Will Santa Clara’s Data Center Boom Continue?

Santa Clara, Calif. has been a hotbed of data center activity this year. But will this trend continue? The city’s combination of affordable electric power and a prime location in Silicon Valley has made it a magnet for data centers, and most of the major data center developers have been expanding in Santa Clara.

But last week DuPont Fabros said it would suspend constructionon its planned $270 million data center campus in Santa Clara. The company’s plans called for a pair of 300,000 square foot data center buildings with a power capacity of 72 megawatts. DuPont Fabros said its decision was driven by spending constraints after it raised $100 million, rather the $300 million it had hoped, from a refinancing of one of its Virginia properties. 

Does the decision represent a change in sentiment about demand in the Santa Clara market? Or was it driven solely by internal factors at DuPont Fabros? We’ll hear more from DFT when it releases its earnings. But we also touched base with data center developers with active projects in Silicon Valley.

CRG West Plans New Santa Clara Data Center

CRG West will build a data center campus in Santa Clara, Calif., continuing the company’s expansion of its data center footprint. The new project adds to the data center boom in Santa Clara, which is currently the focus of major new facilities from most of the industry’s largest players.

CRG West has closed on land for 350,000 square feet of data center and office space. Construction will start in August on the first building, with scheduled completion in the second quarter of 2009. The phased 50 megawatt development will be powered by Silicon Valley Power, the utility whose low power rates have made the city of Santa Clara a magnet for data center projects.

The first phase of the project will provide data center and peering services for CRG West customers, ranging from single-cabinet colocation space up to blocks of wholesale of up to 20 megawatts of power. The company is offering one of the planned buildings as a custom opportunity for a single user as part of CRG West’s recently-announced build-to-suit program for companies looking to expand their data center space while conserving capital.

Fortune Data Centers Readies San Jose Facility

When Fortune Data Centers was looking for its first development project in 2006, it anticipated the importance of power and cooling in new facilities. “What we saw was that everybody would be looking for old data centers and then want to add power and cooling,” said John Sheputis, the company’s founder and CEO. “We thought, ‘let’s go find a mission-critical building that already had the power and cooling and then bring the fiber to it.’ We decided that a retiring fab (semiconductor fabrication facility) would have the power and cooling we needed.”

Sheputis and his partners acquired a former Seagate fabrication facility in San Jose, Calif., and are busy transforming the site into a 140,000 square foot data center in the heart of Silicon Valley. Fortune Data Centers plans to complete the 80,000 square foot first phase of the project in October.

It turns out that Sheputis didn’t have to look far to find fiber. The facility is sandwiched between data centers for NTT and Verizon. “The buildings property lines are wrapped in fiber,” said Sheputis.

Bank of America Selling Concord Tech Center

Bank of America (BAC) is seeking to sell the Concord Technology Center, a 1 million square foot campus that includes a large data center, according to East Bay Business Times (subscription). About 2,500 people work at the four-building campus in Concord, Calif., down from a high of about 3,700. Bank of America is seeking to lease the properties back from the buyer for a minimum of two years.

The list price wasn’t disclosed, but the paper cited sources saying it would likely be in the neighborhood of $200 million, or $200 a square foot. The Concord Technology Center was built in 1985, and has been used by BofA for disaster recovery and software development. The facility played a key role in the bank’s operations during the Loma Prieta (World Series) earthquake in 1989, supporting the bank’s electronic networks while its primary data center in San Francisco switched to generator power.

Santa Clara: The Hottest Data Center Market?

Data center demand remains strong, and no market is any hotter than Santa Clara, California. The city, long known as a data center hub for Silicon Valley, will soon be home to new data centers for Facebook and Yahoo. Several major data center developers have expansions planned for Santa Clara later this year, including Dupont Fabros (DFT) and Terremark (TMRK).

“I think (Santa Clara) is one of the best markets in the country, and I wish we had product available sooner,” said Hossein Fateh, President and CEO of DuPont Fabros, who said demand has accelerated because the city has cheaper power (about 7 cents per kilowatt hour) than many other areas of Silicon Valley. “Historically, from an Internet standpoint, that’s been the best market in the country. If you’re after a 3 megawatt or 5 megawatt (data center) deal, it doesn’t make sense to go to the Pacific Northwest because you have to take whole team.”

Manuel Medina, the CEO of Terremark Worldwide, says his company already has strong demand for its planned expansion in Santa Clara. “We expect to break ground on the project on the second half of this fiscal year, and we expect to have an executed (customer) contract before breaking ground. A lot of the demand is coming from existing customers in our current facility, which is immediately adjacent to the land where the project will be located.”

New Data Center Space in San Francisco

There’s been a boom in new data center development in Silicon Valley, with particularly strong activity in Santa Clara. It’s been a different story in San Francisco, which has had strong leasing activity in existing carrier hotels and data centers (especially Digital Realty’s 200 Paul Avenue and 365 Main), but little in the way of new data center development.

