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The Bay Area Real Estate Journal
Economic Bright Spot: San Jose Data Center
Submitted Apr 28, 2009
At least someone is making some money in real estate.
San Jose-based Fortune Data Centers unveiled April 28 what it says is among the most energy-efficient data centers ever developed in Silicon Valley. The first phase of a proposed two-building campus in San Jose near the Milpitas border, the Fortune project is a candidate for LEED Gold certification from the U.S. Green Building Council, the second-highest level under the USGBC’s ranking.
That contrasts sharply with the appetite for offices, shop space, land and other classes of real property.
The more than $50 million project is fully capitalized. The lead investor is a “multibillion dollar pension-fund advisor,” he said.
“Data centers are a small part of their assets, but they are a real bright spot right now compared to a condo tower or a mall,” he said. He and other Fortune principals have also invested in the project.
Sheputis declined to identify the advisor or to give the projected returns on the investment except to say that it is meeting their expectations.
Fortune lined up the financing in December 2007. Tenant demand is coming from two sources: Data center management companies that own or lease and manage data center space on behalf of other companies and large companies that manage their own data-center operations.
“We have had discussions with large Internet companies and corporate users based in Silicon Valley, and it wouldn’t take long to guess whose these names would be,” Sheputis said. “Distance matters to the performance of applications and also you have to be at a high level of operational maturity to put your data center a plane ride away.”
Data centers are among the most complex, specialized classes of real estate with carefully controlled interior environments. They house the servers, routers and other mechanical and electronic equipment that process and direct Internet traffic. Internet portals such as Google Inc. and Yahoo Inc. need data centers to handle their users’ traffic.
At the same time, companies large and small, such as software creators and chip designers, need huge amounts of computer processing power to create their products and manage their businesses. They often house that equipment away from their main offices, though many still want it in relatively close proximity.
Despite Silicon Valley’s high property prices, a data center’s land and buildings account for less than 15 percent of a development’s overall cost, Sheputis said. Far more expensive are the heating, cooling and electrical systems.
Redwood City-based DPR Construction Inc. was the general contractor on the job. San Jose-based Rosendin Electric Inc. was the electrical contractor.
“The market is good,” Sheputis said.
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