finance & commerce - focus on data center construction

Fortresses in the Cloud

Inside:

n Data center deals, openings on the rise

Page S-2

n Data centers built to withstand bad storms, bad actors

Page S-4

n Three trends driving growth in data centers

Page S-6

Supplement to Finance & Commerce

August 20, 2015www.finance-commerce.com

Data centers expand in region

Focus onData CenterConstruction

S-2 Finance & Commerce Focus on Data Center Construction Thursday | August 20, 2015


BY FRANK JOSSISpecial to Finance & Commerce

Data centers continue to expand and attract the interest of customers looking to use the cloud for transactions and storage.

Colliers International senior associate Dan Peterson said so far this year the data center market has seen openings, expansions and sales of data centers, which he outlined in a recent report. “The Twin Cities has been a very active market lately with a lot of absorption of existing inventory.” said Peterson, who works in the firm’s Minnetonka office.

The biggest deal of the year involved Colliers. The former American Express data center, at 1001 Third Ave. S. in downtown Minneapolis, was sold in January for $22.4 million to Dallas-based DCI Technology Holdings, which also owns Tritech Center at 331 Second Ave. S.

Built in 1988, the former American Express center’s newest incarnation will be as a multi-tenant data center. DCI is spending $20 million on a renovation of the 467,000-square-foot space to accommodate multiple users, he said. The seller was Atlanta-based KAN AM 1001 3rd Avenue South LP.

Also in downtown, Cologix opened the first phase in March of a 28,000-square-foot data center at the 511 Building — or Minnesota Technology Center — at 511 First Ave. Dubbed “MIN3,” the facility is in the same building as the Minnesota Internet Cooperative Exchange, a shared data center.

Denver-based Cologix’s investment should come as little surprise, said Peterson. In the past the local data

market was largely focused on local providers but that has changed as the Twin Cities has gained a national reputation as a player.

“We’re stil l a pretty hot market nationally. We are on the radar as an emerging market with national providers swooping in and creating that buzz,” he

said. “We’re getting a lot of attention from the national perspective.”

Suburban data centersThe action is not only downtown. In

fact, most of it is in the western suburbs, where communities with undeveloped land offer sites for new centers and warehouses available for repurposing as data hubs. Chaska is a good case in point, with two recently opened data centers.

Denver-based ViaWest opened a 45,000-square-foot, raised floor data center space in a 158,000-square-foot building at 3150 Lyman Drive. Another 35,000 square feet will be added once the initial space has been leased. Dan Curry, regional director of sales for ViaWest, said leasing “is definitely up from where it was six months ago.”

It has taken a bit of time for the local market to grow comfortable with using third-party data centers, he said, but today many small and medium-size businesses have begun to see the advantage of that arrangement. Those companies are drawn by the layers of security a good data center provides, he added.

Brett Severson, vice president of Jones Lang LaSalle’s Minneapolis office, worked with ViaWest and Stream Data

Center, which built a new 75,000-square-foot facility at 1708 West Creek Lane in Chaska. That building will operate as three separate data centers under one roof, he said. Two of the three 10,000-square-foot centers are complete, with the third under construction.

One client has leased the entire first data center. The others can be leased to one or several clients, Severson said. Each of the three pods operates “as a separate data system,” he added. “It’s a different model than the other data centers.”

That both data centers are in Chaska is not surprising. The city has “abundant fiber,” a municipally owned utility that offers appealing electric rates, and plenty of parcels attractive to developers of data centers, Severson said.

“There’s this assumption that data centers don’t pay taxes or create jobs but that’s not true,” he said. “They offer great, high-paying jobs and they don’t have a big impact — they don’t create truck traffic or anything like that.”

Another project Severson worked on was DataBank in Eagan, a 90,000-square-foot former bakery on which Dallas-based DataBank Holdings Ltd. is spending

Data center deals, openings on the rise

FILE PHOTO: BILL KLOTZ

The former American Express data center, at 1001 Third Ave. S. in downtown Minneapolis, was sold in January for $22.4 million to Dallas-based DCI Technology Holdings.

“We are on the radar as an emerging market with national providers

swooping in and creating that buzz.” — Dan Peterson, Colliers International

DEALS to page 3

Thursday | August 20, 2015 Focus on Data Center Construction Finance & Commerce S-3



The lobby of the former American Express data center looks like it belongs in any office tower in downtown Minneapolis. New owner DCI Technology Holdings will spend $20 million on a renovation of the 467,000-square-foot space to accommodate multiple users.

