Amerimar and Newby Going Shopping for Carrier Hotels

Amerimar Enterprises has acquired a data center hub in Chicago and will own and operate it along with telecom industry veteran Hunter Newby, the companies said. The building at 717 South Wells is the fourth project that Amerimar and Newby have teamed on, and there are more to come.

Newby and Amerimar have acquired three previous telecom buildings - 325 Hudson Street in New York, 1102 Grand in Kansas City, and 401 North Broad in Philadelphia. The buildings are major intersections for Internet traffic in these cities, earning the name "carrier hotels," as they can house dozens of ISPs, telcos, and network service providers.

After working with a number of financial backers, Amerimar and Newby have teamed with Boston-based Abrams Capital on the acquisitions in Philly and Chicago. Newby says more deals are likely in the near future.

"These guys want to put a lot of money to work in a short period of time," said Newby. "So we're going shopping for carrier hotels."

Major pickup in Chicago development

The purchase of 717 South Wells is the latest sign of investor activity in the downtown Chicago market, where several new data center buildings are under development. The property is a 10-story, 100,000-square-foot building in a fiber-dense area of Chicago, and current tenants include carriers, service providers, and enterprise customers. The location is attractive to telecom businesses, as it supplies a gateway to both local and long-haul fiber in the region.

“717 South Wells Street is an excellent addition to our growing carrier hotel platform," said Newby. “Chicago is not only a major junction point for the north-south and east-west domestic fiber routes in the Midwest, but it is also a nexus for multiple international networks, making it a global gateway and therefore strategic for us and our customers.”

Newby's career has been marked by his prowess developing interconnection facilities known as meet-me rooms where providers can make physical network connections inside a multi-tenant building. He built one of the early meet-me room success stories as an executive at Telx, which got its start at the 60 Hudson Street carrier hotel in New York and later acquired 56 Marietta Street, the leading network hub in Atlanta.

Meet-me room as redevelopment tool

Newby is now revisiting that model, working with Amerimar to buy connected buildings and develop meet-me rooms to enhance their tenant lineup. Amerimar CEO Gerald Marshall was keen to work with him on carrier hotel deals, and in 2012 the companies bought the 325 Hudson Street property in Manhattan.

"It made me want to get back in the game," said Newby, who has also been building a national carrier-neutral network as CEO of Allied Fiber. "To me, it's always about the fiber. I know how to create value there."

That's the game plan at 401 North Broad, which is the primary connectivity hub in the Philadelphia market. "It's a global subsea interconnection point, but it's behind the times because its landlord never built a meet-me room," said Newby. "There have been a couple of colo providers in the building, but they've never focused on (interconnection) the way I do. The tenants in the building are screaming for an MMR."

That's also the plan in Chicago, where Amerimar will begin immediate redevelopment work at the property, including construction of a new meet-me room to draw additional network operators to the building. The first phase of the meet-me room is scheduled to open in early 2015.

The Chicago market is seeing a pickup in development action, driven mainly by limited space at the city's dominant carrier hotel, 300 East Cermak. QTS Realty, CenterPoint, McHugh Construction, and Ascent Corp. are all trying to develop data center properties in downtown Chicago.

But who's selling?

In Abrams Capital, Newby and Amerimar have a partner with a low profile but deep pockets.

The group's interest in further acquisitions comes at an interesting time for the data center sector. One of the leading owners of Internet gateway properties is Digital Realty Trust, which owns key carrier hotels in Dallas, Seattle, Phoenix, St. Louis, Santa Clara, and San Francisco. Digital Realty recently announced plans to prune its portfolio and sell some "non-core" properties.

Digital didn't define "non-core," but that isn't likely to include highly-connected buildings in major markets. But telecom buildings with access to long-haul fiber and no owner-operated interconnection facility are likely to be of interest to Newby and his partners.

"If a carrier hotel building is lacking a building-owned meet-me room, it needs one," said Newby.