CAPRE’s Carolinas Data Center Market 360: Local Insiders Talk A Changing Region, With Lots of Potential
CHARLOTTE, NC – The first panel discussion at CAPRE’s Carolinas Data Center Summit, Carolinas Data Center Market 360: An Overview of Capital Raising, Regional Development and Site Selection Advantages kicked off a discussion about data center tax incentives in the region. And things have changed.
For example, John Regan, Chief Technology Officer at Landmark Dividend started out by emphasizing the importance of incentives in decision making process, and how back in 2010, things weren’t looking too great for the region when a colleague had a choice to build a data center in either Atlanta or Charlotte. “It was very significant,” he mused. “Charlotte was preferred but after doing the math based on incentives, they couldn’t make the math work for Charlotte. There were huge incentives [in Atlanta], and when you take into account the amount of technology that goes into the data center over the life of the data center, it was 10x the cost of the data center.”
However, Jake Ring, Co-Founder & CEO of GIGA Data Centers countered that by pointing out how much things have changed. “For us, the scales have tipped in the other direction,” Ring revealed. “We have no sales and use tax on any equipment, on electricity. And we have rebates on property tax. The incentives are significant, and much better than in Georgia.”
Next, Moderator Robin Aron, Vice President at Envirotrol and Executive Director of the 7×24 Carolinas Chapter changed the topic to that of costs, and asked what the biggest obstacles were to construction and development in the region.
Dave Perez, Vice President at JE Dunn Construction, expounded on to time to construction, echoing a familiar sentiment – that you can’t build quickly enough. “There used to be a time when 12-14 months was a fast track. And now, if you can’t deliver a space in 4-6 months, it’s considered slow.” He then pointed to the availability of labor and good trade partners as significant inhibitors to development.
At that point, the panel mused on the merits and benefits of modular construction, owing the “advent” of this technology to hyperscalers. “Modular deployment allows for increasing returns on investment with capital that you put to work, because you’re aligning your available capacity with your need, as opposed to just building out a complete data center that can sit idly while you wait for tenants,” remarked Regan. “That modularity, at $5 to $7 million a megawatt, is pretty competitive, when you look at economies of scale overall.”
Rashad Kawmy, Partner at Boundary Street Capital then steered the discussion back to the topic of market obstacles, “A combination of so much capital being attracted to this space, for obvious reasons such as sustainability, durability, the recurring nature of revenues, tail winds, all of those things, has created quite a bit of investment, a fair bit of it speculative, or at least scheduled,” he began.
“When I talk to clients in some of the smaller markets, is they’ll have customers who are genuinely interested and they’ve spend many months doing planning with, but then when it comes time to make a final decision, someone in an adjacent market who has excess capacity and is about to be at quarter end, will come in (and they usually wouldn’t touch a sub-500 KW deal) will come in and make a 200 KW deal to help their figures,” continued Kawmy. “We’ve seen what we thinks are some below-market rent type of activities that can be more hurtful to smaller markets.”
Next, Kawmy touched on the type of capital that he’s seeing in the market, which is looking better than ever. “Every year I say it’s better than it’s ever been, and certain folks may feel that less or more so than others,” he mused. “But if you think about the number of international infrastructure funds driving money into the U.S., hoping for a big infrastructure bill that never came to pass, they had to deploy some of that money into the technology infrastructure space here in the U.S.”
“Let’s talk about the pipeline of activity and opportunity,” suggested Aron, about halfway through the panel. “What opportunities are you seeing?”
“For me, I’m working on probably a billion and a half pipeline across the US,” replied Regan first, taking the lead on the topic. “A small portion is in this market specifically.”
“Specific to the Charlotte area, we have a very good pipeline, which we’re very encouraged by, with regards to potential,” offered Ring next. “From a build to suit standpoint, we were initially targeting build outs in Tier II markets as a way to bring the capacity into areas that weren’t as saturated by larger providers…but those opportunities were being led by some customers into Tier II markets because of the need for greater capacity and for greater efficiency.”
“In the last 18 months, what we’ve seen from hyperscale has been incredible. And I’m assuming that some of this is getting ready for 5G, for artificial intelligence, for autonomous driving, and for smart building, which we’re all talking about,” revealed Perez, third. “It’s not sustainable, the amount of construction and investment and infrastructure that we’ve seen from hyperscale in the last 18 months.”
With the last 5 minutes, Aron suggested that the panel discussion talk about whether telecom companies are getting back into infrastructure, and if so, how it might impact the landscape for data centers?
Kawmy was happy to take the microphone for a deep dive into this topic. “I don’t feel the telecoms are getting back into the infrastructure game….everyone has effectively divested, and that was in large part because I don’t think any of those businesses were moving quickly enough to move the needle for the telcos,” he asserted. “What is more interesting to me is the convergence between tower networks and data centers that are moving up the stack.”
“What I mean by that is, for example, how Crown Castle has been so active. If you look at all of the dense, dark fiber that they were buying in L.A., or in the Northeast, with LightTower, or American Tower with ColoATL in Atlanta, what we’re seeing a blurring of what I like to call telecom infrastructure,” he continued. “That doesn’t mean tower guys have any interest in operating data centers. But people are asking, where is the buck?” Kawmy says we’re still quite a few years away from 5G, since the large network providers will have to provide an immense amount of capital to make that happen.
For more coverage of CAPRE’s Carolinas Data Center Summit, check out previous CAPRE Insider Reports:
- Q&A with Flexential’s Chris Downie: All Indicators Point to More Positive Growth
- CAPRE’s Carolinas Data Center Summit Preview: Envirotrol’s Robin Aron Says Megatrends like Population Growth Fueling Demand for Mission Critical Infrastructure