$48 million to turn into a data center. DataBank recently opened 10,000 square feet of the space to companies and around 35 percent of it is leased, Severson said.

The other large data center to open is CenturyLink’s 100,000-square-foot facility, known as MP2, in Shakopee. It’s one of the first “Tier III” multitenant data centers to open in the Twin Cities, the highest designation given by the Uptime Institute, an independent, advisory organization.

Central location is a plusFueling the growth is the Twin Cities’

strong Fortune 500 presence, a skilled workforce and industries that tend to be data-intensive — from health care to retail, Peterson said. The region’s central location and relatively low cost of power “is part of the equation,” he said. “That’s a much more significant issue in other markets.”

Another attraction has been the state’s aggressive role in pursuing data center companies with generous tax breaks, Severson said. Those include sales tax and property tax exemptions for data centers.”You can’t underestimate the value of those tax benefits in bringing data centers in,” he said.

Not everyone is convinced the market needs more data centers. Jim Wolford, CEO of Minneapolis-based Atomic Data LLC, owns one data center and leases space in two others.

“I’m flabbergasted because I don’t see the business. Computers are getting smaller; computing is going to the cloud,” he said. “Even Fortune 500s are coming to me for managed infrastructure and cloud because their footprint is shrinking.”

Co-location sites do not need that much space, despite the growth of the cloud, he said. “The market is over-provisioned,” he said. Or, Wolford conceded, maybe Minnesota’s relatively safe location away from the coasts — and from severe weather — makes it “a wonderful place for data centers.”

Time will tell.

DealsContinued from page 2




The Atomic Data facility sits in a basement vault with 4-foot to 8-foot-thick walls, which was once used by the Federal Reserve Bank of Minneapolis. After the bank moved, the building was renamed Marquette Plaza.

BY FRANK JOSSISpecial to Finance & Commerce

Dat a ce n t e rs a re b u i l t t o l a s t . Intentionally bland, they must withstand the worst nature has to offer -- from tornados and fast winds to torrential rainfall and hurricanes.

T h e i r e x t e r i o r s f u n c t i o n a s a technology fortress, with cameras, controlled entry points and plenty of security. They have some intriguing differences from other structures because of their exceptional security and electrical needs.

Those attributes come with a high price. Data centers cost from $500 to $1,200 per square foot to build compared to an average of $150 to $200 per square foot for office space, said Scott Ganske, Golden Valley-based M.A. Mortenson Construction’s director of mission-critical operations.

The large price differential is based on the resiliency and reliability of the structure, he said, noting not all data centers are created alike. Considering the centers protect a company’s key asset – data -- the cost does not seem unreasonable, Ganske said.

From the street, data centers often

look as bland as a brick box. Eden Prairie-based Parallel Technologies Inc., which designs and builds data centers, has no architects on staff.

“Usually these projects are Big M, mechanical; Big E, electrical; small a, architecture,” he said. “We like boring.”

Data center designStill, new data centers in the suburbs

have at least a touch of style, usually at the entrance. The buildings can’t have any windows, at least none in the rooms where the servers are located. But the lobby areas can have a few windows.

“In a greenfield setting you probably don’t want it too boring,” said Kittila, who is director of mechanical and

electrical infrastructure division.The shell of a data center must

generally withstand winds of at least 150 mph, which requires walls as thick as 14 inches. Parapet roofs are installed “so the roof is not exposed for that major wind shear,” he said. Those roofs are generally tough enough to withstand winds of 185 mph.

Ceilings have a vapor barrier with a double membrane to avoid frozen condensation in the winter months, K i t t i l a s a i d . T h e h i gh h u m i d i t y environments of data centers, created by powering so much equipment, are at odds with freezing temperatures. Condensation can occur and freeze to the ceiling, bringing internal rainfall in spring without proper insulation, he said.

The configuration of data centers is different from an office building. The mechanical and electrical equipment can take up to 25 percent of the space, although that can be reduced by placing some of it outside. Usually only a small office is required, as well as a staging area for moving servers in and out of the building, he said.

“You want to keep people out of the data

Data centers built to withstand bad storms, bad actors

DESIGN to page 5

“Usually these projects are Big M, mechanical;

Big E, electrical; small a, architecture.

We like boring.” —Tim Kittila, Parallel Technologies Inc.



We use innovative, collaborative construction technology to

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technology to build technology.

