What's Up With Rackspace in Oregon?

So here's a curiosity: The Oregonian reports that Rackspace has applied for tax breaks in Oregon, and says the company "appears to be close" to finalizing a deal for a $100 million data center facility in the Port of Morrow in Boardman, Oregon. However, the company says it has no plans to change its strategy of leasing data center space, rather than building new facilities.

"We are always looking for ways to expand our data center footprint, however, our strategy will remain the same," Rackspace spokesperson Rachel Ferry told Data Center Knowledge. "We have no plans to build our own data centers, and will continue to lease through third parties."

So why does the company's name keep coming up in association with these rumored greenfield builds in Oregon? One possibility: Rackspace may be quietly working with a wholesale provider or developer on a project in Oregon. This approach would allow Rackspace to lease rather than build (consistent with its strategy) and provide the right economics for a developer to pursue new construction of a wholesale or build-to-suit project.

It would also explain the report in The Oregonian that Rackspace has applied to participate in the Oregon Investment Advantage program, which can exempt new companies from Oregon income taxes for as long as a decade.

Rackspace Looking for New, Efficient Space

Rackspace declined any specific comment on the Oregon reports or whether it was scouting sites with a wholesale player, limiting its comments to its broader data center strategy. But the wholesale scenario would fit with comments from Rackspace CEO Lanham Napier during the company's recent third-quarter earnings call. Napier said the company is looking at new space, and finding a cost-effective location is a priority.

"We are looking at places to where we are going to get a combination of the right climate, a good tax environment, (and) green power in the right infrastructure to deliver good performance for our customers," said Napier. "We want to combine that with the right wholesale data center partner."

In the wholesale data center model, a tenant leases a dedicated, fully-built data center space. This approach is quicker and cheaper than building an entire data center facility. The tenant pays a significant premium over typical leases for office space, but is spared the capital investment to construct the data center.

Rackspace has leased significant amounts of data center space with DuPont Fabros Technology (DFT) in both Virginia and Chicago. Another large player in the wholesale space, Digital Realty Trust, recently announced a build-to-suit project in Hillsboro, Oregon in which it will lease data center space to NetApp.