Exclusive: San Francisco to See Its First Data Center Build in More Than a Decade

Yevgeniy Sverdlik

August 9, 2017

4 Min Read
Aerial Views Of San Francisco
Justin Sullivan/Getty Images

No colocation data center has been built in San Francisco since the early 2000s, when hosting company AboveNet (now defunct) built the city’s well-known facility at 365 Main Street. That building is now owned by Digital Realty Trust, and together with Digital’s other San Francisco facility, at 200 Paul Avenue, it is one of only a handful of commercial data centers in the city.

At least one property, close to 200 Paul, has been marketed for data center development by various real estate agents over the years, but no-one has bitten, and the building at 1828 Egbert Avenue remains a commercial storage facility.

San Francisco is a notoriously difficult city to build in and has some of the country’s highest electricity rates. It’s also difficult for PG&E, the utility that serves the area, to provide the kind of multi-megawatt energy feeders in the city a data center would require. Bay Area’s data center cluster is in Silicon Valley; that’s where virtually all of the region’s server-farm construction has taken place over the last two decades.

But one developer is moving ahead with construction of what will be the first new commercial data center facility San Francisco will have seen in well over a decade. Fifteenfortyseven Critical Systems Realty, a Matawah, New Jersey-based data center builder and landlord, has acquired a piece of land at 400 Paul Avenue (right next to 200 Paul) and expects crews to put shovels in the ground sometime in the fourth quarter.

The deal, on which fifteenfortyseven partnered with the Los Angeles-based real estate investment firm CIM Group, closed August 4. “That’s the starting gun,” Todd Raymond, fifteenfortyseven’s CEO and managing director, said in an exclusive interview with Data Center Knowledge.

The partners bought the property in the city’s Bayview district from The Cambay Group, the Bay Area-based real estate developer that built 200 Paul in 1999. Cambay has been marketing it as a data center development site for several years and has already secured all the necessary permits from the city, Raymond said. “We’re essentially shovel-ready at this point.”

The developer’s representatives have spoken with about a dozen companies interested in leasing space in the facility, he said. They include the full range of businesses you’d expect to be curious about data center capacity in San Francisco: hyper-scale cloud, social media, managed cloud, retail colocation, and international telecoms players. “I would say it’s not New York City financials,” Raymond said.

But the project is fully funded, and the partners are not planning to wait until they close a contract with an anchor tenant to start building. They do plan to look for debt financing at some point in the future, ideally after an anchor tenant signs.


Rendering of fifteenfortyseven’s future data center at 400 Paul

At the moment, the plan is to build a two-story, 187,000-square foot powered shell. PG&E has agreed to provide a 12MW power feeder to the site and another 12MW feeder once it completes a substation upgrade, according to Raymond. The property has two existing three-story buildings, which the developer plans to turn into office space for future tenants.

While Raymond is optimistic that there is enough demand to lease the future data center at attractive rates, Jabez Tan, research director at Structure Research, said there does not appear to be pent-up demand in the city, due primarily to cost and availability of cheaper options elsewhere on the West Coast.

“It has been hard to justify the premium to deploy directly in San Francisco when there are more cost-effective options to serving the Northern California market,” Tan said. Markets like Portland and Hillsboro, Oregon; Phoenix; Las Vegas; and Sacramento, where costs are much lower than in the Bay Area, have seen strong growth in recent years, while the two major colocation data centers in San Francisco, 365 Main and 200 Paul, “are still at modest utilization levels of 80 percent and 68 percent, respectively,” he said.

It may be easier for the site to compete with Silicon Valley, where the data center market is tight on supply, and little land is available for new construction.

The most attractive qualities of the building will be its location – San Francisco is a high-tech hotbed, and today has more tech-company offices than it’s ever had – and the potential for future tenants (or tenant) to interconnect with networks at the neighboring 200 Paul, one of the region’s primary peering sites.

But while many IT shops still like to have their data centers near their offices so they can send their own technicians there, the industry is trending toward managing infrastructure remotely, and cost benefits almost always outweigh proximity benefits. (Amazon and Microsoft being headquartered in Washington State hasn’t deterred them from building out their largest cloud data center clusters in Northern Virginia, where land and power are relatively cheap, and where they can peer with a large number of networks.)

Raymond, however, believes there are enough attributes to 400 Paul that will make it attractive to data center tenants. “There’s demand in urban San Francisco,” he said. Besides location and connectivity, there’s value in the future offices at the site. You could have a 10MW data center and 25,000 square feet of office space to house your entire tech-support office; and that combination is not readily available anywhere else in the area, he said.

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