Earlier this month Cardiff Mason Development began seeking data center tenants for 1828 Egbert, a 120,000 square foot San Francisco facility. The four-story property features 32,000 square feet of space on each of the top three floors, and 23,000 square feet on the ground floor. The site is configured for 14 megawatts of power.

UnitedLayer Expands at 200 Paul, Again

For several years now, multi-tenant data center operators have cited existing customers seeking additional data center space as a factor in their expansions. A compelling example of this trend is seen in UnitedLayer’s continued expansion at 200 Paul Avenue in San Francisco.

Last week UnitedLayer announced its third expansion in the last seven months at 200 Paul, the carrier hotel owned by Digital Realty Trust (DLR). UnitedLayer has leased an additional 6,000 square feet of space through Digital’s Turn-Key Datacenter program.

“We have seen an exciting growth trend across our service offerings,” said Richard Donaldson, COO of UnitedLayer. “The acquisition of this space is a tremendous boon to our customers and an excellent opportunity to offer more facility options to current and future clients.”

Busy Year for Santa Clara Data Center Deals

It’s been an incredibly busy year for data center real estate in Santa Clara, Calif. Two deals this week cap a series of transactions in which data center builders have bought land or buildings to capitalize on strong demand for mission-critical space in Silicon Valley. Here’s a rundown on the data center transactions in Santa Clara in 2007:

• Dec. 14: Quality Technology Services purchased a 120,000 square foot data center it had been leasing since it bought Globix in 2006.
• Dec. 13: DuPont Fabros Technology (DFT) paid $22 million to buy 17.2 acres of land in Santa Clara, where it will build two 300,000 square foot data centers.
• Sept. 12: Digital Realty Trust, Inc. (DLR) buys a 50 percent ownership interest in a joint venture partnership with Pelio & Associates for 1500 Space Park Drive, where the companies plan to build 343,000 square feet of data center space.
• Sept. 11: Terremark (TMRK) pays $12.2 million to buy two properties adjacent to its existing data center on Colvin Drive in Santa Clara. Terremark will build a 50,000 square foot data center at the site, with additional expansion possible.
• July 2: Microsoft (MSFT) paid $200 million to Savvis (SVVS) to purchase leases in two Santa Clara facilities owned by Digital Realty Trust (DLR).
• June 14: Equinix (EQIX) says it will invest $41 million to expand its existing data center in Santa Clara, Calif. by approximately 1,100 new cabinets. Equinix said it hopes to open the expansion space in the second quarter of 2008.
• May 9: Behringer Harvard pays $70 million to acquire the Santa Clara Tech Center, a three-building complex with two office buildings and a facility that will be converted into a data center.
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• Silicon Valley REIT Mulls $1.8B Deal

  July 16th, 2007 : Rich Miller

  Mission West Properties (MSW), a real estate investment trust that operates more than 100 research and development properties in Silicon Valley, is in talks to be acquired by a private equity fund for about $1.8 billion. The company’s largest tenants include Microsoft Corp. (MSFT), Apple (AAPL) and NEC Electronics America. Mission West manages 107 properties totaling about 7.7 million rentable square feet. If the deal goes through, it would be the largest commercial property sale in Silicon Valley history, as measured by square footage.

  Mission West announced the negotiations in a press release Saturday, but did not name the potential acquirer. But media reports identify the bidder as Starwood Capital Group, a Connecticut-based real estate investment firm. Under terms of the deal, holders of Mission West common stock could receive $13.55 per share in cash, which is below Friday’s closing price of $13.69, as well as the $14 to $15 range for the company’s shares between February and June. Any acquisition would be subject to a due diligence review and regulatory and shareholder approval.

  While Mission West’s focus is on R&D properties, the deal could also have implications for the data center market in Silicon Valley. Retrofits of existing industrial properties are the fastest way to bring new data center space online. In recent months there have been a series of deals in Santa Clara involving projects to convert existing industrial or R&D sites into data centers to meet the strong demand, with buyers including CRG West, Behringer Harvard and Pelio & Associates. Mission West also owns several parcels of vacant land in the Valley that might be of interest for building new “greenfield” data center projects.

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• Three Santa Clara Data Centers Sold

  May 9th, 2007 : Rich Miller

  Real estate investment firm Behringer Harvard has acquired the Santa Clara Tech Center, a three-building complex on 22.8 acres in Santa Clara. Behringer Harvard paid $70 million for the property, which it called “one of the most desirable locations for data centers in the Silicon Valley.” The complex includes facilities located at 700, 750 and 800 Central Expressway, which total 456,000 square feet of space.

  The deal reflects real estate investors’ growing interest in the data center sector, and especially the opportunities provided by conversions of existing industrial properties into premier data centers.

  Two of the buildings at Santa Clara Tech Center are leased to Hitachi Data Systems, Japan’s largest electronics company. Behringer Harvard plans to convert the third building, 800 Central Expressway, into a data center to capitalize on strong demand for data centers in Silicon Valley. A previous tenant made “extensive interior and exterior improvements” that will aid the conversion process, the company said.

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