A map of northern and central New Jersey, showing the locations of prominent data center hubs.

The data center market in New Jersey has traditionally focused on colocation facilities and single-tenant data centers in several northern counties located directly across the Hudson River from Manhattan and the Wall Street companies that drive demand. But the Garden State’s data center geography is now expanding southward to include a growing market for wholesale data center space in central New Jersey, where some of the industry’s largest players are building new facilities.

New Jersey is one of the most active data center markets in the country. It’s also an interesting case study in some of the trends sweeping the industry, including the drive towards more efficient use of capital – a trend that has been accelerated by the financial meltdown of 2008 and the discipline it has imposed on key data center users in the NJ market.

“New Jersey is really the best petri dish in the country for some of the changes in the data center industry,” said Chris Crosby, senior vice president of corporate development for Digital Realty Trust. “New Jersey was the quintessential do-it-yourself market. But in the last five years it’s become one of the most interesting markets for outsourcing. What we’re seeing is a true reflection of the balance between risk and control.”

Emergence of Wholesale Model
That balance has boosted interest in the wholesale data center model, in which a tenant leases dedicated, fully-built data center space. The model offers greater control and security than shared colocation space, and is quicker and cheaper than building an entire data center facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.

But it’s not a fit for everyone. The economics of wholesale space are attractive to companies requiring at least 1 megawatt of power capacity for their data center.

Digital Realty Trust (DLR) has been an early mover in the development of the central New Jersey market. The company was already a major player in the northern New Jersey market with a 300,000 square foot facility in Weehawken that serves as a key hub for high-frequency trading by Wall Street firms. In 2006 Digital Realty purchased 3 Corporate Place, an empty commercial building in Piscataway, and transformed it into a wholesale facility that now houses data centers for two major hosting companies and a currency trading firm.

In 2008 Digital Realty bought two more buildings in the area to support additional demand for data center space. 365 South Randolphville Road in Piscataway is a 270,000 square foot facility that is being leased as both Turn-Key Datacenter (wholesale) space and as Powered Base Building (powered shell). Nearby is 650 Randolph Road in the Somerset section of Franklin Township, which houses an early customer in Digital Realty’s POD Architecture custom design program.

New Players, New Projects
Two more data center builders are working on projects offering wholesale data center space in the same area.  DuPont Fabros Technologies (DFT) is building the first phase of a major data center in Piscataway that will eventually offer 380,000 square feet of wholesale space. After funding-related delays, DuPont Fabros has commenced construction and hopes to begin installing customers in the fourth quarter of this year.

“We think New Jersey is one of the strongest markets in the country,” said Hossein Fateh, president and CEO of DuPont Fabros.

Meanwhile, Sentinel Data Centers and Russo Development have begun construction on a large multi-tenant wholesale data center facility in Somerset. The companies have acquired a 22.5 acre site with an existing 230,000 square foot single-story structure.

Sentinel is new to the Jersey market but operated three data centers in Massachusetts and Connecticut, which it recently sold to Digital Realty Russo has specialized in construction of single-tenant data center buildings for financial companies in North Jersey.

Shifts in Geography, Philosophy
The growth of the wholesale market in central Jersey represents a shift in both geography and philosophy. Piscataway and Somerset are further south than the traditional data center hot spots in Hudson and Bergen counties, where companies like Equinix (Secaucus) and Savvis (Weehawken) have built thriving businesses selling low-latency colocation services to financial firms. Single-tenant financial data centers have also focused on the northern New Jersey locations.

But Piscataway and Somerset are within the data center “donut” – a ring of land in New Jersey that has become the focal point of data center development for New York’s financial industry, its inner and outer boundaries defined by criteria for disaster recovery and the limitations of real-time data replication.

Location isn’t the only shift. Although about 40 percent of large enterprise companies continue to prefer operating their own single-tenant data center, some enterprise and financial companies have turned to the wholesale model as a way to continue to expand their IT operations while using less capital.

