end of life, however, is an attractive proposition for investors. That it’s not near the end of life is an important factor. It has to be a facility the occupant wants to stay in. Otherwise, it doesn’t make much sense for an investor to buy it and then invest millions of dollars in renovating it to bring it back to market.
A data center that’s run down to the point where the occupant wants to get out of it would be an example of the owner having waited too long to get rid of the property, Brady said. For a company in this situation, the best way to go may be to take down some space with a wholesale provider.