New Data Center Rules Alarm Brokers and Developers

WASHINGTON, DC-District of Columbia officials have set new restrictions on data centers, alarming brokers that the city is cutting off a new market just as it was budding, and prompting telecommunications to back away from doing such deals in the city. In Washington, brokers say between 1.5 million and 5 million sf of demand have popped up for data centers. The centers are large complexes filled with telecommunications and computer equipment used for switching data transmissions and hosting Web services, and typically have few employees.

Level 3 Communications, a Denver-based Internet services company that plans to build a $250-million data center at 90 K St. NE and has a contract to buy the property, says it was reconsidering the plan. “We’re still working with the city, but we have to keep our options open,” says Kathy Sattem, Level 3 spokeswoman.

The city will require all data centers to undergo a special review process until the city can settle upon permanent rules within four months.

The DC Zoning Commission adopted the rules on the urging of DC Office of planning director Andrew Altman. He argued that the massive demand for data centers threatened to overwhelm the city, eating up space that could be used for office or retail development, and creating dead zones of monolithic, windowless buildings. It particularly wants to keep space around Metro stations from being used up by data centers. That includes neighborhoods like the “NoMa” area, where the District wants technology companies, including data centers, and plans to build a Metro station.

“We could look back in three years and the whole area could be a storage area,” Altman says. “We had to get ahead of the situation, and the fact of strong reaction only confirms what we thought. When we talked to officials in Los Angeles and Chicago, their reaction was, we wish we had done this.”

While city officials deny the rules are a moratorium, brokers say it has the same practical effect, and will drive deals into the suburbs. “It’s a huge overreaction to a very necessary step in the re-emergence of economic vitality of this area,” notes Richard McBride, managing director with Insignia/ESG.

Like him, other brokers say the unexpected rules were getting in the way of deals.

“I think it has a chilling effect. There’s no certainty. Without certainty, how are you going to bring in the bottom line?” says David Watts, senior vice president with Trammell Crow.