Lawyer Bait

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Thursday, May 27, 2010

The thaw seems to be on...

In the past two days I have been fielding a ton of phone calls asking about my new venture and do I need money. I can only suspect that there is a thaw happening in the capital markets and investors sitting on cash earning single digit returns are starting to get impatient and looking for low risk investment sectors.

The sweet spot for investment in the data center markets seems to be the $200M-500M range and I can't figure out if that range is based on the numerous IPO filings by Telx, CoreSite, Interexion, etc., the M&A market with deals between Cyrus One and Cincinnati Bell, ViaWest and Oak Hill, etc. or if there are enough people to know what it takes to buy into the space and given where the bar is, not everyone can or wants to jump in (yet).

Expansions and new builds are being announced weekly which means there is more inventory coming to market. However, it won't be instantaneous inventory as the projects I have seen announced and others I know about from my Colo Mafia are all 9-24 months away from having space ready to move into.

So What?

This means that if you need megwatts now, the market is tight. It also means that there will be more sites to put into a site selection process and having people you can turn to with expertise about the operations, the systems, a company's innerworkings, will also be even more important. The real estate brokers are aware of this fact, and I see many establishing data center practices - with real estate folks, not data center folks. Real Estate guys for the most part don't understand the systems of a data center, why density is variable, why N+1 can mean different things to an ops person vs. a sales person.

Do they understand power distribution to the site and inside the site?
Do they understand telecom density? Peering and why that's an advantage?
Can they tell you why a facility is better than another or do they Google all the data centers in Ashburn VA and tour you through 6 of them when you really need to focus on one or two?
Do they understand what the data center needs to support?
Will they bring you to an NSA rated facility when you really need a fireproof locked filing cabinet?

With more inventory comes more choice. We love choice (usually). I use a simple formula to understand site selection:

number of decision makers/influencers * number of facilities = number of things you will need to sort through and spend time and money on

Lower numbers are better. I have encouraged companies to look at 1-2 facilities instead of 6 and spend the savings on bigger bonuses or an offsite meeting in St. Lucia in February vs. flying in 5-6 people multiple times for multiple site visits. It is a waste of time and money better spent on laying out the right facility than choosing it.

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