By Ray Smith – Staff Reporter of The Wall Street Journal
Oct 10, 2001
Until recently, owners of so-called telecom hotels-buildings that house the high technology equipment that was supposed to power highflying telecommunications concerns – couldn’t give space away after the tech bubble burst and companies no longer needed facilities.
Now telecom hotels are showing some signs of life again.
Developers and brokers say interest in space for data centers or disaster recovery has picked up substantially since the Sept. 11 terrorist attacks, as companies consider moving away from having all information systems in one central location.
“I think companies were having conversations about the need for backup data-center space prior to Sept 11, but hose discussions have gotten more critical since,” said Clifford Preminger, president of T-Rex Technology centers LLC, a developer with a portfolio of 5.3 million square feet, mostly on the East Coast. The attacks, he said, “may have pushed a number of businesses to make decisions to have off-site data centers.”
A number of New York-based financial services concerns are in bidding war for space in a 200,000 square-foot facility in northern New Jersey left vacant by a telecom company that went bankrupt earlier the year, said Ray Cirz, chief executive of Integra Realty Resources, a New York based real-estate appraisal company. The building is fully equipped for telecom purposes, The owner, an investment fund that specializes in telecom facilities, marketed the building as a data center after the tenant left, as the building already housed telecom equipment.
“The building was marketed as a data center with not takers for about six months,” said Mr. Cirz, who represents the building’s owner. “Now there’s a bidding war for it.” He declined to say who the bidders were.
“We’re fielding a lot more inquiries,” said Joseph Suppers, president and CEO of Nade Com, Inc., a full service real-estate firm that specializes in data centers, telecom hotels and disaster-recovery facilities. The Princeton, N.J., company monitors space in ore than 300 telecom hotels and 65 data centers nationwide and makes that information available on its Web sites and to its clients. The firm also helps companies locate generators and power backup equipment through one of its Web sites. “Our Web sites are getting a lot more hits,” he said.
In its second-quarter report released in August, real-estate services company Grubb & Ellis Co. estimated that vacancy rates for telecom real estate exceeded 30% in most major markets, indicating a large surplus of inventory.
Even though there seems to be increased interest, it doesn’t necessarily mean the glut of space will be totally absorbed. “There’s been significant interest in telecom space, but we’re just not quite sure if all that interest has actually resulted in signed deals,” said Mike Gerard, executive vice president and national director of Grubb & Elllis’s telecom group, which is based in Southfield, Mich.
Developers acknowledge the interest is still in the early stages but they expect the increase in demand for data centers to continue for the long term-and result in signed deals.
“What I expect to see is companies will say, “We need distributed office space and a distributed communications system. We don’t want it all in one building,” said Ron Vidal, a senior vice president at level 3 communications Inc., a communications company based in Broomfield, Colo. that owned data centers in the U.S., Europe and Asia. “They are going to have their people and facilities much more distributed than they were before.”