Every data center is a complex combination of technology, real estate and finance. Behind the rows of servers and gigantic buildings is a balance sheet that supports the entire operation. Finance may seem less sexy than all the blinking lights, but it is often where infrastructure is transformed.
Cologix provides an example of how investment and M&A can alter the trajectory of a data center provider’s journey. Five years ago, Cologix was a regional colocation provider offering interconnection services from modest-sized data centers. It is now a player in the hyperscale data center market, building large data centers (which are getting larger) to provide cloud on-ramps in major hyperscale hubs.
The latest step in that evolution is Scalelogix, a new hyperscale design featuring innovations in how Cologix facilities are built and financed. The Scalelogix strategy was enabled by a $3 billion recapitalization in December, which brought in new investors and used an asset-backed securitization to reduce the company’s borrowing costs.
Cologix is now deploying the Scalelogix design in key markets across North America, including new buildings in Ashburn, Santa Clara, Montreal and Columbus, Ohio.
“Towards the end of last year, our pipeline just exploded,” said Bill Fathers, CEO of Cologix. “We decided to form Scalelogix and in several markets to start constructing much larger facilities than we’ve done historically. In many cases, we’re doing it with pre-leasing as opposed to it being spec. It’s a full-blown diversification for us.”
Connecting With Deeper, Cheaper Capital
Cologix has been known for its focus on interconnection services in regional markets, and in the past several years has begun building hyperscale edge data centers, including large-footprint campuses in Montreal and Columbus, Ohio. It is also entering larger markets, with plans for a campus in Ashburn and the recent acquisition of a facility in Santa Clara.
After many years of building data centers in the 2 megawatt (MW) to 10 MW range, Cologix acquired hyperscale specialist COLO-D in late 2018 to build at larger scale. That business has grown, driving the development of the Scalelogix program, which required some new thinking about the company’s capital strategy.
“We realized that if we’re going to do Scalelogix properly, we are going to need access to a lot more financing and have the lowest possible cost of capital,” said Fathers. “That led to some deep thinking about how you refinance both your debt and equity.”
Private equity firm Stonepeak Infrastructure Partners acquired Cologix in early 2017, calling it “a marquee platform to enter the data center and interconnection market in North America.” Stonepeak also invests in companies that operate cell towers (Vertical Bridge), small cell wireless antennas (Extenet) and fiber (euNetworks).
In 2019, Cologix announced a $500 million investment from Mubadala Investment Company, the sovereign wealth fund for the Emirate of Abu Dhabi, which invested alongside Stonepeak to support the growth of the Cologix platform. Since2017, Cologix has invested $1 billion in building out the company’s footprint.
“We could foresee that we were going to need a whole different category of investors to be able to keep our growth up and accelerate into Scalelogix,” said Fathers. “So we went through a recapitalization, and some investors have carried over, and then we have some new investors.”
The December recapitalization was structured as a sale of Cologix between several Stonepeak funds, with Mubadala exiting its investment.
“We are excited to extend and deepen our partnership with the Cologix team through this transaction, and look forward to supporting Bill and team as they continue to build out Cologix’s leading North American interconnection and hyperscale edge platform in the years ahead,” said Cyrus Gentry, Managing Director at Stonepeak.
That was just one element of the financial reset. “On the debt side, (the Scalelogix initiative) led us to move away from like a conventional loan structure,” said Fathers. “If we’re going to do billions of dollars of expansion, we need to lock in our interest rates. The mechanism for doing that was an asset-backed securitization which brought down our interest rates, and gave ourselves the ability to raise a lot more money.”
In an asset-backed securitization, a developer uses the equity and cash flow from a pool of properties to secure a loan. Because builders have data centers in various stages of development, some of these assets can qualify for a lower interest rate than the entire portfolio.
Capital Enables New Construction
The recapitalization has allowed Cologix to begin construction on its most strategic Scalelogix project – a large data center campus in the heart of “Data Center Alley” in Ashburn, Virginia. The new Ashburn campus is on the former site of the Christian Fellowship Church on Beaumeade Circle, and sits next to the world’s largest Internet intersection, adjacent to campuses for Equinix, Digital Realty and Amazon Web Services. Cologix bought the land in 2018, and announced a groundbreaking in late 2020.
Fathers said the recapitalization “was the catalyst for us to be able to start building Ashburn.” The first building will be a three-story, 90-megawatt site with the Scalelogix model of hyperscale edge facilities tethered to Cologix interconnection hubs via high-speed fiber.
Cologix plans to deploy 200 MWs of Scalelogix capacity, including Ashburn, Santa Clara and additional facilities in Montreal and Columbus.
In addition to deployments from large hyperscale customers, Fathers said Cologix is seeing more activity among the next tier of hyperscale players.
“The thing we’re seeing now is the next generation of big SaaS companies who’ve reached mega scale are quite actively deploying edge capacity into secondary markets, and coming in with anything from half a meg to 5 megawatts,” he said.
Cologix now has more than 40 data centers across the U.S. and Canada, with 29 cloud on-ramps and an ecosystem of more than 600 network providers. Although scale is a growing part of its business, Fathers said Cologix will always lead with connectivity.
“We will stay true to our core strategy of building hyperscale facilities on the back of an interconnection story,” said Fathers.