BUILDING TECHNOLOGY


Above: Jim Wolford, left, CEO and owner of Atomic Data, and Blake Talley,director of the company’s NetworkOperations Center, leased 15,000square feet in the former FederalReserve Bank of Minneapolis building.

Left: Data centers require a lot of energy for heating, cooling and keeping servers on 24/7. DataBank’s new 90,000-squarefoot center in Eagan has water tanks (at left) for the rooftop cooling units and back-up generators (at right) for use during power outages.

center so you’ll usually have a separate office space onsite,” Kittila said. “You also need that staging area to unbox or uncrate servers, network equipment and racks.”

Data centers have one of two types of floors -- a slab-on-concrete or the more popular raised floor. In a raised floor design, a false floor sits 1 to 3 feet above a concrete slab. In general the raised floor feeds mechanical air to the servers through perforated tiles, he said.

Some data centers place electrical and network cables below the raised floor, thought that approach is not as popular as it once was, said Kittila. Generally the raised floor is used to transfer air for cooling, “a plenum for air,” he added.

In terms of geography, data centers are best located in areas with little chance of flooding and good Internet and electrical connectivity. Most of them actually address the electricity they can provide onsite in marketing materials. A brochure for Stream Data Center in Chaska points to three rooms available for lease with 1,200 kilowatts of electricity feeding each one of them.

If the electrical goes down, the centers have sophisticated backup generators capable of providing 24 to 72 hours of power before having to be refueled, Kittila said.

Environmental approachData centers, by nature, require a lot

of energy for heating, cooling and keeping servers on 24/7. What attracted Atomic Data LLC to lease a 15,000-square-foot data center space last year in Marquette Plaza was the built-in advantage of a sustainable building and basement location with plenty of free cooling, said Blake Talley, Atomic’s director of network operations.

The Marquette Plaza, at 250 Nicollet Mall in downtown Minneapolis, earned the highest LEED (Leadership in Energy and Environmental Design) certification from the Washington, D.C.-based U.S. Green Building Council. The data center sits in a vault once used by the Federal Reserve Bank of Minneapolis with 4-foot to 8-foot-thick walls to protect the operation, Talley said.

Still, Atomic Data has spent a seven-figure sum to update the data center. Most of the money is being spent on new electrical and network equipment as well as monitors that provide hour-by-hour electric and cooling water consumption data. Being in the basement helps maintain a certain temperature much more easily than an above ground data center, he said.

With so much competition not only locally but also from huge players such as Amazon

and Microsoft -- which have significant co-location centers around the country -- the one thing Talley can control is the cost of managing his center.

T h e p r i ce o f d at a s t o rage a n d operations is so low that margins have plummeted. Talley knows in the end that efficiency leads to a lower carbon impact, even if it’s not an attribute every client considers important. Many clients simply want a low price, and he achieves that through energy efficiency.

“I have incredibly sophisticated heating, cooling and electric systems that allow me to maintain an efficient data center like I’ve never ever had before,” Talley said. “When I talk dollars and cents to CEOs about how well we manage the center, I win the green conversation every day of the week.”

DesignContinued from page 4

$500Minimum

construction price per

square foot for data centers

Source:

Mortenson

Construction

STAFF PHOTO: BILL KLOTZ



BY ELIZABETH MILLARDSpecial to Finance & Commerce

Data center construction virtually stopped during the recession, with banks hesitant to lend large sums for speculative projects, says Jason Baker, co-founder of Eden Prairie-based Internet service pro-vider and data center VISI, and now soft-ware development staff engineer at Dell Cloud Manager.

“Now that the economy has recovered, money is pouring back into the data cen-ter industry,” he said. “Providers are re-sponding to the pent-up demand.”

Nationally, this catch-up construc-tion is driving a number of trends, from cloud migration to larger facilities, and the Twin Cities is poised to capitalize on that growth.

The metro area has all the ingredients that go into the recipe for an ideal data center — low risk of earthquakes (and no hurricanes), a strong business climate with a mix of small and large companies, cost-competitive energy sources, a robust fiber optic network and a cooler climate that reduces air-conditioning expenses.

As a result, the Twin Cities is likely to be a strong choice for data center expan-sion and has already attracted some ma-jor players in the market.

Here are three trends that are driving growth, nationally and locally.

