• About Us
  • Partnership Opportunities
  • Privacy Policy

Data Center Frontier

Charting the future of data centers and cloud computing.

  • Cloud
    • Hyperscale
  • Colo
    • Site Selection
    • Interconnection
  • Energy
    • Sustainability
  • Cooling
  • Technology
    • Internet of Things
    • AI & Machine Learning
    • Edge Computing
    • Virtual Reality
    • Autonomous Cars
    • 5G Wireless
    • Satellites
  • Design
    • Servers
    • Storage
    • Network
  • Voices
  • Podcast
  • White Papers
  • Resources
    • COVID-19
    • Events
    • Newsletter
    • Companies
    • Data Center 101
  • Jobs
You are here: Home / Colo / Sale-Leaseback Emerges as a Portfolio Building Strategy

Sale-Leaseback Emerges as a Portfolio Building Strategy

By Rich Miller - October 19, 2018

Sale-Leaseback Emerges as a Portfolio Building Strategy

The Lincoln Rackhouse data center in Plano, Texas. (Photo: Lincoln Rackhouse)

LinkedinTwitterFacebookSubscribe
Mail

Last December, as we looked ahead at the trends that would shape the coming year, Data Center Frontier noted that “2018 is shaping up as a big year for sale-leaseback deals, due to the increased number of properties available and more potential buyers pursuing these types of deals.”

That projection has been borne out, with a growing number of providers using sale-leaseback deals to build national data center portfolios.

An example: Last month Lincoln Rackhouse acquired a 1 million square foot portfolio of data centers from a major financial institution (not named, but clearly Bank of America), which leased back space in two of the three facilities. Lincoln Rackhouse partnered with Principal Real Estate Investors on the transaction, which allowed Lincoln Rackhouse to expand into two new regions of the country.

“This acquisition doubles our portfolio and allows us to offer cloud, colocation and managed services providers attractive expansion or new entry options into these key data center markets,” said Ryan Sullivan, managing director of Dallas-based Lincoln Rackhouse. “We were able to acquire this portfolio because we were patient, flexible and have a proven track record of performance with the seller.”

The Sale-Leaseback Proposition

In a sale-leaseback transaction, an enterprise company sells its data center to a third-party, and then leases the space it needs to operate its existing IT facilities. The buyer, usually an investor or data center service provider, collects the rent and can lease the remaining space.

This type of deal solves a common problem. An enterprise company builds a large data center, assuming its IT operations will grow. It winds up not needing as much space as it expected, due to increased use of virtualization or third-party cloud computing services. As a result, large expanses of expensive data center space sit empty.

The sale-leaseback trend illustrates the diversity of business models in the data center industry. At one end of the spectrum are the massive custom-built greenfield construction projects for cloud providers. At the other end is the sale-leaseback model, which requires expertise in asset selection and retrofits of existing facilities, usually built for enterprises.

Lincoln Rackhouse is executing on this model, bringing new life to data centers that others are seeking to divest. In 2016 it acquired two data centers in Northern Virginia from Netrality Properties, which had just bought them from long-time owner Digital Realty. Lincoln Rackhouse leased the entire building at 1807 Michael Farraday Court in Reston to colocation provider Evocative (which quickly subleased a chunk of the space to Atlantic.Net).

The sale-leaseback trend illustrates the diversity of business models in the data center industry.

The Lincoln Rackhouse model of refurbishing space and leasing to service providers is now being applied to sale-leasebacks. The company’s newly-acquired property in Chandler, Arizona has already been fully leased to colocation provider INAP, which will have Bank of America as an ongoing tenant. Lincoln Rackhouse followed a similar model last year, when it acquired a 5 megawatt data center in Atlanta from Coca-Cola, and then leased the entire facility to INAP, which Coca-Cola remaining as a tenant as it consolidate its remaining IT to other sites.

Free Resource from Data Center Frontier White Paper Library

data center compliance
Top 5 Things to Ask Your Data Center About Compliance
Choosing the right colocation partner is critical, especially when it comes to compliance. When you’re outsourcing your data center needs, understanding your colocation provider’s compliance, security, availability and integrity are of upmost importance. Download the new report from Iron Mountain that provides details on what the company sees as five of the top things to ask your data center provider about compliance 
We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

Get this PDF emailed to you.

