One of the newer entrants into the data center development space is PowerHouse Data Centers, a division of AREP. Via a joint venture with Harrison Street, they already have three properties in northern Virginia under development, with plans for more in the works. With an approach to sustainability that touches on many levels, PowerHouse is looking to meet the long term demands of hyperscalers for the right kind of facility in the right locations. With us today to talk about their fresh approach and future plans is Luke Kipfer, Vice President, Data Center Development & Construction.
TR: What are the origins of PowerHouse Data Centers, and how did you get involved?
LK: PowerHouse Data Centers is a division of American Real Estate Partners. For about 20 years AREP has generally been about commercial Class A office properties within the Northeast and has done over $5B in acquisitions on the commercial side. Recently, with the explosion of the data center market and the effects of COVID-19, AREP was looking to start up a high-tech branch, which is how PowerHouse came to be. We started with AREP’s strength and started acquiring land in Northern Virginia. PowerHouse has three sites in Northern Virginia right now: one under construction, one in site planning, and one is undergoing predevelopment planning. I joined PowerHouse early in 2022, shortly after AREP created the PowerHouse division. But I’ve been in the AEC industry and construction design for my entire life, and for last 14 years or so have been 100% dedicated to just data center design and construction. There is a lot of real estate acquisition and development expertise within PowerHouse, and I’m here to supplement the data center-specific side of things.
TR: What is the relationship between AREP, PowerHouse, and Harrison Street?
LK: Harrison Street has been a big driver in PowerHouse’s creation. They’re a very sophisticated partner in terms of helping to deploy capital in the right areas. They have a billion-dollar fund ready to develop and deploy data centers and a good history with other data center developers and providers. Our joint venture with them has really allowed us to be able to get some of the most desirable properties out there in the heart of a Tier 1 market. Those relationships really help us make sure that we’re making the right decisions as we move forward as well, too.
TR: What do you have planned for the three properties you have under development, and what stage are those plans at?
LK: The most advanced is ABX-1, for which we recently had the steel arrive. We have finished all the site work and all the site utilities. It will be a two-story, 265,000 square foot data center right on Loudoun County Parkway and will be delivered in the fall of 2023. Then we have the old AOL World Headquarters in Ashburn. That’s ultimately going to be a three-building development with over one million square feet of data center space. And finally, we have land on Arcola Blvd across from the Google data center that we’re developing now.
Ultimately our initial model is to be a core and shell developer. We will acquire the land, take care of zoning entitlements, get all the utilities to the site, and build a data center-ready core and powered shell. The end user, likely at the hyper-scale level, will be able to take down that building in a much faster time than they’d be able to on their own.
TR: Will these be greenfield builds or are you leveraging existing structures on these properties?
LK: ABX-1 was a total demo. There was an existing one-story retail strip mall type of building, and we had to a lot of grading as well. The same will be true with the former AOL main campus. It will be a full scrape and redevelopment. Currently the Arcola site is just straight land right now. What we are seeing on the hyperscale side is demand for purpose-built data center space due to the densities and loading they need. Retrofits of buildings don’t make as much sense for the specific market niche that we’re trying to fill.
TR: What’s the timeframe for each of those projects?
LK: ABX-1 will be ready in August 2023, and the AOL and Arcola sites are really timed for late ’25 or early ’26. That is simply based off the utility power constraints in Ashburn right now.
TR: Do you start with an anchor tenant in hand? Or are the buildouts more speculative?
LK: We have started all these projects on a speculative basis, without a client in tow. Right now the vacancy rate in Ashburn is under 1%. Certainly this is the first market we have been in, but given our AREP’s development background in Northern Virginia we feel comfortable with the market. Part of that is to really serve our potential tenants better. By the time we get a lease executed, with them, we are already so far along with the permitting, entitlement process, and site development that they’re able to spin up what they need much faster than if they had to go out and look for and find a site.
TR: How do the facilities you are building differ from what has been built in the past 5-10 years? What has changed in the design and construction?
LK: One part, especially in Ashburn, is height. 10 years ago, every data center was a one-story data center. More recently they became two-story data centers. Our Pacific Blvd site is planned as a three-story data center. The reason for that is to maximize the site usage for density. Power has been going up, and we need to make sure that we can plan for the right mechanical spaces for the 300+ watts per square foot that hyperscalers are looking to have. Another part is sustainability. Loudon Water has a great reclaimed water loop here. We have to make sure to design and build the sites such that we can check as many boxes for those hyperscalers as possible, but also stay flexible to their specific needs.
TR: In what ways to you hope to tailor your efforts toward the hyperscaler market?
LK: Historically, there’s not a lot of providers that are doing what we’re doing now. We’re not out to operate data centers, we are out meet the needs of the rapidly-deploying hyperscaler. Our expertise is in solving those critical issues for new data centers when it comes to real estate, development, zoning, power, water, connectivity etc. We solve all those issues, get the site work done, and get flexible shells ready for hyperscalers to deploy. We can cut years off of a project timeline versus their internal teams, because they don’t have the 20 years of development experience that we have in-house at PowerHouse.
TR: What other geographies might PowerHouse be interested in building data center infrastructure in, once you have established your footprint in Northern Virginia? What are your criteria?
LK: We are actively looking at other sites now, and we’re hoping within a few months to be able to go public with new acquisitions outside of the Northern Virginia area. We are looking at some of those up-and-coming, tier-two markets, so not another Ashburn. Areas that might not have a big hyper-scale tenant now and might be more enterprise where we can expect to develop quickly. Top-tier areas right now require a good power story. Given the power constraints in Loudon and similar issues in places like Chicago and some other markets, it’s important that we’re able to get power to a site quickly. There is also a push towards finding areas that have a good carbon-free power story as well, having a utility mix that is geared towards nuclear, solar, geothermal, or other alternative energy sources. Also important is that the area has good connectivity, which has always been key for data centers. And then we look for areas that we feel comfortable that we can work with the local jurisdictions/authorities.
TR: In what ways has the hyperscale market affected data center development?
LK: Ultimately a lot of the changes in technology in the industry are driven by hyperscalers. A colocation provider might not have the risk tolerance or the capital to try a new or innovative technology where a hyperscaler can. A colocation provider that is going to lease out the building to 10+ other companies doesn’t have the flexibility to just try things. Often they’re more stuck with traditional methods of technology that are better accepted in the industry. However, that means making sure obviously the building and site can support those technologies they might want to try: reclaimed water in Loudon for example.
TR: How does hyperscaler interest in sustainability affect your development plans?
LK: Sustainability is not just about the energy. There are good sustainability metrics and goals we can use as developers too: having efficient land use, picking drought resistant plants, using local agriculture, even adding sidewalks for the public and rail trail extensions. It’s about construction too. When we’re demoing a building, we crush and reuse the concrete on site as opposed to trucking it off. We try and specify a certain amount of recycled steel within the structural steel that we put in the buildings. We try to use low-carbon concrete when we’re building the pad and the rest of the building. There’s a lot of opportunities to make a tangible difference.
Even if we’re not necessarily choosing the ultimate cooling or electrical technologies that will be used, we can really help on sustainability and add to the whole ESG story. Obviously that is a priority of the hyper-scalers, so therefore it is priority for us to align with what they’re looking for out of a site. Construction safety is one of my own big pet peeves, hyperscalers drive a higher level of safety than in the general construction industry. So we pass that down for our projects too, so that we make sure that our general contractors and our subcontractors exceed what would be considered the standard level of construction safety.
TR: Thank you for talking with Telecom Ramblings!
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