Data centers go bigOnly a decade ago, data centers that

were considered large usually covered about 30,000 square feet. When VISI was built in 2010, it seemed expansive at 40,000 square feet, but Baker said that would be a smaller facility today.

Many that are under construction or built within the past few years are dou-ble the size of VISI or larger.

Nationally, cloud providers like Ama-zon, Microsoft and Google are building centers that dwarf existing facilities, but they’re not the only ones thinking big. Technology company CyrusOne is build-ing a 57-acre campus in Chandler, Arizona, that will represent nearly 1 million square feet of space.

“We are truly in the midst of an arms race,” said Baker.

Locally, that trend is playing out in sev-eral projects. ViaWest in Chaska broke ground only last year and is already offer-

ing 70,000 square feet of data center space. DataBank in Eagan offers a 90,000-square-foot building, and CenturyLink opened for business last year in Shakopee, with a 10-acre site that has 50,000 square feet of op-erational data center space.

Providers are getting larger as well, Bak-er said. “We’ve seen quite a bit of consoli-dation in the data center industry over the past five years,” he said. “Most of the large telcos have done acquisitions. Small data center providers will not be able to com-pete in the long run. It’s entirely possible that we will only have a handful of major U.S. data center providers in 20 years.”

Migration to the cloud On overriding trend that’s driving data

center growth is the rapid movement of businesses to a cloud model, says Graeme Thickins, a technology startup market-ing consultant who serves on the board of MinneAnalytics.org, an event organi-zation for the region’s data professionals.

Research firm IDG reported that 69 per-cent of businesses are already using cloud technology and an additional 18 percent plan to implement it in the near future. “Moving to the cloud lowers initial capi-tal expenses for companies, as there’s no heavy investment in servers,” said Thick-ins. “For established businesses, the cloud is providing an attractive option when server or storage capacity needs to be increased.”

But cloud adoption is not an all-or-nothing proposition, he added. Some companies are using a hybrid model that involves using cloud resources when nec-essary, without eliminating in-house data storage systems.

With the abundance of data center projects coming into the Twin Cities, Thickins thinks local businesses will be able to innovate more easily. “With

Three trends drive data center growth

Dallas-based DataBank chose Eagan for a 90,000-square-foot data center, after considering a number of other areas of the country. DataBank was attracted by property tax incentives and fast-track permitting.

TRENDS to page 7


A Mortenson construction crew works on a UnitedHealth Group data center in Chaska in this 2011 photo.

“We are truly in the midst of an arms

race.” —Jason Baker, co-founder of VISI




increased cloud usage, the IT department is becoming more strategic to the business,” he said.

Municipal and state support Construction projects like data centers

require more than local builders who are familiar with data center specifics — they require numerous conversations with state and city authorities, who can sweeten the deal for providers.

Although job cre-ation numbers are lower than they would be for other types of businesses, data cen-ters offer a ripple ef-fect that makes them appealing for munici-palities.

“Cities are rolling out the red carpet to data center providers,” said Baker. “While data center provid-

ers don’t necessarily employ a significant number of people, they support the tech-

nology operations of the surrounding in-dustries, helping to retain other business-es in the region.”

As a result, municipalities offer

providers tax incentives, land and util ity upgrades, and offer public-p r i vat e p a r t n e rs h i p s , h e ad d e d . As a local example, Dal las-based

D a t a B a n k c h o s e E a g a n f o r a 90,000-square-foot data center, after

69PERCENT Share of

businesses using cloud technologySource: IDG

SUPPORT to page 8

TrendsContinued from page 6


Data centers are getting much bigger. In 2012 M.A. Mortenson completed a 220,000-square-foot data center in Chaska for UnitedHealth Group, the health care giant based in Minnetonka.



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considering a number of other areas of the country, said Kris Edinger, general manager for the Minneapolis office.

Working with GreaterMSP, the state and Eagan, DataBank was attracted by property tax incentives and fast-track permitting. “We felt very supported in

our expansion to the Twin Cities area,” she said. “We saw many advantages to building here. The state and the mu-nicipality just confirmed that decision.”

In general, look for similar expansion efforts to take place locally. With a bet-ter economy and increased demand, data

center providers are taking advantage of tax incentives and technology inno-vations to expand. Nationally, this could result in higher data-center traffic and a boom in construction, and the Twin Cities is likely to be on the forefront of the trends.

SupportContinued from page 7

S-8 Finance & Commerce Focus on Data Center Construction | August 20, 2015

finance & commerce - focus on data center construction

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