SAN FRANCISCO-Digital Realty is seeking new development sites where it can add inventory to meet existing demand in markets both nationally and in places like Amsterdam and Paris. GlobeSt.com recently chatted with Michael Foust, CEO of the company about the company, which has been busy lately, and doesn’t plan on stopping anytime soon—for 2012, the firm is targeting $300 million to $400 million of new acquisitions of income producing properties at an average cap rate range of 8% to 8.5%—ideally with a value-add component.

GlobeSt.com: You have been busy lately, with the $123-million data center in Dallas as just one of many recent examples of deals we have written about Digital Realty. What are your plans for 2012?

Michael Foust: For 2012, we are targeting $300 million to $400 million of new acquisitions of income producing properties at an average cap rate range of 8% to 8.5%—ideally with a value-add component. We expect the market dynamics to be similar to 2011, and are currently tracking over $1 billion in potential opportunities.

GlobeSt.com: What markets are you looking in? Where are you seeing active demand?

Foust: In the US, generally speaking we see strong leasing demand in markets such as New Jersey, Boston, Northern Virginia, Dallas, Phoenix and Santa Clara, CA. In particular, we are currently seeing a number of large requirements in New Jersey and Dallas.

GlobeSt.com: How about internationally?

Foust: Internationally, Singapore has been an exceptionally strong market for us. We are under construction at our two development sites in Australia, in Sydney and Melbourne, where we have already signed a lease for the first building to National Australia Bank. In Europe, we are continuing to see strong demand in London, primarily from financial services firms. We are fully or nearly full at our sites in Paris, Amsterdam and Dublin. We recently acquired a development site in Dublin that is being actively marketed primarily to US corporates. In both Amsterdam and Paris, we are looking for new development sites where we can add inventory to meet existing demand in those markets.

GlobeSt.com: What is the long-term potential of data centers? Other than cost, what are other factors that that differentiate one data center from another? How about connectivity? Design?

Foust: The increase of data is generating good opportunities across the data center industry. According to the independent research firm, IDC, the amount of digital information is more than doubling every two years. As a leading global data center solutions provider, we are uniquely positioned to take advantage of the opportunities these trends offer.

Reliability continues to be one of the top customer requirements. Digital Realty has a six-year record of Five 9’s availability for our Turn-Key Datacenters including the past four consecutive years. Five 9’s (99.999% availability) means five minutes, 15 seconds or less of downtime in a year.

Design is also important criteria for our customers. We offer facilities featuring dedicated mechanical and electrical infrastructure—building within a building in a single or multi-tenant environment. Typical corporate enterprise and managed serviced customers, which make up a majority of our customer base, prefer to operate fully independently and do not want to share backplane of UPS systems, backup power systems, or primary power with other tenants. Secondly, with our POD 2.0 design, we offer preassembled/prepackaged electrical rooms and pump rooms for the chilled water which reduces construction time by six to eight weeks. Because we can assemble those components offsite our time-to-market is as fast as other modular approaches that are out there, as well as being more cost-effective than most with higher quality.

In addition to connectivity as you suggested, the availability of power is another critical factor that differentiates one data center from another. This leads to my last points, which are the financial resources and maintenance programs of the data center provider. These facilities require a significant amount of capital to development as well as capital and expertise to maintain the facility’s infrastructure. Choosing the right provider who has both the financial resources as well as the operational expertise makes a significant difference in the customer experience.

GlobeSt.com: I know you mentioned in a recent investor call that your New York metro exposure was relatively small. Are you looking to expand there?"

Foust: Yes. We manage supply closely in our markets. In the New York/New Jersey market we have a total of nearly 1 million square feet leased. In New Jersey, we have three PODs (3.5 megawatts) available for lease right now. We maintain a disciplined approach to managing our inventory, and therefore financial exposure, in any one market, by building out in 1.1 megawatt increments (i.e. one POD). In New Jersey, we have approximately two PODs available at our Weehawken facility that we recently built out and one POD available at our Piscataway facility. Typically, we will have from 1-2 PODs available in each market with redevelopment inventory available to build out additional supply, subject to customer demand.

GlobeSt.com: What are you seeing as new data center requirements going forward? Are there any new trends you are seeing emerge?

Foust: A significant trend for the industry overall is reducing cost of operations, which is focused on lowering cost of cooling and power consumption. Cooling improvements include how the IT equipment is deployed, how the airflow is distributed, utilizing outside air both for cooling of chilled water as well as using ambient air temperature to cool data centers directly. Reduction in power utilization is a positive for DLR and the customer. Enterprise customers in many instances seek new facilities into which they can consolidate disparate data centers residing in inefficient locations such as office buildings. Threats are limited as most fast moving tech changes are with the software and hardware rather than the plant (i.e. industrial components) which can be adapted.