During the aftermath of the 2008 recession, construction activity slowed to a crawl in most sectors. One exception, however, was the data-center market, which grew by about 150 percent per year through 2010.
Jerry Martin, and his partner Patrick Hynes, cofounders of a construction management firm, the Martin Group, spotted a rare opportunity to jump into a fast-growing market as the economy began its slow recovery. While other construction firms were downsizing or perhaps taking on low-profit work just to stay in business, Martin and his partners set their sights higher and formed a new company to build and develop data centers.
The roots of the venture go back to when the Martin Group was hired as an owner’s representative by Digital Realty Trust, a data-center developer, to work on a particular data center in New Jersey for a global financial firm. It was the Martin Group’s first full-blown data-center engagement. The company’s previous experience included IT rooms and small trading-floor support rooms, but this project gave it a true foothold in the data-center market.
GROWING INTO A NEW IDENTITY
The Martin Group’s first data-center experience led to others in which the firm worked with major data-center developers on procurement of sites and evaluated the suitability of buildings for conversion to data centers. In 2010, Martin and Hynes decided that they had earned enough experience and market knowledge to build their own data center on spec.
The pair recruited Todd Raymond, a former Telx executive, and Corey Welp, a veteran in financial management, to market the project. They knew Raymond from their work for Telx in the New York metro area data-center market. Both Raymond and Welp were recruited as managing director and partner to line up funding from both private and institutional investors. Welp’s background in both equity and debt structuring was key to the financial growth of the company.
The new venture, called 1547 Critical Systems Realty, closed on its first project in 2012 in Orangeburg, New York. Nevertheless, the firm didn’t set out to be in the data-center management business.
“At first, we felt that we would flip it, but it turned out that it would be more advantageous for us to hold onto it,” Martin says.
Market trends indicated that demand for data-center capacity would continue to be robust. Orangeburg is 25 miles from downtown Manhattan’s Carrier Hotels at 111 8th Avenue and 60 Hudson Street. Perhaps more importantly, it’s far enough away from the coast to avoid the kind of flooding and outages that plagued other data centers when Hurricane Sandy struck in 2013. The Orangeburg facility never lost power. As a matter of fact, Hurricane Sandy turned out to be a boost for business.
“I hate to say it, but that was a great sales tool,” Martin says.
Opened in spring 2015, the Orangeburg site had rented 40 percent of the facility’s capacity by early 2016. The company has also expanded its reach to three other facilities in Chicago, Cheyenne, Wyoming, and Hawaii.
KEYS TO SUCCESS
A few key elements have been critical to 1547’s successful formula: it takes advantage of financial incentives, in-house expertise, and customization
Capitalizing on incentive opportunities
The company seeks out locations where government and/or utilities offer incentives to attract data centers. For example, the local utility in Orangeburg provides the site with power at 9.5 cents per kWh, compared to 18 to 21 cents per kWh in other parts of the New York metro region. Additionally, the utility recently upgraded its infrastructure, giving the facility robust, reliable power. Along with Orangeburg, both the Chicago and Cheyenne sites benefit from state tax incentives.
taking advantage of in-house know-How
1547 has a built-in advantage from its experience with the Martin Group, which has more than 30 years in the construction industry serving major commercial clients. The development firm includes architects, mechanical engineers, civil engineers, electrical engineers, and construction management personnel on staff, while competitors typically outsource those functions. Having these skills in-house allows the company to manage projects more efficiently, as it can translate clients’ needs directly to engineering plans without turning to outside consultants. Having long-established relationships with vendors is also a plus, as the firm can rely on contractors and suppliers with proven track records.
tailoring designs to clients’ needs
1547’s customized designs provide competitive advantage. The developer tailors spaces that serve clients’ current capacity needs, while providing room for later growth. A modular approach means that clients don’t have to pay for more power than they need. The company’s facilities employ DX cooling systems that can be deployed to scale up appropriately. The modular cooling technology saves about 38 percent on power as compared with older data-center cooling systems that use chilled water, which must be constructed up front to support full capacity—even if it isn’t reached until years later. In addition, DX cooling’s waterless technology saves millions of gallons of water per year—a real plus when city officials review data-center permit applications.
Projects in focus
Information on three of 1547 Critical Systems Realty’s facilities
Location: Orangeburg, New York
Size: 232,000 square foot building
Power: 24 MW provisioned
Location: Cheyenne, Wyoming
Size: 35,000 square feet of
data-center space available
Power: 5 MW on-site
Location: Chicago, Illinois
Size: 230,000-square-foot building
Power: Total of 26 MW available for future expansion
Growth projected: CoLocated data centers
Martin and his partners appear to have found the right blend of construction industry and data-center management expertise to build a thriving new business. According to 451 Research, the market for colocated data centers will grow by 11 percent per year through 2018, so 1547 seems to have found its niche for the next few years.
