developers look to utilities to finance tenant buildouts
June 4, 2001 -- Carrier hotel developers are looking to
a surprising new source to help cash-strapped tenants build out
leased space - utility companies.
we sit down with a (prospective) tenant, the rent is the least
important issue," said David Welsh of the Morgan Stanley
Real Estate Fund, which develops carrier hotels under the MetroNexus
and Global Gateway brands. "The most important thing is finding
the money to build out their space. So one of the things we're
doing is finding financing for tenants."
search led Morgan Stanley into discussions with electric utilities.
talking to these power providers who want to supply utility and
bandwidth services, and we're forming partnerships with them,"
said Welsh. "They provide a loan to the tenant for the buildout.
In return, they get the (electric power) business."
While Morgan Stanley's effort is in the discussion stages, the
initiative illustrates the increasingly complex and symbiotic
relationship between electric utilities and the Internet facilities
that are their most prolific consumers of power.
who spoke at a panel at the New Jersey Appraisal Institute's annual
conference in Princeton, N.J., said utilities' interest in acquiring
data center customers was a factor in the recent sale of a major
Chicago carrier hotel, the Lakeside Technology Center.
Paso Energy purchased the building from The Carlyle Group as part
of a larger partnership in which the two companies will develop
"meet-me rooms" supplying interconnections between customers
in three other major carrier hotels - the Atlantic Telecom Center
in New York, One Wilshire Boulevard in Los Angeles and Market
Post Tower in San Jose.
"This was a way for (El Paso) to get a captive market,"
Paso is one of a number of utilities pursuing that have moved
aggressively into the telecom arena, with others including Williams
Energy and Florida Power & Light.
said that despite the sluggish market conditions, Morgan Stanley
still believes in the carrier hotel business as a long-term investment,
but has adjusted its short-term goals.
fundamentals for this business are still very strong," said
Welsh, who cited projections that revenues from web hosting were
projected to grow from $5 billion to $50 billion by 2005.
business plan has changed over the last 12 months," he said,
adding that MetroNexus had scaled back its ambitions for the European
market, as well as its goal to acquire 30 to 40 facilities. "We
are now very cautious on our new acquisitions."