FOCUS NEW YORK


Issue 14, February/March


NY INVESTMENT AND INFRASTRUCTURE


WHAT DRIVES INVESTMENT? Page 18


WHO INVESTS Page 20


HOW FIBER CHANGED NY Page 22


M&A - BIGGER AND BETTER Page 28


COLO WORKS Page 30


DATA CENTER INVESTMENT DRIVERS IN NY


The industry’s performance over the course of the recession has convinced bankers that the space is worthy of investment. Yet only the top players are able to borrow to fund new builds. Yevgeniy Sverdlik reports


apital markets may have loosened for the data center sector, but credit availability for new builds is nowhere near its pre-recession levels and experts believe it is not likely to return to these heady highs any time soon. It is still only the well-established companies that are able to get debt or equity financing for new builds, with lenders steering clear of speculative projects.


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A signifi cant ease of credit has allowed some projects that were placed on hold to move forward in 2010 but new construction fi gures are still down, says Daniel Golding, managing director at DH Capital. A lot of money that came into the sector last year did not go into new builds. Instead it was used for acquisitions of existing assets.


Golding said he expects it will remain this way into the near future. “We will see data center construction happening at the same pace as last year,” he says. “I don’t see it accelerating.”


A WHOLESALER’S MARKET


Consolidation has also been key, with a number of the largest multinationals announcing they will replace multitudes of smaller facilities with a few mega data centers for better effi ciency.


For companies that do not need to deploy a lot of capacity at once but need high-density space, leasing makes more fi nancial sense than building. Top brass of a non-technology-centric company


18 www.datacenterdynamics.com


will not approve a large capital investment in an asset that is not core to its business. The trend has created strong demand for wholesale space, leading to good performance on loans given to wholesale developers, as seen in recent years. This is why credit has been easy to come by for established companies.


‘Established’ remains a key characteristic, however, as credit is virtually non-available to companies without existing clients.


Last year lenders noticed that the data center was a different kind of animal. Throughout 2008 and 2009 data centers did much better than virtually any other kind of asset.


TELECOMS FIGHT FOR CLOUD


Another growing segment – albeit a much smaller one than the wholesale space – has been cloud-driven data center development by telecoms. All large network carriers are expanding data center capacity to support a variety of cloud-based services, some of which have come online in 2010, and more are slated for launch throughout the year.


These companies may be expanding capacity to support growing demand for mobile data processing and Internet video but this is nowhere near as aggressive as their moves toward


cloud-driven expansion, according to an operations exec at one of the world’s largest carrier companies who wished to remain anonymous.


Analyst fi rm IDC predicted in December that telecoms – whose network ownership is an inherent advantage in the cloud market – will not “turn their backs on the opportunities of on-premises private cloud solutions”, which means they currently have a stab at dominating the market which IDC valued at US$750m this year and US$1.8bn in 2014. To ensure they ride the cloud wave successfully, telecoms are expanding data center capacity by either taking wholesale space, building custom facilities or hiring others to build it for them.


CHASING THE MONEY TRAIL


So what determines the ability or inability of a company to fi nance its data center build today? Doug Webster, managing director at Signal Hill, says the key factors are the size of the supply-demand gap, the sector’s overall performance, presence of a recurring revenue model, strong EBITDA and gross margins and long-term contracts with customers who have good credit.


“There’s nothing even close to what it was like in 2000,” Webster says. Today, it is all about the company’s balance sheet, cash fl ow and prospects. For companies that perform well on these metrics, credit availability is solid.


The spectrum of lenders has widened as well. Instead of a small circle of usual suspects, such as Capital Source, CIT, Sun Trust and


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