Compass Datacenters has completed a $45 million credit facility from KeyBank, and will use the money to finance an "aggressive" growth plan to build wholesale data centers in second-tier markets.
The credit line includes an accordion feature that could increase the size of the financing to $100 million. An accordion provision allows the borrower to expand the credit line if certain conditions are met. Accordion loans have been successfully used by other developers to raise expansion capital for data center projects.
“This funding, coupled with our successful equity raise, provides Compass Datacenters with the capital we need to finance the initial phase of our growth, which will involve construction projects across the U.S. in markets where there is demand for our wholesale standalone data centers,” said Chris Crosby, Founder and CEO of Compass. “Since we entered the market in April, we’ve gotten a tremendous response from the market that validates our strategy of offering standalone data centers to geographic areas that are under-served by traditional providers. With this huge untapped market, the solutions we offer are clearly resonating with customers not only because of our geographic flexibility, but also how we enable companies to connect and grow their data centers in bite-sized chunks.”
Designing for Smaller Markets
The company says it is optimizing its data center design to fit the demand profile of smaller markets. Compass has developed a standardized design for a 21,000 square foot data center that it believes will provide the right amount of IT capacity for customers and the right economics for Compass.
“Compass Datacenters is pioneering a major area of growth for the data center industry by offering wholesale standalone data center products that meet the needs of companies that are in geographic areas that are not well served by traditional providers," said John Murphy, Managing Director of Real Estate Capital at KeyBank. "They have assembled a strong management team comprised of executives with proven track records in data centers and real estate development. Their wholesale business model and proprietary design architecture have the company positioned to be the leader in this growth market.”
KeyBank has participated in credit lines that provided data center construction financing for providers including DuPont Fabros Technology (DFT), Vantage Data Centers, and QTS (Quality Technology Services). Crosby, an industry veteran who helped build the wholesale data center operation for market leader Digital Realty Trust (DLR), said the backing of a lender with KeyBank's experience in the sector was an significant vote of confidence.
"It's important to get an institution like KeyBank on from the start," said Crosby. "It gives me the flexibility to focus on running the company instead of (pursuing funding). We're in an asset-based business, and it doesn't matter how great your idea is if you can't fund it."
Compass says it has identified eight markets where it will focus its development efforts. Crosby said announcements of initial markets will be made soon. Compass has been scouting cities with successful colocation and managed hosting providers, such as Raleigh, Nashville, Minneapolis and Houston.