Fannie Mae to Build

We've seen it before. But it's still startling to read about large financial organizations planning to spend huge sums of money to build data centers at a time when large, finished facilities are available for between 20 and 50 cents on the dollar. The latest entry in the build-your-own category is Fannie Mae, which reportedly is set to spend $130 million to build a new data center complex in Montgomery or Frederick counties in Maryland.

In January, Bank One said it would spend $300 million to build two centers in the state of Delaware. Back in November we noted plans by Recovery Point to spend $41 million to build a new data center in Gaitherbsurg, Md.

These three companies are apparently prepared to spend $480 million - nearly half a BILLION dollars - to build four new data centers totalling at least 730,000 square feet.

It's amazing that this kind of building boom is moving forward in the midst of distressed conditions in the data center market. With dozens of finished data centers being sold, mothballed or repurposed, you'd figure that these companies would be buyers, not builders. With the growing number of comparable sales, the value proposition for buying versus building is better documented than ever before.

Let's look at the economics. Fannie Mae reportedly is contemplating a $130 million project for 210,000 sf of space, of which 120,000 sf will be data center space. Even with the office space included, that $130 million works out to more than $600 a square foot. Bank One's Delaware projects contemplate even higher costs.

By comparison, just over a year ago, Cable & Wireless paid $615 million for 4 million square feet of finished data center space, which works out to $153 a square foot. Last week a finished, 93,000 square foot PSINet data center in the Boston suburbs sold for $9.1 million, which works out to $97 a square foot.

How do you reconcile new construction in light of that gap? What's clear is that for some large financial firms, location is a much more important variable than cost. There's still inventory available in northern Virginia, but not very much in Maryland. If you absolutely need to be in Maryland and require a ton of space, you may need to build.