CAPRE’s Boston Data Center & Cloud Infrastructure Summit Preview: Boundary Street Capital’s Rashad Kawmy Says Boston May Be Second Tier, But Still Has Its Strengths
BOSTON, MA — Mr. Rashad Kawmy is a Managing Partner and Co-Founder of Boundary Street Capital Partners, a private credit fund focused exclusively on lending to growing businesses in the communications infrastructure and technology sectors. Boundary Street provides all forms of debt capital to emerging data center, fiber, tower and IT services businesses in the United States. Prior to Co-Founding Boundary Street, Mr. Kawmy was a Director at CapitalSource where he led the Bank’s lending initiative in the Communications infrastructure vertical. In anticipation of CAPRE’s Third Annual Boston Data Center & Cloud Infrastructure Summit, we spoke with Rashad about how Boston is differentiating itself as it settles into its position as a Tier II data center market.
CAPRE: Thanks for chatting with us today, Rashad. How would you characterize the Boston and Greater New England data center market at this point at time?
Kawmy: The Boston and Greater New England Data Center Market is somewhat emblematic of the greater maturity that we’re seeing in the data center market nationally. What I mean by that is that we’re beginning to see clear distinction and differentiation between markets. 5 to 10 years ago there were 7 or so top markets and very little was noticeable beyond that.
I’d say that since that time, of even the original top 7 markets, there’s become a hierarchy, where there’s Ashburn, then below that, a handful like Silicon Valley, Chicago, and Dallas, and then below that, many cities like Boston, which at one time had been a leading center like New York or New Jersey, that are now facing new dynamics and maturing in a different way.
CAPRE: And what way is that?
Kawmy: That way is really focused on local content, on interconnectivity. They’re not necessarily built to be the hyperscale epicenters or for a massive wholesale transaction. So given the dynamics like power costs, space availability and population density, we’re seeing a clear maturation in the market. I think Boston in particular is a very unique case study because it has a thriving economy, strong population density, incredible educational institutions that drive a lot of technology and innovation in both tech and biotech, as well as advancements around AI. And there is connectivity with cable landing stations. But we’re seeing that Boston will look very, very different than say, a Dallas or an Ashburn.
CAPRE: What sets Boston apart from other, similar markets?
Kawmy: From an interconnection perspective, One Summer Street continues to be an incredibly strategic and important building. It has incredible power capacity, which makes it unique among the very aged, urban key points of interconnection. So I think that is very special in the Boston market, especially given the importance of interconnection and the way we think about network topography going forward. It’s a hallmark property.
The other thing that makes this market special, and is even more important, is the technology and innovation there, especially with Harvard and MIT. The advancements that we’re seeing in technology, the use cases which will drive some quantum of network effects in the local community. So much is going on in cooling, AI, and other technology in Boston. People almost always think of innovation only happening in Silicon Valley, but we’ve seen greater calls for high performance computing in the Boston market. A lot of those uses are due to the educational institutions in the area.
CAPRE: What are you looking forward to about CAPRE’s Third Annual Boston Data Center and Cloud Infrastructure Summit?
Kawmy: Well, Boundary Street is a nationwide credit platform. Boston is not an area where we’ve been a lot of new activity. We’ve seen a lot of roll up and acquisitions. A lot of major names have developed footprints through M&A in Boston. A few years ago, we were pretty busy there. I’d say that, over the last 5 years, there’s been less M&A and less expansion and building. But what’s happening inside the data centers is very exciting. Going back to my comments about innovation, what I’m excited about is that as the market continues to mature – and I don’t think we’ll see any new construction of massive new data centers – we will see incredible technology be built-out inside the data centers in this market. So I’m excited to attend the conference and get to know and meet a lot of the folks who are operating in those markets and are the users of the infrastructure that exists in the Boston area.
CAPRE: What about national trends? Do you think we’re headed for a recession?
Kawmy: It’s prudent for everyone to pay attention to macro-economics, but I think that in this industry, we provide a mission critical service. And so as a consequence, we are more resistant or durable to a recession, as opposed to other industries. I would also say that macro-economic cycles translate less into pure customer attrition, and it likely results in customer indecision. So it can hurt incremental lease up, but if folks need the power and compute you’re providing, they’ll need it irrespective of the macro cycle.
CAPRE: What about interest rates? What’s your take on that?
Kawmy: Interest rates are something to keep an eye on. Especially with the yield curve inverted. But my sense is that for this industry, that’s more of a secondary factor, as peoples’ needs to process and store data is not directly connected to interest rates at the right cost.
CAPRE: What can you say about pricing? Where is pricing headed?
Kawmy: Interestingly, I think we have seen some pricing pressure across the market nationally. Each sub-market has seen pricing trends that are slightly different, primarily driven by supply and demand in that local market. Boston in particular has a headwind on pricing as a consequence of its vacancy rates, which third party sources indicate are somewhere between 18 and 22 percent.
Now, a lot of that vacancy is likely older product, which would already require significant investment to command market prices anyway. But my sense is that there is a slight element of that across the country, that’s more offset by the fact that people are learning how to build data centers at increasingly efficient prices. My sense is that Boston will likely see a greater share of pricing pressure over the next four years than other market, just as a consequence of supply and demand.
CAPRE: So what’s the bottom line for Boundary Street as you navigate this market?
Kawmy: Boundary street is a different kind of credit platform. Our team has deployed over a Billion dollars in the communications infrastructure space in the last decade. We’ve addressed a capital gap that exists for businesses of between $0 and $10 million in cash flow. We think that these are significantly capital-intensive businesses and they require lenders who have a deep understanding of the industry and the business. That’s one reason we attend CAPRE events – the clientele there know this industry deeply and they need partners who are of similar ilk. So for that reason, we’re very excited to attend another CAPRE event.
CAPRE: Got it, thanks for your time Rashad. We look forward to seeing and hearing from you in Boston on June 25!