For today’s Q&A, we turn to the colocation business in one of the most competitive markets in the world. Newark’s 165 Halsey Street is one of the premier carrier hotels in New Jersey and an indispensible node on everyone’s New York metro network. With us today to tell us about 165 Halsey Street’s past, present, and future is Joe Simone, President of Tishman Real Estate Services, the company tasked with taking the building’s space to market since its original development as a carrier hotel almost two decades ago now.
TR: What are the origins of 165 Halsey Street, and how did you get involved with it?
JS: In the mid-90s the building was purchased by an investment group. It was a former Macy's department store with 15 floors and 1.2M square feet, and it was completely vacant. Simultaneously, Tishman had been engaged by one of the original CLECs, MFS Intelinet, to find a switch facility in the New York area. We had been representing them in a bunch of different sites around the country, and they had sent us fiber maps of Newark. We had spent a lot of time with their engineering group to understand the exact type of facility which would work best, and one of the properties we found that was on that fiber was 165 Halsey. The property was perfect from an engineering standpoint for this type of use, with a lot of the intrinsics that you would design into a new telecom building.
TR: What intrinsics made it such a good fit to be a carrier hotel?
JS: It had big wide open floors, 87,000 square feet each, fairly high ceilings, good column spacing, and tremendous floor loading capabilities – a lot higher than your normal office buildings. It also had 85,000 square feet of roof space for generators and cooling equipment. It had a lot of elevator shafts and a central escalator shaft -- you don't need to move people in a telecom building but you do need to move fiber. And the building had four basements, in the lowest of which we created a fuel tank farm.
TR: How did a potential switch facility for one operator evolve into a full blown carrier hotel?
JS: We made a deal representing MFS Intelinet for a long term lease on the entire third floor, but then the owner called and asked if there might be more there. We thought there was, as we were marketing to other players out there at the time like Qwest, Global Crossing, Williams etc., and offered to test-market it on a trial basis. We did that and found there would be demand, but that we would need to reengineer the building. So we brought in JB&B and spent about 3 months on a master plan for the building. Then in about three years we filled the building completely with telecom users. For them to connect to each other effectively, we decided we'd need a meet-me room, which we built on the 9th floor.
TR: 165 Halsey Street also offers colo space itself, how did that come about?
JS: When the first meet-me-room filled, we made plans for another, larger one just as we started to get approached by some enterprise users, who wanted to connect to all the networks and carriers then in the building. That was probably around 2000, and it was the start of the colo business that was run by the building itself. That business has now grown to 180,000 square feet.
TR: Soon after that came the dot com crash, how did that affect the business?
JS: We got very lucky in that we were one of the earlier ones that already had lots of traffic running through the building. We lost about 10% of our customers through either bankruptcies or mergers, maybe about 100K square feet. So it really didn't affect us that much compared to others, but what it did was put a halt on growth in the industry for a while, which took a number of years to get washed through the system.
After September 11, the government issued a whitepaper to ensure the security of the financial institutions, and they recommended that data centers move off the island of Manhattan. And since there were latency issues, they wanted to get far off Manhattan but not too far, and New Jersey was the biggest beneficiary of that. We were in the way of that growth, 13 miles away.
TR: What does your customer list look like today?
JS: We are still pretty much a who’s who of the telecom industry now, but we've added a lot of others like content providers, financial institutions, technology companies, fortune 500 enterprises. It's a good mix of companies that need to be in this type of facility.
TR: How do you differentiate yourselves from the competition?
JS: We don't charge cross connect fees ongoing as a model we started pretty much day 1 to simplify things, and it's kind of carried us well and we are recognized as such. Another reason we are doing quite well is that the building ownership also owns the colo business, so it's very seamless from the standpoint of structuring deals and transactions and customizing deals for the customer's sake. We are also very streamlined and non-bureaucratic. Decision making is pretty much on the spot.
We feel like 165 Halsey has a lot going for it because we have so many networks within the building. The demand for colo space is fabulous, but it would be hard to recreate getting all those networks into one facility. We were fortunate in that we've been at this for 20 years now, and we have had a lot of those networks in the building passing traffic back and forth since day 1. It seems like colo facilities being built now are struggling to get networks to them in the way they probably need.
TR: How do you keep up with the advance of technology, and what’s the biggest challenge on that front?
JS: Every time we do a new room, we upgrade with what's happening in the industry. It's a constant renewal process. The most common upgrade has been the need for more power, and with more power you need more cooling and there have been challenges associated with that. We currently have seven distinct points of entry on three sides of the building. Over the years, those POEs have more populated with fiber coming in, but we still have some capacity there.
TR: What’s up on the roof? Is microwave a big part of your business?
JS: It's a variety. The majority of the roof is used for cooling equipment and emergency generators. A couple years ago we had tremendous activity on microwave transmission, mostly for the financial firms. That market seems to ebb and flow with who can provide the fastest speed. We still have a lot of customers up there, but it has gotten much quieter. I think there are other, faster networks between the various facilities. At one point we were a link in the fastest of those chains.
TR: How do you plan to expand the business from here? Do you have further build-out plans within the building or in the surrounding area?
JS: We have some headroom within the building, with about 80,000 square feet of vacant space right now. Our meet-me room 1 is sold out, our meet-me/colo room 2 is sold out, colo room 3 is about 70% sold out, colo room 4 on the 2nd floor is 50% sold out and we just took that out in October. Colo room 5 on the 11th floor is about 40-50% sold out. Then we also have an expansion of the 9th floor that we have prepped, but we are waiting before we pull the trigger on that. With room to grow within, we haven't seen a need to grow outside the building yet.
TR: What’s the biggest challenge for 165 Halsey Street in today’s marketplace?
JS: Our challenge is to get in front of everyone. We are not international; we run this one major facility in Newark, NJ (visit 165 Halsey). We need to make sure from a marketing perspective that everyone knows about us. We generally do very well when we get in front of people and have a chance to educate on how our business is set up, how we operate, etc. We spend a lot of time and energy making sure we are attentive to customers from an operational standpoint. We are always reviewing engineering issues in the building, educating the market on our offerings, and keeping our eye on where the market is and where the competition is.
TR: Thank you for talking with Telecom Ramblings!