• Horizon Issues: Real Estate -- Data Center Development
  • October 28, 2008 | Author: Craig A. Olschansky
  • Law Firm: Thompson Coburn LLP - St. Louis Office
  • Real estate counsel must master specialized and technical client concerns to stay on top of the latest market and regulatory developments. New government regulatory, tax and takings policies impact the fundamentals of mortgage lending and property investing, and add to the complexity of domestic and international projects.




    Data Center Development


    Recent surveys indicate that perhaps one-third of companies use data centers— environmentally controlled, mission-critical structures containing corporate computer network servers—that are more than 7 years old and likely needing upgrades or expansion. Such potential demand has led many companies to undertake first-time construction and development of data centers.


    Make these considerations when creating and operating these structures:


    ·          Site selection. Account for adequate water availability (for cooling), local economic development incentives, climate change laws that may target data centers’ large energy usage and resulting carbon footprint and the costs associated with operating in one site versus another.


    ·          Cost. Consider electric power and overall facility costs (the enhanced need for security and proper cooling can run up to $1,500 per square foot). Since many costs will be passed to data center users, both parties need a very clear pro forma of the total operating costs and an understanding of the cost-controlling methodologies to be employed.


    ·          Data center management services. Smaller facilities (under 10,000 square feet) are more likely treated as a full-service collocation offering by the data center owner in a multicustomer environment with an owner-managed shared infrastructure. Larger users may manage their own services, utilizing data center infrastructure on a nonshared basis. Inserting a service component is akin to an IT outsourcing agreement, so handle accordingly.


    ·          Design. The basic design determines the best case level of operational certainty parties can hope to achieve. Parties then craft a maintenance model that takes fullest advantage of that design. Periodically implementing certain auditing standards (e.g., a Statement of Auditing Standards (SAS) 70 Type II audit for service organizations) ensures compliance with terms.


    The lesson: Data centers are extremely complex, requiring substantial advanced planning to build and manage them successfully.


    Craig A. Olschansky

    Partner, Data Center Affairs Group