Valuing Facilities

So if two profitable colocation facilities in St. Louis totaling 500,000 square feet are worth $22 million ... what does that say about the value of the data center you're trying to buy or sell?

After months of inactivity, people are talking deals again. That's probably a sign that the many players who have been waiting to buy at the bottom of the market have decided that this is close enough.

Which brings us to the question of valuation. There have only been a few sales of carrier hotel and data center properties, and these transactions don't always serve as effective apples-to-apples comparisons.

The Pinnacle deal was unusual in one respect - the buildings had a significant number of customers, and between them were actually in the black, making $700,000 for the most recent quarter. Most folks today want to sell the money-losing empty facilities, rather than the profitable ones containing customers.

When you consider the $56 million it spend to buy the properties, Pinnacle still made just 39 cents on the dollar. The other major deal this year saw BJK purchase 22 former COLO.COM sites for a reported $54 million in a bankruptcy auction.

What are your yardsticks for valuing a building? What have we learned from the deals that have been concluded thus far, and what do they tell us about what lies ahead? Add your thoughts below.

A Fortuitous Moment

On July 16 of last year, a Bloomberg story reported that after heated negotiations, Global Crossing had decided not to sell its Global Center data center unit to Exodus. The issue, it seems, was valuation.

If only GX had stuck to its guns. Two months later it changed its mind, and agreed to sell Global Center to Exodus for $6.5 billion in stock. In January, the deal closed at a revised price of just $1.91 billion, reflecting a steep slide in Exodus shares.

Exodus received 11 data centers as well as 600 customers including marquee names such as Akamai, NBCi, Novell, Viacom and ZDNet.

What did Global Crossing wind up with? Zero. Zip. Nada.

On Monday, Exodus said its common stock - including the 108 million shares owned by Global Crossing - would have no value. On Tuesday Global Crossing reported a $2 billion charge to earnings to account for the disastrous deal.

Sure, hindsight is 20/20. But as Global Crossing struggles to recover and rebuild, its investors and employees should remember the day the company tried to resist the urge to merge - and ultimately couldn't.

Deep Data?

Does your data need to survive a nuclear attack? Several providers are digging deep into their pockets and the earth in hopes that an ultra-secure location will attract customers.

A company called Underground Secure Data Center Operations has opened a huge colocation center in a former gypsum mine 85 feet below ground. The 750,000 square foot facility in Grand Rapids, Michigan is hooked up two power grids and has DS3 service from UUNet and Qwest. The owners also tout the facility's "geo-thermal cooling" that circulates 50-degree air through the mine shaft.

Meanwhile, a former U.S. Atlas Missile Base in upstate New York is being marketed as a potential data center site. The 20,000 square foot missile silo, built of hardened concrete, is "designed to withstand a near direct nuclear hit," according to marketing material recently circulated to industry dealmakers.

Sometimes a gimmick can attract publicity, as the folks from the SeaLand-based HavenCo could tell you. As this column proves, it can even get you a writeup in CarrierHotels.com. Perhaps these enterprises are not so far-fetched after Sept. 11. I'm not convinced that Willsboro, N.Y. and Grand Rapids are markets where "nuclear attack survivability" are high on the checklist for folks seeking colocation space. But if that's what your disaster recovery plan calls for, I suppose it's nice to have that option.

Do these projects have a future? Tell us what you think.