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Capital Strength a Priority for i/o Data Centers

i/o Data Centers says the company's investor relationships and approach to capital management have paid off in $56 million in new funding to expand their data center operations.

The way Tony Wanger sees it, financial strength is part of data center reliability, and capital can become a single point of failure. 

Wanger, the co-founder and President of i/o Data Centers, says the company's investor relationships and approach to capital management have paid off, positioning it to plan new data center projects while other companies are reining in their expansion ambitions.

i/o Data Centers announced yesterday that it has received $56 million in equity financing from Sterling Partners. "Some of the key folks at Sterling know us very well, and know our track record," said Wanger. "We've had a very good fall, and we need to expand. We are firing on all cylinders. "

The company is nearing capacity on its first project, a 125,000 square foot data center in Scottsdale, Arizona. Wanger said that i/o is planning a second facility in the Phoenix area, and looking for expansion opportunities in several new markets.

i/o Data Centers joins a short list of data center builders who have the financing to develop new facilities. Some of them, like Equinix (EQIX) and Rackspace (RACK), have said they might use some of their cash to acquire distressed data center projects. Wanger said i/o will be looking to overhaul an existing building for data center use, but is unlikely to acquire an uncompleted data center project.

"We like to design and build from scratch," said Wanger. "We've got a formula we follow extremely closely, and there are plenty of empty buildings in America."

Wanger's previous data center project with Sterling was the Downtown Phoenix Technology Exchange at 120 East Van Buren, which became the city's leading carrier hotel, and was eventually acquired by Digital Realty Trust for $175 million. The team from that project soon formed i/o Data Centers, acquiring the site in Scottsdale to develop additional data center space as Phoenix became a hot market for disaster recovery.

Wanger has a background in finance, and says many investors have struggled to sort out data centers as investment properties. Data centers are specialized properties that are capital-intensive to build, and the overbuilding during the dot-com boom left many large investors wary of the industry. 

Getting the right capital structure and cost of funds is critical for a data center project, Wanger says, and has become even more important in the current environment, in which capital is not just hard to find, but more expensive. He says i/o and Sterling have focused on a "get rich slowly" approach and developing a capital structure that can work through economic cycles, rather than boom periods.

That's an approach that may have competitive benefits. After major providers like Exodus and filed for bankruptcy following the dot-com crash, a provider's financial stability became a key selection criteria for customers seeking space. In the financial crisis of 2008, data center providers with financial strength figure to benefit from a similar "flight to quality." 

"We're seeing a shakeout going on," said Wanger. "The guys that are making money are doing fine."

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