“You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur “
When data center properties change hands the transactions do not always make a big splash in the news. If present conditions continue, however, 2017 has the potential to become one of the industry’s most storied periods yet. It is all due to the perpetual expansion of the information superhighway, and novel methods of fulfilling investment mandates.
In the first quarter of 2017 data center REITs posted a gain of 10.41 percent on the FTSE NAREIT All Equity REITs Index, easily surpassing the total index gain of 1.98 percent, according to the National Association of Real Estate Investment Trusts (NAREIT). That performance followed up an equally strong 2016, when data center REITs posted a gain of 26.41 percent, the second largest gain of all equity REITs. The sector comprises slightly less than 6.0 percent of the total REIT market cap, representing $58 billion in market value.
Data centers properties are also gaining attention outside the REIT sector. TIAA Investments, an affiliate of Nuveen, partnered with the Public Sector Pension Investment Board and Digital Bridge Holdings to acquire Vantage Data Centers recently, according to several news reports. Although the financial details of that transaction were not disclosed, Digital Bridge Holdings was formed in 2013 with more than $6 billion in equity and debt capital to invest in data centers, according to the Sovereign Wealth Fund Institute (SWFI), which provides research and consulting services to sovereign and public investment funds.
The TIAA transaction is the latest example of the sharp increase in interest from public institutional investors to invest in the data center sector, usually in partnership with private equity funds and data center sector specialists. From 2012 to 2015, the SWFI recorded about one deal each year among the public funds that it follows. Relatively speaking, deal volume jumped to four deals in 2016. News reports followed transactions such as the California Public Employees’ Retirement System purchase of a 100,000-sq.-ft. facility in a 1918 building in Chicago and the California State Teachers’ Retirement System’s purchase of two data centers in Glendale, Ariz. and Richardson, Texas.
“It is something that we’ve seen on the pension side,” says Michael Maduell, president of SWFI. “Everything is going the way of ‘big data.’ I see the trend growing, especially considering the need for backup redundancies.”
Public institutional investors have already completed two data center deals in 20176. If this investor group keeps up that pace, it could easily surpass last years’ activity.
Not your father’s infrastructure spending
It is a perennial national policy debate: how to address the dire need for infrastructure improvements. For years, as these debates waxed and waned with little few tangible results, public institutional investors began to quietly making their own commitments.
As far as these investors are concerned, data centers are fulfilling their mandates to invest in infrastructure. Pricing on traditional infrastructure projects—which are not as plentiful as the growing data center sector—has tightened to the point where investors are now overpaying to participate in them, Maduell says. Now they are shifting those dollars to data centers.
“It is such a new area, almost the way that vineyards were,” he notes.
Data centers ensure that every server backup, internet search, business transaction, video upload and online purchase is managed securely and can be recovered smoothly if necessary, guaranteeing the growth of the sector for the foreseeable future.
Just don’t call them warehouses that contain data servers, notes Calvin Schnure, senior vice president of research and economic analysis at NAREIT. Data centers require precise climate controls to reduce humidity and maintain clean air.
“There is a lot of additional high-tech equipment that goes into the rack,” Schnure says. “These are special assets.”
Competition for cheap energy
As online activity grows and data centers expand across the country, the industry can expect to see major enterprises compete for and cluster around precious real estate near lower cost energy sources, Maduell says.
Quincy, Wash., for instance, is the site of hydroelectric generators that supply relatively cheap power to end-users. But businesses are not here merely for the agricultural output. The area has already attracted large technology enterprises, including Redmond, Wash.-based Microsoft and Yahoo!, which is based in Sunnyvale, Calif.
“The data center sector is one where analysts say they do not see a downside,” Schnure says. “They recognize that this is a growing part of everyone’s lives.”
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- WEEKLY LAND CLOSING UPDATE / THROUGH March 24, 2017 / Phoenix Arizona Metro, Maricopa County, Pinal County.
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- FROM ME:
- Phoenix Commercial Real Estate and Investment Real Estate: Investors and Owner / Users need to really know the market today before making a move in owner user Commercial Properties, Investment Properties and land in Phoenix / Maricopa County, Pinal County / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties. I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also internationalClick here to find out what is a CCIM: https://en.wikipedia.org/wiki/CCIM
- DEMOGRAPHIC FACTS ABOUT MARICOPA COUNTY:
- The average age of the population is 34 years old.
- The health cost index score in this area is 102.1. (100 = national average)
- Here are some of the distributions of commute times for the area: <15 min (22.7%), 15-29 min (36.8%), 30-44 min (25.1%), 45-59 min (8.6%), >60 min (6.8%).
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages. The interactive map shows the location of each community (10+ units) and each location is color coded by the size (number of total units).
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
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Walter Unger CCIM
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