Texas Data Center Deals Help Element Critical Build National Footprint

Oct. 19, 2021
Colocation provider Element Critical continues its build its data center footprint through acquisitions, and has expanded into the Texas market this year by purchasing facilities in Houston and Austin.

Element Critical continues its build its data center footprint through acquisitions, and has expanded into the Texas market this year by purchasing facilities in Houston and Austin. Expect to see  more deals in the future, according to CEO Ken Parent.

“We’re looking to grow,” said Parent. “The plan is to buy quality assets, with two to three transactions a year.”

Element Critical is an expansion-minded data center provider that focuses on smaller deals in big markets, providing “tailored” data center services for enterprise customers.

The company has partnered with a “substantial capital partner” (to be officially announced at a later date) that will help support Element Critical’s continued expansion.  Global investment firm Safanad continues as Element Critical’s sponsor and investor.

In 2021, the company has entered the Texas market in a big way with a pair of acquisitions.

  • In March, Element Critical acquired Skybox Datacenters’ Houston One facility, a robust 100,000 square foot facility that supports high-density colocation customers, with 26 megawatts (MWs) of power. The company has already begun construction on a campus expansion that will add two new data halls and 33,000 SF of space and support up to 6 MWs of additional capacity.
  • In September, the company entered the Austin market by acquiring a 7-acre campus previously operated by vXchange, which features a 62,000 square foot data center, with 7 megawatts (MWs) of power capacity.

“We like Texas in general, and we really like the Austin market,” said Parent, adding that Element Critical was an active bidder for Data Foundry, the Austin-based provider that was acquired by Switch in May for $420 million.

Element Critical will invest about $20 million in the Austin campus, and hopes to add solar panels in the parking lot and roof to generate 1 megawatt of on-site renewable energy.

“Our plan is to add renewable energy at each of our data centers,” said Parent. “We’re looking at how we can be a true leader in renewable energy.”

Growing in a Competitive M&A Market

With the Texas expansions, Element Critical now operates six data centers across five markets – Silicon Valley, Northern Virginia, Chicago, Houston and Austin – spanning nearly 700,000 square feet of data center space. The company has acquired sites operated by service providers, including Level 3, Sungard Availability Services, Skybox and vXchange.

Future acquisitions may look beyond these large markets, consistent with the changing geography of computing. “We’re definitely looking at tier two and tier three markets,” said Parent. “They will be important edge markets.”

Parent is employing an expansion roadmap familiar from his tenure as CEO of ByteGrid, building a national platform of data centers by using a sale/leaseback strategy to buy facilities with existing tenants and available expansion space. The company offers colocation, connectivity and cloud services, emphasizing strong customer service and high-touch support for enterprise customers.

Ken Parent, the CEO of Element Critical.

The data center M&A market has become more competitive, with more real estate investors interested in entering the data center sector.

“It’s becoming more expensive” to acquire facilities, Parent said. “We’re always a very serious buyer. The challenge is that there are now more buyers. I don’t think this is good for the business, and we’ve definitely seen cap rates compress.”

Capitalization rate (“cap rate”) is a measure of performance on funds invested in real estate. When the cost of buying an asset rises, but income from tenants remains steady, these cap rates become compressed, reducing the return on the investment. This is why some investors are cautious about purchasing assets in periods of competitive bidding, as seen recently in the data center market.

A positive development is the resurgence in data center demand from enterprise customers, many of whom postponed IT spending during the pandemic.

“They took a holiday for a year, but are definitely coming back,” said Parent. “Chicago is a pretty good proxy for enterprise clients, and there’s pretty good activity there. We are starting to see some life come back.”

About the Author

Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

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