2A — March 27 - April 9, 2015 — M id A tlantic
Real Estate Journal
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M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Section Publisher .........................................................Steve Kelley Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant ........................................................ Julie King Associate Publisher ................................................. Alissa Aronson Associate Publisher .............................................. Barbara Holyoke Office Manager .........................................................Joanne Gavaza Guest Columnist .......................Sean Brady, Cushman & Wakefield Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 27 Issue 6 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com
The Metro New Jersey Chapter of the Appraisal Institute Founded 1932 Proudly Announces 79 th Annual Princeton Conference Friday, April 24, 2015 Register at www.ai-newjersey.org, Marriott Hotel and Conference Center ~ 100 College Road East, Princeton, NJ The Princeton Conference is the longest running annual appraisal conference in the country. Every year since 1936, the Metro New Jersey Chapter of the Appraisal Institute has invited leaders in the real estate industry to offer their insight on the past, present, and future of real estate. Continuing Education Credit Approved for 6.5 CE hours by the Appraisal Institute and submitted to: New Jersey State Board of Real Estate Appraisers, New York State Board of Real Estate Appraisers and Insurance and Banking Board for Broker/Realtor CE for 6.5 hours. Also, submitted to the New Jersey Assessor Continuing Education Board for 3 credit in Property Tax
o own or not to own a data center. If your organization owns its own data center or the build- ing that houses it, now is the time to consider selling. A new breed of specialized investor, one well versed in data center operational needs, is becoming increasingly active in acquiring corporate data centers (several of these players now own doz- ens of these properties) and leasing themback to the selling entity. They are paying top dol- lar, while at the same time the seller retains all the flexibilities they appreciated while owning the site. Why is this a good time to sell? Themarket today contains plenty of pent-up real estate capital. Investors are anxious to invest in data centers, espe- cially in the New York Metro area. We are seeing lower cap rates for this niche – which has proven to be one of the most stable in the entire real estate sector. At the same time, many corporate data centers have been in operation for almost 20 years. These assets are becoming antiquated. It does not make sense as an owner/ operator to wait and sell a data center building at the end of its useful life, when its infrastruc- ture has little remaining value. Additionally, owners/operators of these buildings typically do not upgrade the outside ap- pearance because they do not want to draw attention to the building or risk interrupting its day-to-day operation by knocking out the power or fiber. As such, at the end of a 15- to 20-year occupancy, it may cost more money to return the building back to Class A or B+ office building thanwhat can be gained by selling it at the end of this period. THE UPSIDE TO SELLING For these reasons, corporate data center owners should strongly consider the merits of selling while the time is right. There is no downside to this exercise. The national inves- tors active in the market today understand the data center industry as well as the nuances of data center ownership. They structure specialized leases that give the corporate data T A Paradigm Shift for Data Center Ownership Sean Brady
Administration and 3.5 credits in Property Appraisal and the NJ Board of Continuing Legal Education.
The Pennsylvania Board of Real Estate Appraisers accepts programs approved in New Jersey.