“Capital is clearly a driver towards some of the turn-key solutions,” said Crosby. “We see a lot of demand from financial services and Fortune 500, as well as system integrators. The interest (in wholesale space) tends to be sector-dependent. The more advanced the IT organization, the more open they are to outsourcing.”

‘Maturation of the Industry’
“We are now starting to reap the benefits of the education we’ve been doing and the maturation of the data center industry,” Crosby said. “I think that bodes well for our industry.”

A key selling point for the wholesale data center model is speed-to-market, as companies like Digital Realty can deliver finished space in months, as opposed to the 18 to 24 month timetable for new data center construction. That difference could be telling in a market where companies have been delaying expansion plans, with some describing pent-up demand for space.

“We’re seeing the right trends in New Jersey,” said Crosby.

The project brings together two experienced players in the data center market. Sentinel operated three data centers in Massachusetts and Connecticut, which the company just sold to Digital Realty Trust. Russo has specialized in construction of single-tenant data center buildings for financial companies in North Jersey. 

Pursuing Wholesale Model
The new data center in Somerset will offer up to 160,000 square feet of wholesale data center space to enterprise customers. Sentinel has started construction on a dedicated on-site 69kV power substation, which will be supported by diverse paths from two transmission-grade utility switching stations, providing more than 40 megawatts of power to the facility.

“We have incorporated best practices from our eight-year delivery history and recent advancements in data center design into a state-of-the-art facility that we are extremely excited about,” said Josh Rabina, co-president of Sentinel Data Centers. “We have worked hard to optimize a product for the large-footprint user that is as robust and energy efficient as current technology enables and also provides ultimate flexibility for users to add capacity on demand without incurring up-front over-sizing costs due to forecast
uncertainty.”

Russo Development will be a “substantial ownership partner” in Sentinel’s New Jersey project, and will handle site preparation work for the data center.

“We are thrilled to have Russo as a partner in our New Jersey facility,” said Todd Aaron, co-president of Sentinel Data Centers. “Russo is a like-minded organization with a tremendous track record of delivering quality product in New Jersey and we believe its site and shell development skill sets are a perfect complement to our turn-key fit-out and operational capabilities.”

Sees Financial, Pharma Demand
Sentinel’s experience in the data center sector will help it identify tenants for the new facility, Rabina said, most likely from the financial and pharmaceutical sector. “We have a lot of relationships in the financial sector, and pharma’s beena  great market for us,” he said.

Rabina sees the ideal customer for the Sentinel project as an enterprise client that has a need for short-term space and long-term expansion. “We think there’s a model for companies who are at wholesale scale but need to buy additional capacity on demand,” said Rabina. “I think New Jersey’s a strong market for this model.”

The new facility is the latest in a growing cluster of data centers in Middlesex and Somerset counties in New Jersey, where companies like Digital Realty Trust (DLR), DuPont Fabros Technology (DFT), Morgan Stanley and New York Internet all have active development projects.

“”With perpetually growing databases, the demand for world class data centers continues to rise,” said Jim Bistis, Core Services’ President and CEO. “The Somerset Data Center will facilitate Core Services’ ability to design, build, and maintain highly advanced Oracle ERP environments. This will allow Core Services to provide its clients with extraordinary speed, security, and reliable performance at all times.”

“Locating a data center in Somerset also provides us with ready access to a talented pool of highly educated IT professionals and recent graduates from area universities, including Princeton, Columbia, Penn, and Rutgers,” Bistis added. The SDC will provide Core Services with decades of unencumbered growth and scalability at a controllable and predictable cost.”

Operations and administrative teams will begin the transition to the new building immediately, Core Services said, followed by a sequenced migration of hosted clients.

Last week a unit of Brookfield Asset Management (BAM) acquired a portfolio of 16 properties totaling about 2.9 million square feet from J.P. Morgan Chase. The deal included a “650,000-square foot office campus/data center site in Whippany, New Jersey.”

When Bear Stearns was on the brink of failure in March 2008, JP Morgan bought most of the firm’s assets in a deal that was initally announced as a bargain-basement $236 million, but was later adjusted to about $1.2 billion. The assets included two Bear Stearns data centers, including one that was part of a 600,000 square foot campus in Whippany.

