SBA Communications has become the latest telecom tower operator to enter the data center business with its purchase of a facility in the Chicago market. SBA’s acquisition of New Continuum Data Centers is the latest move by tower-focused real estate investment trusts (REITs) to establish a beachhead in the data center world.
With the emergence of edge computing, a growing number of wireless companies have been acquiring assets in the data center sector, preparing for a future with greater integration between data centers, telecom towers and antennas.
The three large public tower REITs have all made investments in data center companies. SBA and American Tower have each bought an interconnection-focused data center in a major metro, while Crown Castle is an investor in edge data center specialist Vapor IO. Landmark Dividend, which also invests in wireless infrastructure, has taken a larger step into the data center sector by acquiring 14 data centers over the past two years.
These deals illustrate the growing overlap between the data center and wireless worlds, a trend we first noted in our 2018 forecast (8 Trends That Will Shape the Data Center Industry in 2018). Companies like EdgeConneX and Digital Bridge have wireless experience and have added data centers as a core element of their business
The tower REITs are more narrowly focused on monetizing edge capacity at their thousands of tower sites, but these deals also represent a wager that the earliest edge growth may involve creating denser networks in cities.
SBA Communications President and CEO Jeff Stoops said the company bought New Continuum “to further our readiness and expertise to best capitalize on mobile edge computing on the over 30,000 sites we own globally.”
Stoops said the deal “will provide us with a perfect platform to test various business models, so that when mobile edge computing becomes a reality, we will be ready to best maximize SBA’s opportunities. There are truly exciting times ahead.”
New Continuum is a multi-tenant data center operator in West Chicago, Illinois and operates an 80,000 square foot purpose-built facility. The company offers colocation in cages, private suites and secured data halls, with the ability to support 2N power distribution and high-density cabinets. The company was founded by Eli Scher, an investor and entrepreneur who also serves as Vice Chairman of the Open-IX Association, which develops standards for data center interconnection.
New Continuum operates an internet exchange and is also collaborating with AlefEdge on edge computing offerings for carriers targeting services for 5G wireless, the Internet of Things, gaming and other next-generation services.
SBA says the Chicago facility is an ideal testbed for sorting out how wireless and fiber infrastructure will work together as edge demand materializes.
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“At this point, the focus would be on maximizing the opportunities presented by the existing investment we have around our macro sites in the related real estate,” said Brendan Cavanagh, SBA’s CFO, in the company’s earnings call. “The New Continuum investment gives us a research and development opportunity to understand the variety of business models that may come to pass at the cell site.”
SBA’s approach appears similar to the strategy of rival American Tower, which made its first acquisition in the data center sector in April, buying Colo ATL, a colocation and meet-me room business in downtown Atlanta. Colo Atl provides carrier-neutral colocation and interconnection services from 55 Marietta Street, one of the carrier hotels in Atlanta.
Colo ATL operates 26,000 square feet of colocation space on the 5th and 8th floors of 55 Marietta. The facilities are connected by vertical fiber risers, as well as diverse fiber that runs across the street to 56 Marietta, another carrier hotel with an even larger tenant base. Both buildings are in downtown Atlanta, a short walk from the CNN Center and Centennial Olympic Park. It is also home to the Georgia Technology Center (GTC), a live laboratory for network equipment vendors to highlight their latest optical hardware, and the Southeast Network Access Point (SNAP), which provides next-generation Internet Exchange (IX) solutions, including SDN peering.
“This transaction will enable American Tower to evaluate the interconnection marketplace directly as a complement to future edge data center proliferation and network resiliency initiatives on the path towards 5G,” said John Ghirardelli, Director, U.S. Innovation for American Tower and new General Manager for Colo Atl, who said “the opportunity to leverage Colo ATL’s unique position in the data center space to learn more about the convergence of network connectivity around 5G was extremely attractive for us.”
Crown Castle was the first tower REIT to target edge data centers with its 2017 investment in Vapor IO, which specializes in software and hardware for edge installations, and plans a national network of colocation space in data center modules, located either at the base of towers or urban rooftops.
“The exponential growth in mobile data and the development of new applications that require high speed data networks with low latency make this an exciting time to be in the shared communications infrastructure business,” said Phil Kelley, senior vice president of Corporate Development and Strategy for Crown Castle. “When you combine our distributed real estate and high capacity fiber connectivity with Vapor IO’s capabilities, Crown Castle is uniquely positioned to enable edge computing.”
The relationship has evolved over time. The Vapor IO edge collaboration with Crown Castle, initially a joint venture known as Project Volutus, was acquired by Vapor in 2018 and is now offered commercially under the Kinetic Edge brand.
“We’re continuing to watch that (edge computing) space,” said Jay Brown, the President and CEO of Crown Castle, in the company’s third-quarter earnings call. “We think there’s opportunity not only to create potentially a lease-up business by utilizing the space at the very edge of the network, which we would have as a result of our investments in small cells and towers, but it also gives us a perspective on kind of where the world is going.”
But Brown was clear that the Vapor IO relationship was likely not a first step towards a larger role in the data center business.
“At this point, I really don’t see data centers playing a significant role in our long-term strategy,” said Brown. “We think the opportunity for us really relies around towers and the use of fiber for small cells, and then utilizing that same asset for other customers like hospitals and universities and other users that need high bandwidth fiber.”
The wireless tower player that has made the largest recent foray into the data center sector has been Landmark Dividend, a real estate firm that takes a diversified approach to digital infrastructure. Landmark invests in telecom towers, outdoor advertising, and solar energy facilities. Landmark Dividend LLC is the sponsor of several private investment vehicles along with a publicly-traded subsidiary, Landmark Infrastructure Partners (NASDAQ: LMRK).
In 2017, Landmark appointed Christof Hammerli as Executive Vice President, Digital Infrastructure. Hammerli is well known in the data center industry for his leadership roles at Carter Validus and Equinix. Over the past two years, Landmark has acquired 14 data centers, with facilities in Boston, Minneapolis, Charlotte, Indianapolis, Fort Lauderdale St. Louis, Santa Clara, Dallas, Milwaukee and Ohio locations in Dayton and Columbus.
Many of Landmark’s acquisitions have been fully-leased single-tenant data centers, like the Flexential facility in Fort Lauderdale that it purchased in February. Its acquisition model also includes sale-leaseback deals.
“Landmark has made a major commitment to the industry and has built a best-in-class platform in the data center space, leveraging one of the most successful track records in the industry,” said Tim Brazy, Chief Executive Officer of Landmark. “We are deeply committed to accelerating our efforts in the industry by actively growing our portfolio of assets throughout North America and internationally.”