$22M Buys 17 Acres for Data Centers

SANTA CLARA, CA-The newly public data center developer DuPont Fabros Technology Inc. of Washington, DC, has acquired 17.2 acres here for $22 million. The transaction was one of several that were teed up prior to the company’s IPO in October, which raised net proceeds of $678 million.

The company says the Santa Clara land can support four data centers totaling 600,000 sf. The company plans to spend between $240 million and $300 million developing the first building, a 150,000-sf facility with 85,000 sf of raised floor area that it wants to complete by 2009.

There is no timeline for the other three buildings. A portion of the land is currently occupied by an unrelated business. The exact location of the property was not revealed by the company and was not otherwise immediately available.

“…This tract of land is a cornerstone in our development plans,” says company president/CEO Hossein Fateh. “It allows us to proceed with our expansion to the west coast of the United States.”

DuPont Fabros was formed in March. Most of the proceeds from its IPO were used to complete previous real estate purchase agreements with its sponsors that resulted in the company owning several properties in Northern Virginia, including four stabilized data centers, one under development and land for others; one data center under development in Chicago; land for a data center in Piscataway, NJ; and the Santa Clara land.

The company describes its data centers as highly specialized, secure facilities used by national and international technology companies, including Microsoft, Yahoo! and Google. The company leases the raised square footage and available power at each of its facilities to tenants under long-term triple-net leases that contain annual rental increases.

In addition to its real estate the company also acquired certain property management, development, leasing, asset management and technical services agreements and arrangements for these properties from entities affiliated with its sponsors, Lammot J. du Pont, the executive chairman of its board of directors, and Hossein Fateh, the company’s president/CEO. The company expects to qualify as a REIT for federal income tax purposes beginning this year.

Data centers are facilities used for housing a large number of computer servers and the key related infrastructure, such as generators and HVAC systems necessary to power and cool them. Wholesale infrastructure providers like Dupont Fabros entered the market to meet the growing demand from technology companies for greater power through a single, larger facility (than previous providers) and long-term cost savings through economies of scale and the unbundling of services that larger tenants do not require.

In discussing the market opportunity in its prospectus, the company says growth in demand for data centers reflects the growth in consumer and enterprise-based Internet traffic. IDC Research estimates that the US web-hosting market totaled $8.2 billion of revenue in 2006 and projects US web-hosting revenue to grow at a compounded annual growth rate of 14.7% over the next five years, reaching $16.3 billion in 2011.