The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
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center seller maximumflexibil- ity to perform their day-to-day operation as well as necessary construction projects. Improve- ments like installing new fuel tanks, a chiller plant, UPS and/ or generator, or reinforcing the floor to accommodate heavier loads are easily approved pro- vided that the occupant secures all the permits, stays within code and does not allow any liens on the property. And, in most cases, the buyer/lessor will not have the lessee restore the building at the end of the lease. Further, these buyers are paying between 6 and 9 % cap rates, depending on the qual- ity of the tenant’s credit and the quality of the asset. Three sale structures have become common. •Option 1 is a net lease on the real estate in the range of $10 to $30 per s/f, NNN. •Option 2 is a net lease on the real estate and the data center equipment, whichmight create a rent of $50 to $100 per s/f and a sale price of $300 to $400 per s/f. •Option 3 is a net lease on the real estate and equipment plus the buyer will provide the seller capital upfront to up- grade the building or the data center (investing $30 to $60 per s/f in construction allowance, divided by the 10-year term plus interest provides the new net rental rate, and the per s/f price could be higher than the numbers above). The higher the rental rate the seller agrees to, the higher the sale price and potentially the lower the cap rate. The second and third options are available only through a few investors who put a value on the equip- ment and provide the seller with the Cap X to update the asset. They are great vehicles
for using someone else’s money to upgrade the real estate and/ or the data center. A PARADIGM SHIFT Over the past four decades, most large corporations have chosen to own their data cen- ters because they want to have total control of their mission- critical facilities. The corporate data center operates 24/7/365 and stores some of a corpora- tion’s most important asset: its information (trade secrets, pat- ents, client information, etc.). Corporations also like to own their own data center build- ings because they invest a lot of money into them and can write down a good portion of it. This sound thinking for many years was augmented by the fact that landlords did not provide the flexibility data center operators need. Simply put, it was better to own than lease. During the past several years, however, data center- specific investors have come into the market and created a paradigm shift that is quickly gaining momentum. Most im- portantly, they offer extraor- dinary flexibility. Addition- ally, the rapid evolution of data center design, efficiencies, size, capacity and layout means that 10 or 20 years from now, even today’s most modern data center facility will be obsolete. We have seen more technologi- cal advancements in the data center industry during the past five years than we have in the past 20 years. By leasing, cor- porations transition the finan- cial burden – easily reaching millions of dollars – to update/ restore the building to bring it current. Further, history has shown that the “ideal” location for a company’s data center can change. Previously, remote locations were favored. Today, continued on page 3A
Adler Development....................1C Advantage Engineers..............25C American Architectural.............1B ARD Appraisal Co...................11B Belfor USA.................................8B Bennett Williams Realty...........9A Berger Organization................19C Berkadia...................................11A Billboards/Business Cards......19A Bohler Engineering...................4A Capitol Aerials.........................22B Case Real Estate......................29C CCC Promotions......................18B Cohn Reznick.............................4A Corfac International............. BC-C Crystal Window & Door Systems, Ltd...................12B DeScipio & Associates, Inc......31C DMR Architects.......................23C Earth Engineering...................12A Eastern Union. ........................11C Elias B. Cohen & Associates.....4B Elliott-Lewis............................23B EPGP........................................13B Evolve Roof Consultants.........10B Fowler. .....................................19B FRKB Attorneys at Law..........16B Gebroe-Hammer Associates....16C Griffin Alexander.....................14B Hollister Construction Svcs....26C Hutchinson Mechanical Svcs..24B Integrated Business Sys............3B IREM...................................26-27B Jackson Cross Partners...........32C Jewel Electric Supply Co.........17B Keast & Hood.............................3A KSS Architects LLP. ...............30C Lee & Associates .......................6C Legend Properties......................8B
LEW Corporation. .....................9B M&E Engineers.......................24C M&T Realty Capital Corp.......10A M. Miller & Son.........................6B MAAS Companies......................4A Mack-Cali Realty.....................20C Marcus & Millichap.............. BC-A Meridian Capital Group.....12-13C Metro Commercial...................33C Metro NJ Appraisal Institute...2A NAI Emory Hill. ........................5C NAI James E. Hanson.............15C NAI Mertz................................28C NAI Summit.............................33C NJHMFA..................................14C NorthMarq Capital....................2C P. Cooper Roofing....................15B Patterson-Woods Commercial Properties..............4C Poskanzer Skott Architects.......2B Premier Compaction Systems.26B Progress Capital Advisors.........3C Protect Painters.........................3B RD Management.................14-15A RRA............................................9C Specialty Building Systems...IC-B SUBWAY....................................6A The Kislak Co..........................17C Total Cleaning Assoc. Ltd.........4B Traffic Planning & Design......25C Trammell Crow Company......IC-C Urstadt Biddle Properties.......21C USGBC NJ.........................22, 27B WCRE.........................................3A Whitesell....................................2B Whitesell....................................7C Williams & Williams.................3A Withum Smith + Brown....... BC-B Wolff Samson...........................13C
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