JP Morgan is leasing back about 60 percent of the square footage it sold to Brookfield. But the Brookfield press release describes the Whippany data center/office complex as one of two “meaningful value-add opportunities” in the portfolio. The other was the 800,000 square foot 712 Main building in downtown Houston. Brookfield did not respond to inquiries seeking further details on the Whippany property and the company’s plans for it.

Russo is a commercial real estate developer that is a leading supplier of data centers for Wall Street and the providers that support it. Over the past decade the Hackensack, N.J. company has built seven major data center projects spanning 1.7 million square feet for clients including J.P. Morgan Chase, NYSE Euronext, Cervalis Managed Hosting and SunGard Availability Services.

What made Russo Development target this lucrative market? “We got into it by accident,” recalls Michael Pembroke, the company’s senior vice president of leasing and marketing. “In 1999 we ended up working with a tenant, Comdisco (now part of SunGard) that wanted to build a data center in one of our existing facilities. We ended up building a 300,000 square foot facility in Carlstadt, and then building two additional facilities. We now have a total of 600,000 square feet in three buildings in Carlstadt.”

New Jersey Specialists
Russo’s success in the data center market is rooted in the old real estate saying: “location, location, location.” The company’s expertise aligned neatly with the target market for Wall Street firms seeking mission-critical facilities. “We’re local to Northeast New Jersey, and this was the niche we saw in our market,” said Pembroke.

At the time of the Sept. 11 attacks, many Wall Street firms had secondary data centers in Manhattan, Brooklyn and Northern New Jersey. Regulators wanted to ensure that disaster recovery centers were distant enough so that a single event on the scope of a nuclear explosion couldn’t destroy both the primary and secondary facilities. That prompted financial firms to look beyond the five boroughs. In most cases that meant New Jersey, where local utility PSE&G had a track record working with data center tenants.

Russo typically locates and acquires prospective sites, often working with a prospective tenant with a data center requirement. The company has done both speculative data centers and build-to-suit projects, and delivers a powered shell, allowing the tenant to build out the data center area.

One-Stop Shop for Shell Space
“We do a lot of the process in-house, bird dogging the sites to find locations,” said Pembroke. “We have construction management staff and own the heavy equipment, so we can did much of the construction ourselves. We like to think of ourselves as a one-stop shop to build the exterior (of the data center) and let our clients focus on the interior.”

The financial crisis of 2008 has had a major impact on the financial industry, and that extends to its data centers. Wall Street firms that ordinarily might choose to build new facilities have opted to preserve capital and meet short-term needs with colocation or wholesale data center space.

“Many of the companies we talked to haven’t been able to act, so have been forced to band-aid or take temporary space until they’re able to come into an autonomous facility of their own,” said Pembroke. “The capital markets have not loosened up enough yet.

Pent-Up Demand
But he believes financial sector will resume building and leasing. “These companies can’t choose whether or not to have a data center,” said Pembroke. “Sooner or later, this pent up demand has to be met. All of these data centers will continue to locate here.”

But when Wall Street firms have the financial means to invest in stand-alone data centers, will they continue to do so? Or will more opt for the wholesale data center model, which has gained momentum during the economic downturn?

Wholesale providers build the data center, including the raised-floor rechnical space and the power and cooling infrastructure, and then lease the completed facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center. In the wholesale model, users can also occupy their data center space in about eight months, rather than the one to two years needed to build an enterprise data center.

Eyeing The Wholesale Model
“We’re taking a hard look ourselves of being able to deliver different product types,” said Pembroke. “There’s a finite number of users in the marketplace that want 400,000 square-foot data centers. If they had the time and capital, they would have their own facility. But if they don’t have the time or capital, they may be forced to locate to a wholesale data center or colocation provider.

“Very large companies are asking us to write a full turn-key solution and finance the whole thing,” he continued. “Traditional sources of financing have a lot of difficulty with this (data center) asset class. There’s a lot of (investment) funds out there that don’t develop data centers themselves but see data centers as a great opportunity.”

