Interest in developing land
for commercial use is growing in small towns and rural areas outside of major population centers, across the U.S. Certainly, data centers are a big driver with their ongoing need for space and power. But other enterprises are interested too. Think, distribution centers, and even a network operations center. Municipalities are looking for ways to attract such organizations to their locales. They are leveraging different “tools” to attract these enterprises – available land, an abundant supply of power and water, fiber connectivity, and perhaps, more importantly, tax incentives. In return, local governments want economic development, new jobs, and a steady tax revenue stream.
Commercial Land Use
There’s nothing particularly unique about data centers, other than the real need for them. Local governments across the nation are realizing that these are valuable commercial builds, especially where they have large swaths of unused land; this is an untapped area. You’re seeing it with both data centers and distribution centers.
These are unique types of projects that require a lot of unimproved land. Generally, you need a lot of space, certainly more space than if you were doing something similar in a city center. The flip side is they need to be connected to a lot of power, cellular and broadband, and other supporting infrastructure.
From a permitting, or an economic development perspective, municipalities are trying to use the local “tools” to create infrastructure and to have different types of funding sources for that infrastructure.
The math differs in every state, city, or county. From an economic development aspect, people are looking at these types of projects to create incentives not previously considered. Cities or counties see these projects as a catalyst to build the type of infrastructure needed to attract such development.
Economic Development Priority
The biggest issue in any type of local economic development is employment. Large numbers of jobs make a more attractive project for local governments.
But the property value of these types of projects is not insignificant, either. There is a growing realization that these types of projects are being planned. More local governments are considering what they can do to try to attract development into their area.
A Husch Blackwell carrier client established a mobile switching center with a network operations facility away from a major city. A relatively small number of people run the site. Still, it’s a very valuable asset. For its size, these projects are very attractive to smaller municipalities because they increase the tax base.
Municipalities and local governments welcome these developments when they come along. The question is whether they can multiply these wins. Are these developments just one-off where the municipality got lucky, or can it establish incentives such as space and power availability, and favorable tax treatment, to attract more of these enterprises?
Many of these sites are like office buildings, with no heavy industrial activity or truck traffic. Initially, there is a significant amount of construction, but then it becomes a long-term municipal asset.
Information Sharing is Key
It is very important for a developer or the enterprise to inform the community ahead of the project. They need to convey that the project will not impose on the community and that it is not going to be noisy, or produce steam, smoke, or something they’re not used to seeing.
Data centers always get some pushback from the community. Whose data is being housed? Will the data center emit any communications waves that could produce adverse health effects?
It is important to address any community concerns early in the process, with more forward-looking planning.
Going Green
Green, sustainable energy is an important topic for many organizations and governments at all levels. Whether retrofitting an existing structure or starting from a greenfield, sustainability is important not only from an energy usage and conservation standpoint, but to an organization’s bottom line.
Unless starting greenfield, organizations will always have aspects of their operations reliant on legacy power sources or cooling systems. Sites can be modified with solar- or wind-generated power, more energy efficient components, and reduced reliance on backup diesel generators. Even applying reflective paint on the roof can reduce the heat absorbed by the building.
For a brand-new facility, operators must decide from day one how to design the building to achieve a high level of sustainability metrics. With enough land, they can install a solar farm. Is it worth the investment? If you have a 10 MW data center today and it will be 10 MW 10 years from now, how much capital reserves are needed for replacing equipment?
Get Husch Blackwell Involved
Husch Blackwell is involved in such projects at various stages. A lot depends on the type of data center.
One client has an existing carrier hotel. Husch Blackwell is handling a number of the leases that are due to expire. It is negotiating new leases. This particular operator is building a ‘Meet Me’ room for tenants to connect to different carrier networks. That’s a high margin business. Once the Meet Me room is set up, Husch Blackwell updates the existing tenants’ leases and establishes interconnection fee schedules.
With a hyperscaler, the firm was retained from initial planning when the land hadn’t yet been purchased. It assisted with some of the tax incentives, and land use and zoning issues as well as getting the construction contracts in place.
In another instance, Husch Blackwell was retained by the owner-operator of a data center with existing tenants, but decided to become a tenant rather than the operator. The company sold the data center to another operator and leased it back as the anchor tenant. In this case, Husch Blackwell handled the sales transaction and leaseback arrangement.
Private equity firms and REITs are interested in investing in commercial land developments because they see it as a growth area. Sometimes the firm will get called when the deal is already baked. Given the economic development incentives at local, state, or federal levels, some deals should involve Husch Blackwell from the beginning because many programs have stipulations to qualify for those incentives.
This activity is similar to its tower site work. Husch Blackwell was asked to look at sites in a carrier coverage area. But often, a lot of the due diligence and site acquisition work has already been done to the point where the client is proceeding with an application. Usually, there is a better outcome when Husch Blackwell is involved in that upfront due diligence because it can reach out to local attorneys who know the community and can help with the site planning. Most communities are more receptive when approached ahead of time versus a developer coming in and saying, ‘This is what I want to do.’
Husch Blackwell prefers to be involved at the idea or business case stage. It can run the numbers and set a plan to find the right locations.
All these commercial development projects have similar due diligence requirements as any other real estate project. Still, there may be newer aspects or details of the transaction that require special attention.
Husch Blackwell has been involved at all stages and all types of infrastructure and land use projects. It can provide support, tailored by both client and case.
For more information: https://www.huschblackwell.com/industries_services/telecommunications
Reader Interactions