Data center operations basics of investing
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But a few key data centers, such as One Wilshire and 60 Hudson, are so important to the broader data network that if they were to suffer a disaster, disruptions would be noticeable. In a final note on the real estate vs. Each carrier and each tenant has a presence here, usually one server rack per tenant or carrier.
All the data flows to this one location within the building. From there, fiber optic cables physically connect tenants in the building. And then, the data is distributed to the global Internet network. What Is Colocation? Colocation is concept that appeals to smaller data users who might not need their own lease in a data cente r. A group that will sign a direct master lease with a landlord, and then the colocation group sell individual servers or racks or cabinets to their clients.
These groups act as wholesale data center providers to local law firms or medical practices. A data center landlord might not want to negotiate a number of small users. So the data center owner signs a large lease with a colocation provider, and that group parcels out smaller sections of the data center. Developing a data center is a complicated undertaking, one that requires substantial investment and specialized knowledge.
For starters, a developer must find a suitable parcel of land, one in a strategic location with no shortage of competition from other data center operators. Environmental impact studies and other regulatory hurdles can slow the development timeline. Once the land is acquired and approvals are secured, the next list of challenges involves constructing the data center.
Building a data center poses a number of architectural and engineering challenges. Wiring and cooling systems must be robust enough to handle the unique needs of data centers. The floors must be designed to support racks of servers. The power system must include at least one layer of redundancy, possibly more. Is it ideal?
There are some older buildings that have been repurposed from offices into data centers. This setup up is common in downtown Los Angeles. However, older officee buildings were not designed to be data centers. Some of these buildings date to the s, and office users then didn't need as much power as a modern data center.
These facilities tend to have low ceilings and makeshift arrangements such as generators installed on a floor. Floor-loading issues are another challenge. Many data centers are designed with raised floors. This makes it easier to run cool air under the floors and into the server rooms. That feature makes room ceiling heights important — chilled water pipes take up space and cabling and wiring also takes up space.
Fire suppression is another factor. Sprinklers are a no-no in data centers. The last thing tenants want is water spraying on their valuable computers. Powder-based fire suppression also is a problem — the material would contaminate servers. So data centers use gas fire suppression systems. The data center will set aside a room with tanks of heavy gas.
Data center tenants like long leases, because they amortize the costs of their buildout over a period of 10 years or longer. No data center tenant will sign a two-year lease because they don't want the landlord to be able to kick them out after two years -- when they just dropped hundreds of dollars per square foot into their space. The precise price per square foot depends on on the usage of the space. Amazon, for instance, might make have use of data processing, while telecom providers are more focused on connectivity.
How the cost is split between landlord and tenant is very much a subject of negotiation. The landlord generally provides power and water to the space. Leases typically are structured as triple net contracts, but at the very least the electricity is a net cost to the tenant. Tenants directly pay their own electricity costs. The landlord knows exactly how much power each tenant uses and bills them at the end of the month. Other occupancy expenses are minor compared to electricity.
Sometimes landlords and tenants will negotiate leases that are full-service gross leases for the other expenses. It is very difficult to get accurate, timely information about data centers. In mature markets such as Northern Virginia and Silicon Valley, comprehensive information is readily available. In smaller data center markets such as Los Angeles, investors have to do their own research.
Unearthing useful information requires getting on the phone with data center brokers in the market and asking questions. What is the structure for common-area maintenance charges, for utility charges, for room fees? The big brokers use this free research to attract clients. One caveat is that market information about data center markets is not as clean and standardized as data for longer-established sectors, such as office, multifamily and industrial.
Some of the leases are structured as purchases of power, so tenants lease, for instance, a megawatt of capacity. But that quirk makes it really hard to compare lease rates from one tenant to another. Another news source is Data Center Frontier, a website that covers the industry. Local newspapers and business journals cover data center deals in their geographic areas.
These are the largest U. The company is headquartered in Redwood City, California. As of Dec. The company is based in Austin, Texas. As of Sept. It also stores paper records and offers shredding services. The company is headquartered in Dallas.