Pembroke believes that the data center business will be healthy in New Jersey for some time to come.

“This is a big part of our business and will continue to be,” he said. “New Jersey has everyone’s attention, and the one bright spot in the market right now is data centers.”

Cisco space router operates in orbit. On Monday Cisco announced that their Internet Routing in Space (IRIS) technology has achieved a major milestone with the successful in-orbit test of the Cisco IOS software’s networking capabilities and the company’s on-board router. The technology was aboard an Intelsat IS-14 commercial GEO satellite and launched November 23, 2009. The Cisco IRIS technology is a program to build a radiation-tolerant IP router for satellite and related spacecraft. Cisco vice president for the Global Government Solutions Group Steven Boutelle said “this milestone is another step in our strategy to expand borderless networks into space and redefine how satellite communications are delivered. This technology can help transform satellite communications around the world by reducing latency and increasing the efficiency.” Managed by Cisco and Intelsat the IRIS program is a Department of Defense Joint Capability Technology Demonstration (JCTD) and the payload will convert to commercial use following a three month JCTD in April 2010.

AboveNet connects all 20 Equinix U.S. data centers. Equinix (EQIX) and AboveNet (ABVT) announced that AboveNet has deployed operations to the Equinix New York-1 data center, marking the company’s deployment to all 20 of Equinix’s IBX centers in the U.S.  AboveNet offers managed services, Ethernet, metro networks and a global Tier 1 optical IP network.  Making use of the Equinix global services delivery platform, AboveNet will enhance peering capabilities with other Tier 1 networks.  Equinix chief marketing officer Jarrett Appleby said “our partnership with AboveNet offers a strong Tier 1 network and high bandwidth connectivity solution options for the community of IBX participants while offering AboveNet significant new revenue opportunities and a national infrastructure for Tier 1 peering and future carrier Ethernet needs.”  Equinix acquisition target Switch and Data announced that Lexent Metro Connect, a dark fiber network provider in New York, has become part of the Switch and Data GeoReach program.  Lexent Metro Connect has also completed construction of a low-latency dark fiber network route to Switch and Data’s North Bergen site located in New Jersey.  The GeoReach program is a select group of providers who have engineered their networks to meet the needs of the high-efficiency trading community.

Huawei to deploy DWDM platform for GlobeNet. Global telecommunications solution provider Huawei was selected to deploy a next generation DWDM (Dense Wavelength Division Multiplexing) optical platform for network transport services company GlobeNet. The Huawei platform will connect GlobeNet’s cable landing station in southern New Jersey to its Point of Presence sites in New York city via two diverse paths. The diverse paths will allow GlobeNet to deliver services to their other sites in Brazil, Venezuela, Bermuda, Florida and others. The network solution provided by Huawei will support 10Gb per second, 40GB per second and future 100Gb per second wavelengths to competitively deliver advanced, high bandwidth services.

New York: It’s been more than three years since we first reported on the infighting among New York State legislators about where to build a new state data center. Well, they’re still fighting. The Albany Times-Union reports that officials are still battling over the site location dispute. The NY state Office of General Services is evaluating 18 proposals by developers to build a 72,000 square-foot data center for the state’s Office for Technology. The leading contenders for the $99 million project are sites in Utica and the Mohawk Valley.

Texas: On Tuesday, state officials released an “agreement in principle” for restructuring an $863 million contract with IBM to consolidate the data centers of 27 state agencies into two streamlined and upgraded facilities, according to the Austin Statesman. The huge project was launched in 2007 but has been plagued by delays and equipment failures.

Missouri: The state General Assembly in Missouri hopes to consider targeted tax incentives that will help the state attract more data center projects. Business groups, including the Missouri Coalition for Data Centers, hope to build upon a cluster of enterprise disaster recovery data centers in the Kansas City, and boost interest in the development of the state’s abundant supply of limestone caves as data center facilities. Missouri is home to several existing underground data bunkers, including The Mountain Complex near Branson and the Springnet Underground in Springfield.

