H5 Data Centers is entering the Phoenix market with its acquisition of NextFort, which operates a 180,000 square foot data center in Chandler, Arizona. Phoenix will be the eighth geographic market for H5, a wholesale data center specialist that now operates more than 1 million square feet of data center space.
The acquisition of NextFort continues the flurry of mergers-and-acquisitions that shaped the industry in 2015. It also continues H5’s pattern of growing through acquisition of sites in growing data center hubs.
“We like the markets where the bytes are going to go in the future,” said David Dunn, the chief operating officer of H5 Data Centers. “We like buildings with good bones, and look for good assets in long-term data center markets. We’re finding places where we think clouds will grow.”
That’s certainly the case in Chandler, which has emerged as a favored location for data center operators in the Phoenix market. H5’s new neighbors include data centers for Digital Realty, CyrusOne and eBay. The largest player in the Phoenix market is IO Data Centers, which has large facilities in Scottsdale and Phoenix.
“Over the long-term, we think Arizona’s going to be a great place for data centers,” said Dunn. “There’s quite a national profile to that market. We like Phoenix for many reasons. Computers will be safe in Phoenix. We like the power pricing and the energy market. Arizona is one of the largest solar-potential markets.”
Hybrid Design As A Differentiator
Although Phoenix is a competitive market, H5 believes it will be well positioned with the NextFort facility, which features a hybrid design that combines elements of dedicated data halls and modular designs.
The building is comprised of individual suites made of steel and cement, which each support up to 225kW of critical load. Each turn-key customer suite will have dedicated mechanical infrastructure, including a rooftop cooling unit. The suites are built off a central corridor.
H5 Data Centers is privately held, and operates facilities in Denver, Atlanta, Charlotte, Seattle, San Jose and San Luis Obispo in California, and now Phoenix. The company is focused on data center real estate and the wholesale model. About half of its portfolio is fully leased to single tenants.
Dunn says H5 is an opportunistic acquirer, and likes to find existing buildings with an upside.
“A lot of the big guys (in the wholesale data center sector) seem very interested in doing only ground-up development,” said Dunn, an industry veteran with experience at CoreSite and the Carlyle Group. “We think there’s a lot of opportunity with enterprise data centers that may not be used to their full capacity.”
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An example is Ashburn, Virginia, a highly competitive market where H5 acquired a building from DBT Data and is currently marketing the space as a powered shell. That might seem like a difficult sell in some markets, but the Ashburn building is in a prime location on Beaumeade Circle, just yards away from an Equinix campus that is a key Internet connectivity hub.
Dunn also sees potential in the H5 Denver site, a 300,000 square foot data center campus previously owned by United Airlines. H5 has invested $8 million in improvements in the two data centers on the campus.
“We think there will be a continued shift to outsourced data center operations,” said Dunn. “We want to be wholesale. We don’t want to compete with our customers or go up the stack.”
More Growth Opportunities Ahead
With 1 million square feet, H5 has a substantial footprint but is still dwarfed by some of its publicly-held competitors in the wholesale sector, such as Digital Realty and DuPont Fabros. “We’re a small wholesale operation,” said Dunn.
But that doesn’t mean H5 will stay that way. With a substantial amount of data center assets for sale, there is lots of opportunity for acquirers with resources.
“We’ll be buying more data centers,” said Dunn. “I think we’ll be very active this year. We’re opportunistic, but we need to stay disciplined. Many of these assets will be sold in an auction. We’re also happy to be a passive landlord on a great piece of real estate.”
Plans in Phoenix
For the moment, the company is focused on integrating the Phoenix acquisition. The NextFort team will continues with H5, and there are about 30 existing customers at NextFort, with space for more and the potential for additional expansion.
“Over time we’ll look to expand the physical footprint,” said Dunn. “We think we can build upwards of 180,000 square feet of additional space on that property.”
And for further coverage, check out Data Center Frontier’s page dedicated to the Phoenix Data Center Market, that will provide the latest stats and info on this quickly growing area that is becoming a leading market in the colocation industry.