Northstar Enters Virginia Data Center Market, With Fortune 20 Tenant

A Denver developer has entered the Northern Virginia data center market in a big way, buying a prime land parcel in Loudoun County to build a data center campus for one of the world’s largest companies.

Northstar Commercial Partners will build two data centers, which are pre-leased to a “high profile Fortune 20 company,” the company said last week. The $100 million project will create 400,000 square feet of data center space, with the first building scheduled to be completed later this year.

The announcement by Northstar brings another new player into the data center market, which has seen an influx of capital and competitors as the growth of cloud computing drives demand for data center facilities. The developer cited rising investment in artificial intelligence as a factor in its new focus on the data center sector.

Northstar has acquired 37 acres of land at the junction of Route 28 and Route 606 in Sterling, just north of Dulles Airport and several miles from “Data Center Alley,” the cloud connectivity nexus in Ashburn. The land was recently purchased from JK Moving, which did not disclose the sale price, according to local media.

Northstar is a real estate firm that is best known for acquiring and rehabilitating vacant commercial properties. The company signaled that the Virginia project is part of a growing focus on opportunities in the data center real estate market.

“I’m thrilled to have Northstar involved as a key programmatic developer of data storage facilities,” said Brian Watson, Northstar’s founder and CEO. “The race to be a market leader in artificial intelligence technology and subsequent data is heating up and the demand for new storage facilities is immense. As such, it makes a lot of sense strategically to be involved as a commercial real estate company in this space.”

A Programmatic Data Center Developer

Northstar did not name the tenant beyond saying that it was a Fortune 20 company – which in data center terms, pretty much narrows the field to Apple or Amazon.

Industry sources say the tenant is likely Amazon Web Services (AWS), which continues to add to its enormous cloud computing footprint in Northern Virginia, where it operates more than 30 data centers. The Northstar property in Sterling is about 1 mile from an existing cluster of AWS cloud facilities, one of several clusters in Loudoun and Prince William counties, where AWS hosts most of its US-East region.[clickToTweet tweet=”Northstar: The race to be a market leader in artificial intelligence is heating up and the demand for new storage facilities is immense.” quote=”Northstar: The race to be a market leader in artificial intelligence is heating up and the demand for new storage facilities is immense.”]

Northstar’s description of itself as a “programmatic developer” suggests that it intends to pursue additional data center projects. In a programmatic real estate venture, investors and a developer team up on a series of projects, usually targeting a strategic niche or product type. The arrangement provides a steady source of capital, focused development expertise, and a repeatable game plan for bringing new projects to market.

In the data center industry, a programmatic or “platform” approach is common for companies seeking to build a network of facilities. This approach also can simplify the process of selling or refinancing properties or portfolios.

Northstar is notable for Watson’s focus on job creation, and seeking to support job growth in its redevelopment of vacant or distressed properties. Data center projects typically create a limited number of jobs due to the high level of automation in facilities and maintenance, but Northstar noted that the project will create more than 300 new construction jobs.

“This is an exciting and truly transformational project to be involved with on a variety of levels,” said Watson. “We’re eager to get to work and deliver.”

Loudoun Land Grab Continues

Northern Virginia is already the world’s largest data center market, and has seen new players entering the market in recent months, along with construction and expansion announcements from existing players. Developers in Northern Virginia leased a record 115 megawatts of data center space in 2017, topping the 113 megawatts (MWs) absorbed in 2017, according to a new report.

As data center providers scramble to procure expansion space, land values have soared past $1.2 million an acre in recent deals in Ashburn, the region’s largest Internet traffic intersection. Deals currently in the works could exceed that valuation, as the scarcity of prime development sites drives prices higher.[clickToTweet tweet=”Northstar’s project in Northern Virginia brings another new player into the data center market, which has seen an influx of capital and competitors.” quote=”Northstar’s project in Northern Virginia brings another new player into the data center market, which has seen an influx of capital and competitors.”]

The strong demand for land for future data centers was reflected in the pricing of recent deals. QTS paid $36 million for a 28-acre campus off Lockridge Road known as West Dulles Station, or about $1.28 million per acre. That’s more than the previous record transaction of $1 million per acre for an Equinix purchase earlier this year. There are reports that the pending sale of the Christian Fellowship Church, which borders the main Equinix campus in Ashburn, could also fetch a high price when it closes.

The entry of  new players in Ashburn signals developers’ belief that cloud providers will want to spread their data center capacity across multiple providers. CloudHQ, Iron Mountain and Central Colo entered the market in 2017, and Vantage Data Centers, Compass Datacenters and QTS Data Centers have all jumped into the market with large new campuses. COPT has emerged as one of the most active builders in the market, as it churns out new data center shells to support a massive expansion by Amazon Web Services.

The incumbents aren’t sitting still, either. Digital Realty is creating an enormous new campus, while RagingWire, CoreSite, Sabey Data Centers, Equinix and CyrusOne are all adding new capacity.