Credit Suisse’s Sami Badri at NYC Data Center Summit: Don’t Forget the Tier II Hyperscalers
by Josh Anderson
NEW YORK, NY – CapRE’s Seventh Annual New York Data Center Summit kicked off with a panel titled Greater New York Data Center Market 360: From Manhattan to Orange County, What Firms are Actively Developing, Investing & Why? While the discussion was a broad look at activity across the country, one topic in particular truly piqued the audience’s interest – the hyperscalers. So much so that multiple members of the audience interjected into the discussion to ask some prescient questions. After a rousing roundtable on the panel, Moderator Sami Badri wanted to offer some clarification with his expertise.
“I do want to touch on one thing,” remarked Badri. “When we talk about hyperscale, people often refer to Amazon [Web Services], Microsoft, etc. But the reality is that there are probably 20 branded hyperscalers. There are the Tier I’s, which are the big public Cloud providers. But there’s definitely a Tier II.”
Badri then provided an example. “There was a very large deal I was assigned probably in the last two months in Ashburn, Virginia,” he recalled. “And the customer is a large Salesforce-type oriented company. The deal was for about 24 megawatts. That deal was actually in the channel and it was actually larger – it was about 40 megawatts, and it was in the channel for about six months. So in that specific context, that was a Tier II.”
In other words, according to Badri, as somebody churns out, there is definitely demand for people to sign in and take on the capacity coming online. “And generally, data center operators have about twelve months of visibility for every move like that,” he explained. “And you do see some surprises. But generally, right now, I’d say that the demand, just in general, is relatively high. I think that the function you’re seeing with supply is kind of a big dynamic that is dictating price points, and specifically, return on investment capital yields.”
With that, Hunter Newby, Partner at 1025Connect had some further input and some predictions. “I think, about what’s going to happen on pricing on wholesale, as we move into 5G and small-cell, putting aside the radiation risks and the high energy from RF that we’re all going to introduce our physical bodies to, the amount of data that’s going to be unlocked from everything that we once thought of as inanimate, is going to fill up every available square foot and every available megawatt that currently exists,” he predicted.
“Forget about what the hyperscalers are doing,” he stressed. “If anything, they’re teaching the capital markets how to finance other projects better, with a lower cost of capital, which providers returns for people that are all competing. I don’t think that the 20 number is going to reduce anytime soon. And that’s a good thing actually, because I think it requires 20 companies, 20 different teams of people, 20 different sources of capital, to keep up with the amount of infrastructure that needs to be built, to store all of that data that’s going to come out of all of these devices.”
“It’s incredible and that is going to require Edge access into the core,” he concluded.
For more from this panel, check out previous CapRE Insider Reports:
- Will Wholesale Prices Come Down in Two to Three Years?
- Will Hyperscalers Get So Big That They Reach “Critical Mass” ?
- More M&A Is Imminent, But At What Cost?
- How are Hyperscalers Affecting Margins For the Average Data Center?
- NYC Capital Markets Roundtable: Will 2018-2019 See Higher Multiples?
Banner Photo (L): Hunter Newby, Partner, 1025Connect