CoreSite Leases Entire Data Center in Santa Clara

CoreSite_Wholesale_Data_Cen

The server hall of a data center operated by CoreSite, which recently leased an entire build-to-suit building in Santa Clara.

It's not every day you see a company lease an entire data center building in one shot. But that's what CoreSite Realty has accomplished with its newest project in Silicon Valley, where it is nearing completion on a 101,250 square foot build-to-suit project that has been pre-leased by a single large customer.

The new building is part of the growing CoreSite campus in Santa Clara, the Valley's leading data center hub. The lease was discussed by CoreSite CEO Thomas Ray on the company's earnings call last month.

"On our Santa Clara campus, we expect to commence and complete SV5, the 100,000-square foot powered-shell build-to-suit," said Ray. "This pre-leased development enables us to serve a strategic customer and accelerate the monetization of a portion of the land we own on the campus."

In a powered shell property, the developer builds the structure and mechanical and electrical infrastructure, but the tenant builds out the data center environment. That differs from the wholesale model, in which the landlord builds the complete plug-and-play data center environment, including raised floor space. CoreSite said its construction costs on the project were $19 million, with projected annual rent of  $3.2 million a year.

Key Customer May Boost Campus

"We are helping a customer that's very, very important to us across North America and just furthering and deepening a good relationship with that customer," said Ray. "What we believe that customer will be doing on our campus will make the campus even more attractive to other networks and cloud service providers and enterprises."

Santa Clara is one of the nation's most competitive markets, with nearly all leading data center and colocation companies maintaining facilities. The CoreSite campus has space for two additional buildings, one currently approved for 210,000 square feet of development, and a second site that will support between 100,000 and 300,000 square feet. The company also leased a previous building on the campus to a single large tenant.

The deal continues the market momentum for CoreSite (COR), a publicly-held real estate investment trust (REIT) which has been one of the industry's strongest performers on Wall Street, where its shares soared 55 percent in 2012 and added another 26 percent gain in the first quarter of 2013.

Silicon Valley isn't the only major market where CoreSite is building, as the company has new projects underway in both northern Virginia and New Jersey.

The Secaucus facility will be the company’s first data center in New Jersey. CoreSite has a site in New York City at 32 Avenue of the Americas, and the Secaucus facility will mark an important expansion into the suburban New Jersey market, which offers larger footprints for wholesale data center providers like CoreSite, as well as better economics than Manhattan.it

Secaucus vs. Central New Jersey

"We have high expectations for our NY2 expansion as we enter what we believe is one of the fastest-growing and most profitable submarkets in the U.S. for our targeted applications and customers," said Ray.

Ray said CoreSite opted to build in Secaucus in northern New Jersey rather than central New Jersey, where three of its competitors in the wholesale market have built their data centers.

"Two of the leading colocation and IT services companies have experienced consistent, robust and highly profitable growth in Secaucus in the Meadowlands," said Ray. "Additionally, the Secaucus submarket is the leading location in the region for financial services firms, and provides robust, diverse, low-latency network access to Manhattan. These factors differentiate the Secaucus area from the outer submarkets of Somerset and Middlesex counties, which offer the same cost of power but significantly longer and less diverse fiber routes to Manhattan and subsea cable landing stations, access to which is often a key requirement for performance-sensitive colocation applications. We see strong opportunity in Secaucus, and look forward to bringing our NY2 facility online at the end of this year."