Lincoln Rackhouse is executing on the strategy it laid out in 2016, when it stepped up its acquisition activity. “The value-add opportunity is the primary play for us,” said Sullivan. “The goal is to pick up several of these opportunities over the next few years.”

Finished Space, Available Now

One benefit of the sale-leaseback model is that these facilities often include surplus finished space that went unused by the enterprise customer. With its recent acquisitions Lincoln Rackhouse now has 8 megawatts of space immediately available to lease in Plano (a northern suburb of Dallas), while its Kansas City facility has 10 megawatts of power capacity and 100,000 sf of raised-floor space ready to occupy.

“We can facilitate a new customer installation next week. That’s extremely rare in today’s white-hot Dallas market,” says Ryan Crabtree, Lincoln Rackhouse’s vice president of asset management and property operations. “As for Kansas City, we now own the largest block of data center space currently available in the market, which historically, has seen more data center development directly by the enterprise, due to a lack of large-scale wholesale data center offerings.”

Another provider using the sale-leaseback model to enter new markets is Iron Mountain, which last year bought Credit Suisse data centers in London and Singapore. Credit Suisse was using just 4.2 megawatts (MW) of the 14 MWs of capacity at the two sites.

In a similar scenario, Ascent bought a pair of data centers in Atlanta and Waterloo, Ontario through through a sale-leaseback deal with an enterprise seller (likely Blackberry). The two buildings offer 13 MW of available space, plus expansion capacity.

Finished Space, Available Now

A growing number of enterprises are putting their data centers on the market, hoping to get out of the business of owning data center real estate. The number of sale-leaseback transactions is trending higher, but buyers have been selective about these opportunities. Many legacy data centers would require significant infrastructure upgrades to be competitive in the multi-tenant data center market.

Several growing data center providers are looking to sale-leaseback model as a way to acquire properties and expand their portfolios.

Chirisia Investments has acquired 21445 Beaumeade Circle, where it will build a 30 megawatt data center in Ashburn, Virginia's Data Center Alley. (Photo: Chirisa Investments)

Chirisia Investments has acquired 21445 Beaumeade Circle, where it will build a 30 megawatt data center inAshburn, Virginia’s Data Center Alley. (Photo: Chirisa Investments)

“We’ve put together a nice offering for sale-leaseback,” said Colm Piercy, the CEO and Founder of Chirisa Investments, which operates the 365 Data Centers, Dataplex and Digital Fortress brands. “I think that will soon account for a lot of our activity. We’re happy to take over the reconditioning of those facilities for what clients want today.”

Chirisa is actively expanding its holdings in the United States, both through its colocation companies and Chirisa Tech Centers, a wholesale data center business that recently acquired a site in Ashburn, Virginia. Piercy says an ideal sale-leaseback scenario is one where the enterprise operator is using 25 to 35 percent of the available space in its data center.

Another company that likes the sale-leaseback model is Element Critical, which is assembling a national platform by acquiring existing data centers in major Internet cities. Like other executives focused on this strategy, Element Critical CEO Ken Parent likes the fact that the sale-leaseback market is not for everyone.

“We’re probably tracking 40 different assets, and none of them are on the market”
Element Critical CEO Ken Parent

“There’s a lot of opportunity, but there’s not a lot of institutional capital behind deals in the legacy space,” said Parent. “There’s enough (property) out there with cash flow.”

It’s a strategy that requires a lot of research, including conversations with property owners who may not believe they are ready to sell.

“It has to be the right asset, in the right market,” said Parent. “We’re probably tracking 40 different assets, and none of them are on the market. These existing assets have to check a lot of boxes.”

Parent, who previously pursued a sale-leaseback growth strategy as CEO of regional provider ByteGrid, believes this approach offers plenty of runway for Element Critical.
“I see us growing this model by two to three assets per year,” he said.

LinkedinTwitterFacebookSubscribe
Mail

Tagged With: Chirisa, Element Critical, Iron Mountain, Lincoln Rackhouse, Sale-Leaseback

Newsletters

Stay informed: Get our weekly updates!

