QTS Data Centers Expands in Dallas


QTS is doubling their data center presence in Dallas, as they announced last week the purchase of a data center from Health Care Service Corporation (HCSC) for $50M. The 260,000 SF facility is located in Alliance, a Fort Worth master planned development currently home to Facebook, Citigroup, and AIG enterprise data centers. The building was constructed in 2009 and is LEED certified. The data center, located on a 54-acre site, becomes the second data center for QTS in the Dallas market.

Data center operators are currently focused on acquisitions providing a quick path to available power capacity in major markets, and sale-leaseback opportunities in purpose built facilities are highly valued as well. Here’s why.

Acquisitions of Existing Facilities Provide Speed to Market

To learn more about the Dallas data center market, download Data Center Frontier and datacenterHawk’s Dallas report

Having available capacity in major markets is critical for large data center operators. The Dallas wholesale market is highly competitive, and QTS most likely will complete the leasing in their first Dallas data center in 2017. Having the newly acquired Alliance data center available right now is an advantage because it allows them to compete for both immediate and future Dallas data center requirements. QTS is not the only data center operator recently executing this strategy. Below is a list of recent acquisitions illustrating similar benefits:

  • CyrusOne recently acquired two facilities from Sentinel data centers for $490M in 1Q 2017. The facilities are located in Northern New Jersey and Raleigh, NC. Both were mostly leased with expansion opportunities in the facilities themselves or on existing land purchased with the acquisition.
  • QTS acquired DuPont Fabros’ Northern New Jersey data center for $125M in 2Q 2016. Even though Northern New Jersey data center activity is slower at the moment, QTS placed importance on quickly establishing a presence in the market. This provided them with immediate capacity, existing tenants, and a facility purpose built by DuPont Fabros.
  • CyrusOne purchased CME Group’s data center in Aurora, IL for $130M in 1Q 2016. CyrusOne was able to lease a significant portion of the facility to CME GROUP, provide available market capacity (now already leased), and expand with an additional facility on the land that accompanied the purchase (happening now)
  • T5 acquired Forsythe’s data center in Chicago in 2Q 2016. This transaction provided an anchor tenant for T5 (in Forsythe) and also gave them capacity for immediate growth in a power-constrained area of the Chicago market.

Sale-Leasebacks are Advantageous

The sale-leaseback QTS completed with HCSC increased the value of the transaction, providing day one cash flow and an anchor tenant with potential future needs. The 1 MW lease signed by HCSC leaves an additional 7 MW of planned power to fill based on market demand. Having an existing corporate tenant like HCSC and the ability to grow in the future positions QTS well for competition in the growing Dallas market.

A Purpose-Built Data Center is a Competitive Asset

One challenge data center operators face when acquiring data centers is assessing their competitive market value. When the HCSC facility was announced in late 2008, HCSC believed they would spend up to $232M when they completed the facility. That amount was obviously not spent because they didn’t fully deliver the facility, but the $50M acquisition price paid by QTS was a bargain. In addition, the facility was constructed extremely well, achieving 2N UPS and N+2 Generator redundancies. The data center will show well when compared to other competitive facilities in the Dallas market.

This QTS acquisition is another example of the importance data center operators place on offering consistent, available major market capacity. It also highlights the value provided by a sale-leaseback in a purpose built facility. Look for these acquisition trends in the data center industry to continue in 2017.

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