Up-Close with DataSite’s Jeff Burges on Debt & Equity Arena for Data Centers
by Brian Klebash
SAN FRANCISCO, California – As the data center market continues to heat up with no signs of stopping in 2017, developers are looking for guidance on how to appeal to lenders. Likewise, lenders are looking for the confidence that they’re making the best deals. However, there’s no one-size-fits-all solution in the world of data. As Jeff Burges, President & Founder, DataSite puts it, you have to break down different asset classes.
“If you’ve got long term leases that are high credit in Dallas, you’re gonna get a certain type of debt,” says Burges, who would like to stress that different strategies work best in different arenas. “If you’re a 100 CoLo-customer facility that ranges kinda like what we do, you really have to impress upon the capital that you’re here to stay and more like a multi-tenant industrial property.” Burges suggests acknowledging that you’re likely to offer a shorter-term lease, but constant renewal, constant expansion. “Make the real estate look more like real estate,” he says.
Still, Burges says times are changing, and others in the data center space will make their own decisions, on things like whether or not you’re “too retail” (in a potentially declining world) or whether you’re leasing 20 megawatts to Microsoft last year. And even there, it will matter if that lease occurred in Silicon Valley, Chicago, or Virginia.
“There’s very different dynamics in each,” says Burges. “but the rising tide of the space being more understandable more and more every day, and looking more normal, even though it breaks all the rules — I mean $3000 a foot in valuation? Well, yeah, it cost us $1500 a foot to build it, so anything that costs that much is gonna have to get a return.”
Burges chalks up hesitation among investors to a simple, age-old attitude. “Old habits die hard,” Burges laments. “The dotcom (bubble) is still in a lot of lenders and buyers’ memories, and it took awhile for the business to stabilize into something that had at least a three or four year trend.”
If you’re offering a short-term lease and you’ve got lots of customers, you have to show the aggregate trend of that to a lender, believes Burges. “If you’re T5 in Dallas and you’ve got big investment banks as your customers, some can hardly compete with the kind of debt that you can get.”