The project is slated to be built in a former Automatic Data Processing facility on Main Avenue in Clinton. Russo Development has not identified the potential occupant, but Clinton officials have told local media they expect the tenant to be Credit Suisse, which has met with township economic development officials.

Russo has built more than 1.4 million square feet of data center space in northern New Jersey, including two recent projects for global financial institutions and another for managed hosting provider Cervalis. These data center projects have all been “greenfield” new construction developments with the shell/core and utility infrastructure designed and built by Russo. The Cervalis site is Russo’s sixth data center project since 2001.

Clifton is already home to the Mountain Technology Center, which houses data centers for Telx and Automated Logic. Equinix, Switch and Data, Savvis, HCL America, New York Internet, Datapipe and NYSE Euronext are all building or expanding their data center operations in northern New Jersey.

• Hibernia Atlantic expands to two Equinix data centers. Submarine transport cable provider Hibernia Atlantic announced Tuesday the expansion of its Global Financial Network(GFN) into the Equinix New York-2 and New York-4 data centers in Secaucus, New Jersey.  The expansion from Hibernia aims to provide low latency, redundancy and connectivity to global banks and exchanges in the New York metro area.  Hibernia’s GFN spans 24,000 Kilometers (14,913 miles) of fiber optic cables across key financial cities around the world.  “Our continued GFN expansion in New York metro and in other major financial centers reflects our core commitment to provide ‘security through diversity’—our company philosophy that offers world-class, redundant solutions to our financial customers,” said Bob McMann, VP of Provisioning and Procurement for Hibernia
• Switch & Data selected by Pragma Securities. Switch & Data announced that Pragma Securities, a trading solutions provider has selected their New York Financial EcoCenter to optimize the performance of its quantitative trading solution.  After an extensive diligence process Pragma selected the North Bergen, New Jersey data center to host its trading execution services, and will be one cross connect away from the other electronic trading customers in the site.
• Nimsoft introduces alliance program. Following the October launch of their Unified Monitoring Solutions, Nimsoft announced their charter members in the Unified Monitoring Alliance Tuesday.  The new monitoring solution provides a total, unified view of both internal and external IT resources.  The Unified Monitoring Alliance partners are made up of service providers, solution partners and technology development partners.  Partners like FusionStorm, Ingram Micro, Shavlik, Service-now.com, Rackspace and many others are among the first to join the alliance.  “The alliance not only expands opportunities for growth and collaborative innovation for our partners, but also effectively increases the breadth and depth of the systems monitoring and management solutions that Nimsoft offers to its customers,” said Nimsoft President Gary Read said
• The Planet signs Ayuda Networks. The Planet announced Tuesday that Ayuda Networks has signed on to join the company’s recently launched Partner Plus program.  Ayuda Networks consults with clients to evaluate connectivity requirements and implement the best solutions for their specific business.  Ayuda will add The Planet to its portfolio of top-tier solution providers and include them in recommendations to clients evaluating managed and dedicated hosting, as well as colocation services.

The “Somerset Three” facility follows the 2006 acquisition of the company’s first Somerset facility and the 2008 expansion into a second facility. Upgrades to the power infrastructure and the implementation of three-factor security systems are expected to be complete for an April, 2010 opening.

The acquisition continues the strong activity in the New Jersey data center market. In recent months, New York Internet has announced a new facility in Bridgewater, while HCL America has acquired a data center in Parisppany. Equinix has also been building out additional space in its data center complex in Secaucus.

DataPipe said the continued expansion in New Jersey was driven by customer activity and demand for additional space.

“In 2009 we tripled the capacity of our London and Hong Kong data centers,” said Robb Allen, CEO of DataPipe. “We expect to be at full capacity in our current New Jersey facilities by the second quarter of 2010, so the addition of this data center is timely and will enable us to continue to meet the growing demand for managed IT services.”

Founded in 1998 and headquartered in Jersey City, New Jersey, DataPipe has more than 1000 customers in seven data centers and eight office locations in Silicon Valley, the New York metro area, London, Hong Kong and Shanghai.