Seattle Data Center Summit: John Sabey Says Hyperscale Cloud Users Have Changed Dynamic of Data Center Marketplace, Focused it Into a Few Locations
by Josh Anderson
SEATTLE, WA — As CEO of Sabey Corporation (Sabey), John Sabey oversees acquisition and development for the commercial real estate portfolio comprising primarily office and medical technology space, consisting of approximately 5.4 million square feet developed, owned and managed by Sabey. Sabey has long developed specialty technology properties for the medical/life sciences, communications, government, and military sectors. As Big Data emerges as an essential component of medical research breakthroughs, the company’s leadership has been quick to realize their critical reliance on robust, highly reliable data centers. At CapRE’s Seattle and Pacific Northwest Data Center Summit, John participated in a up-close Q&A about his firm’s latest activity and his outlook on the data center space, moderated by CEO of CapRE Brian Klebash. Below is the second transcription of many to come covering this Q&A.
Klebash: We’ve seen a ton of M&A activity this year in the data center space. Obviously you are familiar with the companies that have been part of it. What does this M&A activity mean from your perspective at Sabey? Does it change your strategy in any way? Is it beneficial to you or does it create challenges? How does it change the game for you?
Sabey: I don’t know that I would say it changes the game. You could make arguments that it is positive and more competitive at one level. Obviously the M&A activity creates companies that get larger and larger in scale, and larger and larger in geographic diversity. While we are a good sized privately held company, we are obviously not the scale of some of the large publics. As some of that M&A activity goes, it allows them to have a broader footprint and perhaps a broader cost base, to be more competitive.
But I also like that at one level too. As a large privately held organization, we are one of the few left in the United States – there are not many of us, you could probably count us on one hand – from an operating standpoint. And that can bring some bonds competing with public companies. You can stay private, you can be a little more flexible on some of the terms you can offer and the deals you can do. And how close you can get to some of these companies from an executive level and on a leadership level and develop those relationships. So those companies sometimes struggle with those and the ability to do that. So I would say that from a strategy standpoint, it hasn’t changed much. It just changes the dynamic in the market out there, and we have to be cognitive of that.
Sabey: I would continue to say that the greatest challenge is probably making sure that you’ve got products in the markets that will continue to absorb and have demand. The hyperscale cloud users have really changed the dynamic of the marketplace in the United States, and really focused it in a few locations. So making sure that you’ve got inventory in those locations will probably be the bigger challenge.
The other thing is, and people have kind of danced around the edges of this, but there continues to be market compression on pricing. Every year the JLLs stand up and say that the market has bottomed, its going to go up from here, people are going to start being disciplined. But quite honestly over the last few years you just continue to see price compression, and the public companies willing to accept lower and lower returns on a capital base. So you’ve got to continue to be competitive on reducing the cost of your build, reducing the cost of your operations, and also sharpening your pencil on your willingness to do deals at an ever-thinning margin.
At the end of the day, the wholesale business is a very competitive business, so that’s frankly one of the biggest challenges. Having the ability to win deals, get your cost structure correct and sharpen your pencil and tighten the returns you’re willing to take. We’re all just getting really, really competitive. Because there is enough of us in this industry and it’s a very mature industry.