Data centers blend lines of commercial real estate companies and energy utilities

As data centers become popular, commercial real estate managers transform into energy brokers as server capabilities require more juice.

According to a recent article in The New York Times, companies in northern New Jersey are paying Manhattan-level office rents for smaller spaces in undesirable places like Weehawken and Secaucus for one and one thing only: data centers.

Data centers – affectionately called Internet hotels when they first arrived on the real estate scene – are essentially office spaces where tenants, usually financial businesses, agree to pay higher amounts in exchange for guaranteed electricity to power their servers. In the beginning, it was relatively simple. As more businesses rely on lightning fast Internet speeds and up-to-the-second updates on stocks and financial portfolios – a half-second literally meaning the difference between millions of dollars made or lost – data centers are popping up more and more often. And with computing power increasing, so too does the need for more electricity.

The information age
Bradley Dick, chief information officer at Resurgens Orthopaedics, said he uses nine racks of servers at Quality Technology Services's data center that process and store hospital information such as digital images and patient billing records. The clinic's 1,600 telephones are routed through the same servers.

"That is our business," Mr. Dick said. "If those systems are down, it's going to be a bad day."

The landlords of these properties are seeing their roles shift as the actual quality of the space becomes less of a priority and the amount and the consistency of electricity gains a prominent clause in the lease agreement. Data centers can often consume as much electricity as a medium-sized town. Landlords, then, are becoming pseudo energy brokers, reselling electricity at a tremendous profit.

These properties benefit from much of the real estate laws but are not regulated the same way utility companies are, especially considering the restrictions placed on energy profits. Some of the largest data centers are pursuing to reorganize themselves as real estate investment trusts to avoid most corporate taxes.

Since most data center tenants contract more power than they need, data centers charge tenants for "available power," not necessarily power used – allowing data centers to charge double what they are paying.

This comes on the heels of a recent announcement by the U.S. General Services Administration's report on how commercial buildings can save energy and reduce utility costs – photovoltaic cells being cited as a way commercial-scale systems can generate around 8 percent of their energy needs on site. The was tested at the Bean Federal Center in Indianapolis, Ind. Solar power among them, the GSA also experimented with the use of 22 other technologies as part of the program. For data centers, this is just another way to guarantee energy availability to clients.

 As a result of the report's findings, the GSA had begun installing advanced power strips and wireless cost-saving sensors for the data centers in its own facilities.

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