Just How High are California’s Barriers to Entry? Zane Alsabery Tells Stories from the Trenches

LOS ANGELES, CA – The Southern California data center arena isn’t exactly the easiest to sum up in a sentence or two. It’s got its strengths as well as its weaknesses, and a lot of firms want to be there. But that doesn’t mean they can make the deals pencil. That’s why CapRE’s Seventh Annual Southwest Data Center Summit: The Telecom Evolution kicked off with a panel discussion called Southwest Data Center Market 360: Has the Outlook for the Los Angeles Market Changed with Advent of Edge, Micro Data Centers and On-Site Power Generation? Below, we highlight a snippet of that conversation.

data center summit“We’ve got about seven sites in five markets,” shared Arman Khalili, CEO, Evocative Data Centers, preparing to conclude his remarks. “We have two sites in Silicon Valley, two in Los Angeles, one in Phoenix, Dallas and Virginia. And we’re expanding. So we’re looking at this strictly from satisfying an audience perspective. And also from a retail perspective, the hyperscale [market] is quite a competitive landscape. The way we look at it, the underwriting does not justify the investment being made.”

“Just to underscore that, it’s not just the neighborhood associations that are pushing back,” remarked Moderator Michael Siteman, Director for Chapter Relations at 7×24. “These are urban in-fill areas. And that’s is you can find the land on which to build.”

“And that’s assuming that the substation can support you,” replied Khalil. “It’s finding locations that have 5-10 megawatt substations just sitting idle.”

“Right,” concurred Siteman. “Zane, maybe you can expound on that and also give your perspective on how it’s affecting the demand generation and the client-base here.”

Zane Alsabery, CEO, Alchemy Communications, Inc

“I think that California, twenty years ago, was one of the dominant data center markets in the country. And then California, for whatever reason, for air quality reasons, decided to put a moratorium on generators, for a number of years,” recalled Zane Alsabery, CEO for Alchemy Communications, Inc. “That’s sort of how Phoenix got started. Because you couldn’t build a data center, since you couldn’t get a generator permit. At all. So then after that, even though you could get the permits, it’s very difficult.”

“It takes time,” Alsabery continued. “They put weird restraints on it – how much fuel can you have on the tank all of a sudden is limited. Getting a new gas tank in the ground is extremely difficult. Even if you have an existing data center, growing your capacity is being regulated. For example, there is Title 24, and that was a huge cost obstacle to adding additional cooling capacity. It doesn’t matter how much power you have, if you can’t cool it, it’s useless. These are just some of the things that are there.”

Next, Alsabery shared a personal story from the trenches. “We’re adding 3 air handlers — and they’re actually replacement air handlers, they’re more energy-efficient – and the timeframe it’s taking us to pull all of the various permits and the amount of ridiculous paperwork – we have to have an engineering drawing for the mechanical that includes an earthquake layout of the entire region of where we’re at – for one air handler,” he shared, incredulously.

“So I have to hire a contractor who does blueprints and drawing and has to do all of these things to justify that we’re going to be earthquake solid,” continued Alsabery. “Then after that, you have to go get the fire permit before you can get the electrical permit. And that is a whole new set of drawings. So it’s just a process that you don’t get in other locations. And then of course you have to make sure that you do it in a way that doesn’t trigger Title 24, or there’s a whole bunch of other implications.

“Now that’s the bad news. The good news is that if you’re an operator that already has a data center and has capacity, then you don’t have to worry about a competitor opening up down the street,” he concluded. “I haven’t seen a competitor open up down the street in years. that’s the market we’re in. and because of where we are, regardless of energy costs, the number one thing that we have is customers. They need to go somewhere and if you have a data center, it’s a good thing.”

For more coverage of this panel, check out an earlier CapRE Insider Report: Arman Khalil, Evocative Data Centers: “It Makes Very Little Sense to Develop in California, Unless You Already Have an Existing Location.”

Southwest Data Center Market 360: Has the Outlook for the Los Angeles Market Changed with Advent of Edge, Micro Data Centers and On-Site Power Generation?