Equinix to Invest $165M in Chicago Facility

Equinix (EQIX) said it has closed on the purchase of the future site of a new Chicago data center facility, clearing the way for a construction project that will cost $165 million for the first phase alone. The price tag underscores the expensive nature of data center development in the current market, with specs calling for massive amounts of power and cooling capacity to "support a new service specifically targeted to large enterprise deployments."

Equinix isn't the only provider making huge investments in future infrastructure, as both Google and Microsoft have projected large increases in capital expenses for this year as they equip new facilities.

Equinix paid $9.75 million to acquire a 228,000 square foot office/warehouse complex in Elk Grove Village, Illinois from Amalgamated Bank of Chicago. Equinix is planning to invest $165 million in just the first phase of the project, with $70 million of that spending projected to occur in 2006. Equinix intends to develop the site in multiple phases. The first building, at full capacity, will accommodate approximately 3,800 cabinets, of which 2,500 will be built out in phase one of the expansion plan.

At capacity, Equinix expects the new center to generate approximately $80 million in annual revenue, and cash gross profit margins of approximately 70 percent.

The first phase will feature the construction of a specially built 250,000 square foot shell, after which the company will acquire access to power, and provision fiber for interconnection to Equinix's downtown IBX center location. This approach allows a second expansion phase of approximately 1,300 cabinets at an incremental investment of $30 million.

That's a lot of money, even for a data center developer and operator. Equinix intends to finance at least 50 percent of the build costs in a long-term financing arrangement at rates between 7 and 8 percent. As customer demand merits, this investment will support future growth with the build out of a second IBX center, contiguous to this site.

"Equinix will evaluate future expansion plans to ensure we have the ability for a measured build out approach and to secure attractive financing terms whereby Equinix limits its cash investment to less than 50 percent of the total build out costs," said Ren