A Profitable Sale

Cents on the dollar? Not for Ameritrade, which says it just sold its Kansas City data center to MasterCard for a handsome profit. The publicly-funded deal closed at a price of $23.5 million, which worked out to a $9.2 million gain for Ameritrade.

How did Ameritrade make money on a sale in an environment in which most data centers are selling for between 20 and 50 cents on the dollar (and lower, in some cases)? Comparing data center sales is often an apples vs. oranges game, since there are so many variables involved. But sometimes a buyer's needs and timetable and the location of a facility come together in a deal that defies conventional market wisdom and still makes fiscal sense for the purchaser.

We've mentioned this deal in this space before, because it is funded with public money. On Nov. 28 the Kansas City Council unanimously approved a $44 million bond offering to buy the site at 11530 N.W. Ambassador Drive near Kansas City International Airport for MasterCard's use.

The initial numbers reported on this deal seemed so high that I got in touch with the Economic Development Council of Kansas City, which helped correct some media reports on the square footage of the site (it's 100,000 square feet, not 60,000). That places the sale price at about $235 a square foot.

That's high, but not unprecedented. In the past year, there have been at least four sales of data centers in which the price has exceeded $200 a square foot. In each case, the deal involved a corporation buying a stand-alone site for its own use. These kind of prices are rare, but they exist. (NOTE: We'll have more information on our research on comparable sales in coming weeks).

What is unique about the Ameritrade sale is that it doesn't include the improvements. According to media reports, the city is paying about $14 million to acquire the equipment, and will spend several million more to retrofit the site for MasterCard - which is why the city approved bond funding well beyond the $23.5 million sale price.

Thus, even if Ameritrade's report of a $9.2 million profit doesn't include improvements (which seems a safe bet), they're covering those costs as well. Ameritrade will lease back 20 percent of the building from MasterCard for at least the next five years, which also contributes to the value of the deal for MasterCard.

Can it be a win-win-win transaction at these prices? Kansas City's economic development officials say it's a winner for them, since it keeps the site active, retains the Ameritrade jobs and brings in some new jobs as well. MasterCard gets the facility and advantageous terms from the bond funding. And Ameritrade made money on the sale - and you won't hear a data center seller complaining about that.