QTS Builds Federal Cloud Business in Richmond Mega-Center

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One of the power rooms inside the QTS Richmond Data Center. (Photo: QTS)

There's a saying in real estate that you make your money when you buy a property, not when you sell it. This has been a guiding principle for QTS Realty Trust, which is a firm believer in buying huge commercial properties at a discount and converting them into data center space.

The showcase for that strategy is the QTS data center outside Richmond, Virginia, where the company has just launched QTS Federal Cloud, an Infrastructure as a Service (IaaS) solution designed exclusively for United States government agencies.

The site in Sandston, Virginia was previously a Qimonda semiconductor fabrication facility. In 2010, QTS bought the massive 1.3 million square foot plant and 210 acres of adjoining land in a bankruptcy sale for just $12 million. Those campus included 400,000 square feet of existing raised floor space, with more than 22,000 tons of chiller capacity on site, and an existing power capacity of 100 megawatts.

"Growth for Many Years to Come"

Four years later, the company has built 84,000 square feet of data center space, which is 80 percent filled with customers. QTS has another 22,000 square feet under construction and ready to come online this spring. It has plenty of room for future growth, with another 450,000 feet of shell space available for phased expansion.

"The Richmond market reflects our approach to low-cost, super-rich infrastructure," said QTS chief executive Chad Williams. "We will be able to drive growth within that facility for many years to come. It also sets us up for our federal cloud offering. It's a unique facility."

QTS will follow a similar template in the Dallas market, where the company bought another former chip fab in Irving, Texas. This time the building was "only" 700,000 square feet. QTS plans to convert 292,000 square feet into data center space, starting with a 26,000 square foot first phase that will open in July.

Big Footprint, Lots of Runway

QTS Realty's national footprint features 1.8 million square feet of powered shell space that can be used for data centers. Just 690,000 square feet of that has been finished, a utilization rate of 38 percent.

Some data center executives might worry about owning that much unused space. But acquiring space at a discount reduces the risk, so when Williams looks at the QTS footprint, he sees a long runway. "This gives us visibility for future growth at a known cost within our existing footprint," he said.

QTS Federal Cloud is designed to meet the mandates faced by federal government agencies, including the Federal Data Center Consolidation Initiative (FDCCI), Cloud First policy and IT Shared Services strategy. Housed in QTS data centers in Richmond and Atlanta, the cloud offering is built on enterprise hardware from VMware, EMC and Cisco, making for simple integration with private VMware environments. The company says it maintains strict logical and physical security protocols and expects to achieve FedRAMP certification in mid-2014.

"QTS understands the IT needs and requirements of government agencies and our Federal Cloud solution augments the company's strategic focus on the public sector," said Jim Reinhart, chief operating officer, development and operations – QTS. "We are proud to add this solution to our existing federal data center services."

Diversifying Beyond Atlanta

Growth in Richmond and Dallas will help QTS diversify its revenue beyond its core market of Atlanta, where it is the leading provider and operates huge facilities in downtown and in Suwanee. The Atlanta market currently accounts for about 70 percent of the company's revenue.

QTS Realty (QTS) went public through an IPO in October at $21 a share. It gained 18 percent in the first three months of trading, making QTS the best-performing stock in the data center sector for 2013. The company has 10 data centers in seven states with 3.8 million square feet of data center infrastructure and supports more than 880 customers. QTS closed Monday at $25.59.

In Richmond, QTS offers custom data suites from 1,000 to 50,000 square feet, as well as cloud, colocation and managed service. Williams sees opportunities that extend beyond the federal market.

"We continue to see good growth in Richmond, not just from Virginia but also from New Jersey and North Carolina," he said. "We see it as a regional market. We think we have a unique opportunity for those (regional customers) customers in disaster recovery."

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An aerial view of the former semiconductor plant near Richmond, Va. that has been converted into a data center by QTS Realty Trust.