San Antonio: Microsoft Put Us on the Map

San Antonio was aggressive in offering incentives to attract a huge Microsoft data center, and has used that win to attract other data center projects. A look at how an anchor tenant can aid in development of data center clusters that can boost a local economy.

Rich Miller

November 16, 2009

3 Min Read
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An aerial view of the 470,0000 square foot Microsoft data center in San Antonio.


A look at the Microsoft Corp. data center in the San Antonio suburb of Westover Hills. Local officials made aggressive use of economic incentives to land the $550 million project. (Credit: Aero Photo).

Economic development officials in San Antonio have been touting the city as a data center destination for years. The game-changing moment arrived in 2006, when Microsoft was scouting locations for a $550 million data center project. Local officials retooled their incentives, hoping to present Microsoft with an offer it couldn't refuse.

"We were very aggressive," recalls Mario Hernandez, who heads the San Antonio Economic Development Foundation. "We knew we had to be more aggressive because we needed a data center anchor, and we saw Microsoft as that anchor."

Building A Data Center Cluster
The city won the project, and has used the Microsoft win to attract other data center projects, including projects from Stream Realty and Power Loft on nearby tracts in the Westover Hills section of the city. Frost Bank, Valero, Lowe's and Christus Health Systems also operate data centers in the city, which is also home to a major cloud computing player in Rackspace (RAX).  

San Antonio offers one of the best examples of an economic development official’s data center dream scenario: one major project prompts other companies to follow, opening the floodgates for an influx of investment.

There are key differences between San Antonio's assets and approach, which won't work for every region. But the city's approach offers insights for other areas seeking to attract data center projects.

San Antonio offered Microsoft a 10-year property tax abatement, making an exception to rules that limited abatements to six years unless the project created 500 jobs. Although Microsoft would need just 75 workers to staff the data center, the 10-year abatement was approved - along with a recommendation that city-owned utility CPS Energy foot the bill for $5.2 million in power transformers for the Microsoft data center.

Goal: A 'Must See' for Site Location
"It was a very unusual move," said Hernandez. "But we knew that project would put us on the map, and it has. It has sent a very clear message. When Microsoft makes a decision for you, it gets attention. It has provided us the leads for most major data centers that can operate in this part of the country. We have become a 'must see' for most data center projects."

San Antonio is the seventh-largest city in the U.S. with more than 1.3 million residents, according to the latest data from the U.S. Census Bureau. Affordable land is plentiful, and the city has a favorable profile for natural disasters, with no history of earthquakes and an average of one tornado a year. San Antonio is about 120 miles inland, blunting the potential impact of all but the most powerful hurricanes. 

Power Usage Benefits City 
The city also owns the local power and gas utility, and makes 14 cents on every dollar spent on power by large users. "We've always been an attractive community for power-intensive operations," said Hernandez. "We have an added incentive to attract data centers because of the unique ownership structure, which justifies targeting data centers. You can see the impact that it has on the financing of government."

A key factor for Microsoft was the availability of recycled water for use in its cooling towers. The San Antonio Water System has been offering recycled water to its industrial customers since 1996. Recycled "grey" water isn’t fresh or drinkable but is not contaminated by any toxic substances or toilet wastes, and is considered environmentally friendly because it reduces demands for fresh water.

Water Availability During Drought
Hernandez says recycled water is also more available then fresh water in a crisis. "It saves money on price, but it also guaranteed a supply in the event of a drought," he said. "You've got to be able to provide that predictability."

While the long-term economic benefit remains unclear for some states that have used incentives to attract large data center projects, Hernandez says the strategy has been a  winner for San Antonio.

"We're convinced that if you want to have part of the 'home of the Internet' in your community, you have to make sure that you're a player," he said.

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