The answer depends on the amount of risk you take. At the opposite end of the risk spectrum, big returns are available on deals that involve more risk. These deals require some capital, and the involvement of a lender who understands the economics of data centers. By repositioning a struggling property or building a data center from scratch, an investor can cash in big returns.
These principles are no different from any other type of commercial real estate. Sustainability is a hot issue in corporate boardrooms, and the data center sector is under pressure to use more efficient systems, renewable energy and carbon-cutting practices. While users are particularly focused on their office spaces, they also want sustainability from data centers, which consume large quantities of power and water.
The rise of 5G mobile service will reshape the way that data is stored and sent. The notion is to take the data close to the consumers. These data centers are likely to be automated. Use the right-hand menu to navigate. How data centers work Large cloud vendors including AWS, Google, and Microsoft operate a global footprint of data center facilities that serve cloud-based computing services to millions of business organizations and Internet consumers.
Over hyperscale data centers are operational around the world. The prevalence of work-from-home business practices and video streaming services has significantly contributed toward increasing demands on highly available data center operations. Other contributions to high data center energy consumption include: Machine learning training and inference Bitcoin and other cryptocurrency mining These services are delivered to end-users at specific performance and dependency levels specified in the Service Level Agreements SLAs.
Physical data center components The physical design aspects are critical to managing highly dependent data center operations. Some of the most efficient data centers are located at low-temperature geographic regions, safe and secure from natural and man-made disaster incidents, with ready access to utility and emergency services. The common physical elements of a data center include: The facility.
The building space with efficient access to utility and emergency services. Since data centers are some of the most energy-consuming building facilities , the architecture is optimized for space and environmental control.
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The building space with efficient access to utility and emergency services. Since data centers are some of the most energy-consuming building facilities , the architecture is optimized for space and environmental control. Natural cooling in specific humidity and low-temperature regions are chosen to offset energy consumption necessary for data center component cooling. Core components. This includes the standard IT equipment and software necessary to deliver computing services to a large customer base.
These include servers, networking devices , infrastructure such as racks, HVAC and electrical systems, and other computing infrastructure resources. Support Infrastructure. Operational staff. The workforce that supports the datacenter, which can include employees available on-premises as well as off-site teams that work toward managing and maintaining the data center operations to meet the defined performance, security, and compliance standards.
Learn how the cloud is changing data center jobs. As a result, the portfolio quality variable tends to flow more consistently with the broader tech industry. Data Centers tend to be located in industrial areas in close proximity to tenant companies to minimize the networks data must pass through to reach the end-user. Lake Side leases space to more than 70 users. A four-tier scale measures the level of service provided at a facility, and determines the rate charged by data centers.
Designated power generator that protects the system from extended power outages. Basic site infrastructure guaranteeing Tier II: Redundant Capacity Components Provides an increased margin of safety against infrastructure failure, and redundancy allows some maintenance to be done on-site without incurring downtime.
Redundant UPS systems. Dedicated cooling equipment that runs continuously. Guarantees Tier III: Concurrently Maintainable Builds on Tier II offerings, but Tier III facilities do not require shut down when repairs need to be made or equipment needs to be replaced, and also includes the following additional features: Alternate delivery channels for power and cooling systems.
Concurrently maintainable site infrastructure guaranteeing Fault tolerance ensures the continuity of IT operations, despite individual equipment failures, or interruption in distribution paths. This is the highest level in the data center properties classifications and is usually what is sought after by multinational corporations offering critical IT systems. Fault-tolerant site infrastructure with electrical power storage and distribution facilities guaranteeing The average dividend yield is well below the broader REIT sector at 2.
Data Center REITs have outperformed the broader REIT sector over the last five years, as well, and are expected to perform favorably as data center demand and economic conditions remain positive. Share prices continue to recover, and much of the under-construction space is preleasing at a rate faster than previously expected.
CBRE , Industries far beyond tech are digitizing and becoming more reliant on data. Industries such as healthcare, financial services and the government still have a long way to go in storing and compiling data. Data Centers have historically held up well during recessionary periods. Due to the high capital costs associated with data centers, leases tend to have long lease terms.