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DATA CENTERS: Big MN companies have built them here, but developers are left waiting for tenants
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<br />on the farmland it had picked for a site.
<br />"A lot of our potential tenants were look-
<br />ing for an existing building where they could
<br />occupy it quicker and at a lower price," said
<br />Five 9s CEO Doug Hollidge. "We listened to
<br />the market and transitioned to putting an
<br />87,000-square-foot building under contract."
<br />It is now marketing space in a formerTaystee
<br />bakery distribution center in Eagan. By using
<br />an existing building, Five 9s could tower asking
<br />rents from $28 to $14 per square foot per year.
<br />The other two projects still waiting for ten-
<br />ants to start or expand are a data center in
<br />Chaska proposed by M. A. Mortenson Co. and
<br />a building in Washington County that startup
<br />firm IronGate Data Centers plans to convert
<br />into a data facility.
<br />Economic development boosters envi-
<br />sioned the data -center tax breaks would land
<br />deals that add millions of investment to the
<br />state. Data centers are expensive to build and
<br />equip, with price tags reaching $400 to $700
<br />per square foot. They don't usually generate
<br />a lot of jobs (a staff of 30 can often manage
<br />a 100,000-square-foot facility), but they pay.
<br />property taxes and consume a lot of energy
<br />sold by local utilities.
<br />There's been a national boost in demand for
<br />data. center space as more and more compa-
<br />nies store their information off -site and turn
<br />to cloud -based data storage. The explosion of
<br />smartphones also is driving demand.
<br />Minnesota has an advantage over some
<br />WHAT'S A DATA CENTER?
<br />A data center is a facility exclusively built or
<br />renovated to house computer, telecommunications
<br />and electronic storage systems. It is typically in
<br />an expensive, reinforced building, with redundant
<br />power supplies and beefed up environmental
<br />controls and security.
<br />Demand drivers:
<br />Growth of cloud -based IT storage and smartphone
<br />use; ongoing concern over disruptions in business
<br />due to natural disasters
<br />A few large data center proposals:
<br />• M. A. Mortenson Co., Chaska, marketing 125,000
<br />square feet of new construction
<br />• Five 9s Digital, Eagan, marketing a
<br />187,000-square-foot renovation of a former bakery
<br />warehouse
<br />• IronGate Data Centers, somewhere in
<br />Washington County, plans to renovate an
<br />85,000-square-foot industrial building and is
<br />marketing 270,000 square feet of new space
<br />states because of its low
<br />risk of natural disasters and
<br />chilly climate, which helps
<br />cool sensitive equipment.
<br />Several Fortune 500 com-
<br />panies already have data
<br />centers here, especially in
<br />health care, banking and
<br />retail industries, which
<br />Peterson helps prove the reliability
<br />of the area as a data center
<br />hub. Minnetonka -based UnitedHealth Group
<br />Inc. and Minneapolis -based Target Corp. built
<br />new data centers in the West Metro in 2010 be-
<br />fore the data -center economic -development
<br />law passed.
<br />Tax break threshold too high?
<br />The data -center tax breaks are helpful, but
<br />not game changing, said Dan Peterson, a bro-
<br />ker at Colliers International I Minneapolis -St.
<br />Paul and a specialist in the data -center market.
<br />"With at least 13 states with similar incen-
<br />tives, it's realty the price of admission these
<br />days for states to have incentives like these
<br />to attract data -center development," said
<br />Peterson, who is marketing a 12-acre site
<br />in Chaska where Golden Valley -based M. A.
<br />Mortenson has proposed a 125,000-square-
<br />foot data center.
<br />The Twin Cities is underserved for data -cen-
<br />ter space and has been pegged as an emerg-
<br />ing market itt the sector by national players,
<br />Peterson said. "Users are swirling ... but we're
<br />not seeing things land quite yet."
<br />The Minnesota High Tech Association has
<br />discussed trying to amend the 2011 law to get
<br />some of the thresholds for the tax breaks low-
<br />ered, .which could help the incentives match
<br />up with some of the phased developments that
<br />have been proposed, Peterson said.
<br />One such phased project is by Minneapolis -
<br />based IronGate Data Centers, led by developer
<br />Ned Abdul. IronGate owns an 85,000-square-
<br />foot facility in Washington County and a
<br />25,000-square-foot facility in Hennepin
<br />County. (It doesn't disclose the exact locations
<br />to maximize privacy)
<br />IronGate received some recent coverage
<br />for a 270,000-square-foot expansion it an-
<br />nounced for the Washington County site, but
<br />it won't break ground on that until it lands
<br />one of the'100,000-square-foot users from the
<br />East Coast that are looking in the market, said
<br />Rory Johnson, president of IronGate. So far,
<br />IronGate's only deal is for an undisclosed ten-
<br />ant that is leasing about.2,000 square feet.
<br />- Greater MSP, the regional economic devel-
<br />opment agency, worked with IronGate to pro-
<br />vide information about incentives and -to help
<br />There's still upside for the data -center mar-
<br />ket in the Twin Cities, said Mike Brown, a
<br />spokesman for Greater MSP.
<br />There have been about three smaller data -
<br />center deals that Greater MSP was involved
<br />with in the past year, but none qualified for the
<br />tax breaks, Brown said. Those projects includ-
<br />ed a $25.7 million, 33,000-square-foot project
<br />by Allina Health System in Anoka and an $11
<br />million, 24,000-square-foot facility in Duluth
<br />by Cedar Rapids, Iowa -based Involta.
<br />"The data -center incentive thresholds are
<br />kind of on the high side and those projects just
<br />take longer to complete. I think there will be
<br />some of those coming down the road," Brown
<br />said.
<br />sblack@bizjoumals.com I (612) 288-2103
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