Leading data center advisor argues that despite high-tech reputation, these facilities are fundamentally industrial real estate plays with surprisingly stable infrastructure.
Data centers may seem like complex, high-risk investments, but industry veteran Everett Thompson says the fundamentals are surprisingly straightforward and stable. “The meantime between failure of a transformer is measured in hundreds of years,” says Thompson, CEO of Wired Real Estate Group, challenging common misconceptions about the asset class.
“What I want to invite your stakeholders to consider is that ultimately, this is very just a segment of industrial real estate,” Thompson explains. “It’s physical, okay, so it doesn’t, where we can play a role in a significant one is at the real estate level.”
Thompson, who helped build Equinix from a $20 million revenue company into an industry leader, says investors often overcomplicate their analysis of data center investments. “The risk profile isn’t any different than any other piece of land that you might own,” he argues.
According to Thompson, the core components of a data center are remarkably durable:
This physical durability creates what Thompson describes as “a very interesting risk reward profile, because it’s a high growth industry on the one hand, but it’s backed by a physical asset.”
Despite the capital-intensive nature of the industry, Thompson says there’s room for various types of investors. “It’s such a capital intensive business, there’s always going to be a level where they can play a role,” he explains.
The key, according to Thompson, is understanding where you fit in the capital stack and what role you can play in the ecosystem. This could range from land ownership to infrastructure investment to operational partnerships.
Through Wired Real Estate Group, Thompson has demonstrated the potential for value creation in the space. He cites their work with Iron Mountain, where they helped transform an underperforming data center business into the company’s largest business unit, growing from declining revenue to generating $70 million in new leases.
“We were sole sourced to Iron Mountain in 2012 back when their data center business was underperforming,” Thompson recalls. “We turned it all around for them, and now it’s their largest business unit.”
More recently, Thompson’s team was involved in what he describes as “the largest interconnection agreement in ERCOT history,” a 1,000-megawatt access agreement in Texas that was “five times the capacity” of comparable projects.
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