Are you a new reader? Follow Data Center Frontier on Twitter or Facebook.

About Rich Miller

I write about the places where the Internet lives, telling the story of data centers and the people who build them. I founded Data Center Knowledge, the data center industry's leading news site. Now I'm exploring the future of cloud computing at Data Center Frontier.

  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • Twitter

Voices of the Industry

Six Ways Edge Computing is Changing the Digital Ecosystem Landscape

Six Ways Edge Computing is Changing the Digital Ecosystem Landscape The pandemic exposed a nation-wide digital divide. Brad Alexander of DartPoints, outlines how edge computing is bridging that gap and changing the digital ecosystem landscape.

White Papers

cloud data centers

Yes, the Cloud Is a Catalyst; It’s Also a Competitive Benchmark

Cloud data centers are typically located where the metrics of  total cost of ownership, flexibility, performance, and ‘righteousness’ are optimized. This white paper provides an overview of the US markets with the lowest total cost of ownership by ranking them based on land, energy, network and labor costs.

Get this PDF emailed to you.

We always respect your privacy and we never sell or rent our list to third parties. By downloading this White Paper you are agreeing to our terms of service. You can opt out at any time.

DCF Spotlight

Data center modules on display at the recent Edge Congress conference in Austin, Texas. (Photo: Rich Miller)

Edge Computing is Poised to Remake the Data Center Landscape

Data center leaders are investing in edge computing and edge solutions and actively looking at new ways to deploy edge capacity to support evolving business and user requirements.

An aerial view of major facilities in Data Center Alley in Ashburn, Virginia. (Image: Loudoun County)

Northern Virginia Data Center Market: The Focal Point for Cloud Growth

The Northern Virginia data center market is seeing a surge in supply and an even bigger surge in demand. Data Center Frontier explores trends, stats and future expectations for the No. 1 data center market in the country.

See More Spotlight Features

Newsletters

Get the Latest News from Data Center Frontier

Job Listings

RSS Job Openings | Pkaza Critical Facilities Recruiting

  • Critical Power Energy Manager - Data Center Development - Ashburn, VA
  • Site Development Manager - Data Center - Ashburn, VA
  • Data Center Facility Operations Director - Chicago, IL
  • Electrical Engineer - Senior - Dallas, TX
  • Mechanical Commissioning Engineer - Calgary, Alberta

See More Jobs

Data Center 101

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center 101: Mastering the Basics of the Data Center Industry

Data Center Frontier, in partnership with Open Spectrum, brings our readers a series that provides an introductory guidebook to the ins and outs of the data center and colocation industry. Think power systems, cooling, solutions, data center contracts and more. The Data Center 101 Special Report series is directed to those new to the industry, or those of our readers who need to brush up on the basics.

  • Data Center Power
  • Data Center Cooling
  • Strategies for Data Center Location
  • Data Center Pricing Negotiating
  • Cloud Computing

See More Data center 101 Topics

About Us

Charting the future of data centers and cloud computing. We write about what’s next for the Internet, and the innovations that will take us there. We tell the story of the digital economy through the data center facilities that power cloud computing and the people who build them. Read more ...
  • Facebook
  • LinkedIn
  • Pinterest
  • Twitter

About Our Founder

Data Center Frontier is edited by Rich Miller, the data center industry’s most experienced journalist. For more than 20 years, Rich has profiled the key role played by data centers in the Internet revolution. Meet the DCF team.

TOPICS

  • 5G Wireless
  • Cloud
  • Colo
  • Connected Cars
  • Cooling
  • Cornerstone
  • Coronavirus
  • Design
  • Edge Computing
  • Energy
  • Executive Roundtable
  • Featured
  • Finance
  • Hyperscale
  • Interconnection
  • Internet of Things
  • Machine Learning
  • Network
  • Podcast
  • Servers
  • Site Selection
  • Social Business
  • Special Reports
  • Storage
  • Sustainability
  • Videos
  • Virtual Reality
  • Voices of the Industry
  • Webinar
  • White Paper

Copyright Endeavor Business Media© 2022