Data center hotels are breathing new life into obsolete properties.

The concept of a data center hotel dates back to the early 1990s.

Recently, however, there has been a significant increase in the demand for such facilities.

For owners of obsolete or underutilized office or industrial properties, conversions to data center hotels present a financial opportunity, as there is a rapidly growing need for data facilities among medium and small-size organizations that cannot afford

their own data centers. Even large enterprise users, such as financial firms, frequently consider leasing third party-owned facilities as an attractive alternative to developing their own data centers, due to the quick "time to market" for data center hotel space.

From the user's perspective, there are significant construction, technical, operational, and cost differences between utilizing third party-owned data center hotels and the more com mon, single-user enterprise data centers, typically owned by financial or telecom companies. A dedicated data center for an enterprise user usually serves one specific function related to a particular business model, such as disaster recovery, statement processing, customer service, or satellite trading. Typically, these mission-critical facilities are designed for high density and high reliability--which results in high construction and operational costs. Further, redesign and construction costs due to a change of function are usually prohibitively high, and can result in the waste of many costly, pre-installed key infrastructure components.

By comparison, data center hotels offer users high density, high reliability, functional flexibility, and dramatically reduced lead time at relatively low cost. First, the financial savings encompass both Day One costs and secondary operational and maintenance costs.

Second, leasing space in a data center hotel is advantageous to end-users who have neither the financial resources nor the time to construct such complex facilities.

The financial benefits to owners/developers, who convert old buildings into data center hotels, as well as the redevelopment process itself, may be illustrated through one of Concept Construction Services' most recent projects for a real estate client in the Tri-state area. The project involved the conversion of a 1970s-era suburban 300,000 s/f, densely modular office building into a class "A," financial spec, data center hotel.

If this property were to be used as an office building, it would have had limited marketability and yielded minimal retunas on investment. Office space in this market averages only $6 to $8 per rsf. Then, add the fact that office use would require an extensive 10 to 16-month renovation at the cost of up to $70 per gsf. The payback for this cost model would take over 10 years--at full occupancy.

Because of the unsuitability of the building as an office complex, the client was able to purchase this property for a relatively low sum. In addition, several of the property's key characteristics made it a prime candidate for transformation into a data center hotel:

1. The "fat pipe"--bulk fiber providers' infrastructure is nearby.

2. The power utility is able to deliver reliable, redundant, high-capacity power.

3. The site is within 60 miles of a major metropolitan business hub.

Additional benefits include the property's proximity to major transportation arteries and its 1,000-car parking lot, which can be developed for future infrastructure. Data center hotels have low employee counts and don't require extensive parking facilities.

[ILLUSTRATION OMITTED]

The conversion involved a total interior gut demolition, reengineering of the MEP systems, and massive structural reinforcement that increased the overall structural load capacity of the building from 70 pounds per gsf to 150 pounds per gsf, and to 250 pounds per gsf in MEP areas. Serving as the general and technology construction manager, Concept Construction Services Inc. brought in a dual-source, high-voltage electrical service; installed a new base building BMS system; and created large, secure equipment yards for UPS generators, chillers, fuel storage, and other mission-critical equipment. The structural and infrastructure redevelopment cost approximately $35 per gsf and took only eight months.

This transformation yielded a ratio of one gsf public/MEP area to 12 gsf to rentable area, as opposed to one to seven for a typical office building. While it has been only four months since the base building upgrade was completed, the property is already 70% occupied, with the average lease for raw, unfinished space at over $40 per rsf. The average term for leases is 12 plus years. Most of the leases are "triple net," which means the tenants are financially responsible for virtually everything, including engineering staff to maintain their infrastructure. In other words, the investment has already paid for itself.

In the remaining 30% of rentable space, the owner decided to build "market-ready" Data Center Pods. The ratio of white space to MEP areas in the pod space is a conservative four-to-one. This figure is kept relatively low due to the use of the roof and yards for the mission-critical equipment.

The pods' flexible design allows for a variety of functions and users, including financial tenants, collocation centers, data recovery, or managed services. Also, the lead time for construction, from design development to completion of commissioning for each pod averages only 22 weeks. Day One costs averages under $1,400 psf of "white" space, including equipment, construction, and fee. Meanwhile, end users can occupy the space with minimal Day Two costs and construction time. Market-ready pods are being leased for $25 per rsf per month. Remarkably, the payback for the investment is less than five years, with the owner retaining the mission-critical equipment.

Data center hotels are already supplementing telecom hotels as an alternative to office, industrial, or residential use of existing structures. We foresee growing interest in this property type among owners and developers as demand for data centers continues.

Edward Reilly is vice president, Technologies Concept Construction Services Inc.