Red Sea Group Buys Back Class A Data Center

The 900 N. Dorothy Dr. holding is a wireless switch facility leased to Cingular Wireless, which assumed the contract from AT&T Wireless. Mitch Kralis, Red Sea's executive vice president, tells GlobeSt.com that the upside is a triple net lease with just a few years left on the term and the wireless industry itself.

Kralis says he jumped into talks with Alpine Investment Group of Philadelphia as soon as he heard that the Richardson property was going to be cut loose from the portfolio. The hard knocks of the high-tech industry's growing years don't scare the new owner. "That's a risk we're willing to take, but we have a strong indication of where the data center market in the rest of the US is going and in Dallas overall," he says. "Properties like this are in high demand and low supply." The low supply is a direct result of the industry's downturn, with many properties in Dallas/Fort Worth and elsewhere in the nation getting retooled for office use during the tech bust.

Kralis says he's not competing with the industry giants like San Francisco-based Digital Realty Trust Inc., but rather targeting acquisitions that wouldn't necessarily be on its radar screen. "There's a lot of competition out there. We are just being precise with what we're doing and sticking with the same basic fundamentals that we've always had," he says. "They're super-special properties, but you can't go overpaying. We'll buy as many good ones as we can get our hands on whether they're vacant or have a tenant in them. We're chasing quite a few."

Earlier this year, the Red Sea Group bought a 69,700-sf data center at 2950 Zanker Rd. in San Jose, which is leased to Verizon Wireless, and a 21,000-sf structure at 3075 Raymond St. in Santa Clara, CA, filled by Electric Lightwave Inc. The niche play began to take shape in 2001 when the investment group acquired a 300,000-sf data center at 2301 W. 120th St. in Hawthorne, CA.

The buyer's sweet spot is class A buildings with less than five years left on the leases, good locations and metropolitan areas. Besides Dallas/Fort Worth, Kralis also is looking in Houston and Austin plus Greater Los Angeles, Seattle, Denver, San Francisco and of course, San Jose, the center of the Silicon Valley's wireless universe. But, he adds, he'll look at any deal in any city.

The properties, in most cases, are non-descript, "but a tremendous amount of capital has been spent on the buildings," Kralis explains. "It's very interesting real estate. We're doing what we've always done: find a good project, buy a good project."