There’s an old saying in real estate: “Buy land – they’re not making any more of it.” Finding land is becoming a challenge in leading data center markets, as developers buy up properties to ensure future capacity for cloud customers. That includes “Data Center Alley” in Ashburn, the leading cloud hub in Northern Virginia.
David Tolson has been an active player in the Ashburn market, acquiring properties that have helped providers like RagingWire and CyrusOne expand their data center footprint. Tolson and his company, DBT-Data, have specialized in buying powered shells: existing buildings with undeveloped space, with the power and fiber connectivity already in place.
As data center demand has accelerated in Ashburn, Tolson has recently shifted his focus to shovel-ready vacant land.
“The market is incredibly strong,” said Tolson. “The sheer volume of megawatts being taken down is pretty phenomenal. It’s amazing what Amazon Web Services has taken down, and the recent land buys (by developers).”
Growing Focus on Speed-to-Market
Digital Realty, Equinix, RagingWire, Sabey Data Centers, Infomart Data Centers and DuPont Fabros are all building new facilities in the Ashburn to support tenant demand. Tolson believes there are more projects to come.
“My model is to have land with all the entitlements ready to go,” he said. “It’s really a speed-to-market play. From the day someone closes with me, they could have 10 megawatts in the ground in six months. We’re the quickest path to market.”
“I’m happy to have the two sites,” said Tolson. “I have no confidence I’ll be able to find anything more (in Ashburn). It just doesn’t seem to be there.” Here’s a look at the two properties:
- The Ashburn property features 23.58 acres on Broderick Drive near its intersection with Waxpool Road, which is adjacent to the AOL campus. DBT says the site can accommodate 600,000 square feet of data center space, with electricity supplied by Dominion Power. The site, which is within one mile of the Equinix campus, is being graded and should be ready for tenants within 30 days, Tolson said.
- In Sterling, the property off Route 606 on Old Ox Road can accommodate up to 1 million square feet of data space center with additional entitlements, with robust electrical and fiber infrastructure. Tolson estimates this property can be ready for market within six months.
Tolson says these properties will be of interest to data center service providers, who are focused on expanding their inventory in Northern Virginia to meet tenant demand. That includes the leading data center REITs as well as providers “with national or super-regional footprints.”
“Ultimately, they will all be in Ashburn,” said Tolson. “If you look at the last three years and all the leasing that’s taken place, all these companies envy that and want a piece of it.”
Quick Turnaround for CyrusOne
When it comes to procuring space for service providers, Tolson speaks from experience. DBT-DATA has built or repurposed more than 600,000 square feet of space for data center use, including two buildings in Ashburn that are now data centers leased and operated by RagingWire.
Early in 2016, DBT-DATA acquired a site for data center use at 511 Shaw Road in Sterling, Va. In a matter of months, the property was acquired by CyrusOne, which had a cloud tenant that needed a 12 megawatt facility.
“Within just over a month, we were able to quickly identify a solution and purchase a new shell building within a highly constrained market,” said Kevin Timmons, chief technology officer of CyrusOne. “When customers demand this type of large-scale takedown, CyrusOne doesn’t hesitate to identify a tailored solution for their unique mission-critical infrastructure needs.”
Tolson said the economics of the powered shell market have been altered by the expansion of Amazon Web Services, which has worked closely with Corporate Properties Office Trust (COPT), a real estate investment trust focused on secure space for data centers and government tenants.
“Powered shell was a wonderful business at one point,” said Tolson. “When COPT started building powered shells for Amazon at lower margins, as far as I’m concerned, the powered shell market went away. I won’t be building powered shell.”
A Strategic Shift to Data Centers
For much of his career, Tolson focused on the market for upscale residential housing, developing 280 units of luxury condominiums in Washington D.C. He saw the housing crisis developing, and shifted gears.
“In 2007 I was pretty confident the residential market was going to take a hit,” Tolson said. “So I got into the data center industry.”
The first data center project developed DBT-DATA was the Cyber Integration Center in Harrisonburg, Virginia, which the company sold to defense contractor Harris Corp. in 2010. Harris invested a reported $200 million in the facility, and struggled to gain tenants. DBT-DATA bought the property back from Harris in 2013, and divested it in 2014 to a single-tenant purchaser.[clickToTweet tweet=”David Tolson: Location matters. That’s why I pivoted to buying property as close to Equinix as I could.” quote=”David Tolson: Location matters. That’s why I pivoted to buying property as close to Equinix as I could.”]
Establishing a data center in a new market isn’t easy, which is why Tolson shifted his focus to Ashburn.
“The lesson I learned was location, location, location,” he said. “That’s why I pivoted to buying property as close to Equinix as I could.”
Where Next for the Loudoun Market?
With a shortage of development sites available in the heart of Ashburn, Tolson believes the focus of data center development in Loudoun County will shift to the area just west of Dulles Airport in Sterling. That’s where DBT-DATA has acquired its site on Old Ox Road. Amazon Web Services is said to be eyeing several properties in that area for future develoment.
“Just out of necessity, that’s where the market is headed,” said Tolson.
A wildcard in the land use equation is the development of an Ashburn station for the D.C. Metro subway system. “I think that with the Metro coming, you’ll see more competition for land,” said Tolson. “It’s really going to be a game-changer. I think now you’ll also see residential developers buying land.
“County permits are probably the choke point for residential,” he added. “The schools and roads need to catch up to the residential development. Data centers are the exciting story.”
Tolson says the local utility, Dominion Virginia, will have no trouble supporting more data center development.
“Dominion is just an excellent organization,” he said. “They will bring the power as quickly as the data center industry needs it. They are very in-tune with the marketplace.”
Tolson believes the cloud-driven demand for data centers has a ways to go in Northern Virginia.
“In my opinion, cloud as a business model has only been validated in the past 18 months,” he said. “AWS led the way, and now you see everybody else playing catch-up. In all the research I’ve read, I’ve seen nothing to suggest it will slow down.”