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[Tide Point Data Center]

Failed firms’ assets are bargain buys for others

8/26/2002

from Potomac Tech Journal

By Michael Hardy

A new Baltimore data center has opened at a facility that was originally built by a venture-backed dot-com and abandoned before it ever opened. The Tide Point Data Center, which will provide co-location services, has already signed three customers.

Around the region, companies are finding such abandoned assets useful, spoils of the technology burnout. Tide Point’s parent company, 19-year-old systems integrator Raven Technologies Inc., is leasing the data center from Struever Bros., Eccles and Rouse, the development firm that created the Tide Point office complex in the old Proctor & Gamble soap factory.

A company called B2B Communications first built out the center, outfitting space that Struever Bros. owned. It features power backups and redundant systems to guarantee almost 100 percent uptime for systems housed there.

“They went through about 80 percent of their plan when the tech market collapsed,” said Tide Point’s director of operations, Joshua Houck. “They closed the doors on the center without ever signing up a single customer. It sat vacant for about a year, and they had a few people come in to look around and see if they could do something with it.”

The data center’s first customer is Pacer Power, based in New York. Struever Bros. is also a customer. The center hosts computer hardware for companies that need to be failsafe, not applications.

Raven probably would not have opened the center if it had not found an existing facility ready to use, Houck said, adding: “In this economy it would be difficult to justify the funding to build a new facility in Baltimore.”

The tactic is becoming increasingly common as more and more assets become available.

Many small companies in Northern Virginia have bought or leased inexpensive data center facilities or other leftover assets, said Tom Sandlin, senior vice president of USI Real Estate Advisers in Vienna, Va. The trend began to develop about a year ago.

“There are some time bombs there,” he cautioned. “Some of the [older] companies haven’t managed the data centers well, didn’t keep up with the maintenance. You need to make sure that you really look at it, and not just that it’s cheap.”

Dominion Telecom Inc., of Richmond, Va., has developed a strategy based on watching for network infrastructure to buy cheap, said Gregg Kamper, senior vice president and general manager. Earlier this year, it bought a fiber optic network in upstate New York from a bankrupt firm called Telergy for about $7.5 million.

He said it would have cost Dominion $200 million to build the same network.

Telergy “had really expanded into some other areas too rapidly. It caused some financial difficulty for them and they ended up in bankruptcy court,” Kamper said. “We were able to go into the Chapter 7 proceeding and purchase their entire upstate New York long-haul network and a couple of metro networks. We also did get an entrée into Canada, we acquired a route into Montreal.”

The purchase also gave Dominion access to Telergy’s customers in education and government, two markets that Dominion had wanted to enter.

The 5-year-old sister company to Dominion Power has seen its plans for expansion accelerate with the implosion in the telecom sector.

“We had this strategy set up prior to the industry collapsing. What [the collapse has] done for us is it’s enhanced our approach and enabled us to have a bigger footprint than we would have,” Kamper said. “But you could see some of the handwriting on the wall even back then. You could see that there would be excess.”

The strategy works for lower-tech facilities, too. ReturnBuy Inc., an Ashburn, Va., firm that takes consumer electronics that customers have returned to stores and sells them either through e-Bay or directly on its Web site, set up a processing center in Columbia, S.C., using a warehouse it is leasing from the Dillard’s department store chain.

Columbia is a UPS parcel hub, making the location idea, said ReturnBuy’s chief executive officer, Walt Shill. The company set up touch-screen computers loaded with proprietary software to convert the warehouse into the processing center.

“We probably spent 20 percent of what it would have cost us to go and do it” from scratch, Shill said. “There are a lot of empty warehouses around, but finding one that has the right layout, the right location and the right logistics is extremely hard. We gutted this thing and made it an intelligent warehouse. It’s a warehouse wired for e-commerce. It’s wired directly into the Internet.”