Digital Realty Buys 91,000-SF Data Center

SANTA CLARA, CA-Digital Realty Trust has acquired a 90,000-sf data center here that is in shell condition, according to the brokerage firm that brokered the transaction. The publicly held data center specialist acquired the property from Dallas-based Stream Realty, which manages an opportunistic investment fund that invests in value-add data center deals. The purchase price came in slightly below the $17-million asking price, industry sources tell GlobeSt.com.

The data center was completed in 2001 amid a boom in datacenter development that combined with the ensuing recession left the sector woefully overbuilt. Since then, investors like Digital Realty have been steadily buying up properties. Last year, users got into the act, buying and leasing more Silicon Valley data center facilities than during the previous three years combined, leaving the sector tighter than it has been in several years.

Last week, publicly held data center provider Equinix Inc. said it has agreed to acquire its flagship, 133,500-sf facility in San Jose for $65 million. The purchase from Rose Ventures II Inc. is expected to close later this year. The property is one of four data centers currently occupied by the company in the Silicon Valley.

Digital Realty’s new property is located adjacent to Highway 101 and Central Expressway and across the street from a new 147 megawatt power plant. The estimated cost to build out the facility with generators and HVAC and raised floors and all will cost in the vicinity of $1,000 per sf. The stated asking rent is $2.75 per sf per month.

The sale price translates to $187.26 per sf. The relatively low price is due to the fact that the data center had not yet been built out. Last year at this time, Stream Realty sold Apple Computer a fully built-out but never-used 107,000-sf data center in nearby Newark for $48 million or $449 per sf.

The Newark property was one of five data centers totaling 345,000 sf that Stream acquired in June 2005. The portfolio included three triple-net-leased buildings and two vacant buildings. The portfolio was then sold off to four different buyers.

The 3011 Lafayette building was acquired in January 2006. Its recent sale marks Stream Realty’s exit from the market. Robert Kennedy, Stream Realty partner and managing director tells GlobeSt.com it won’t likely be returning anytime soon.

“What took us out there was that datacenter opportunity and now all of the available datacenters that were left over from web hosting companies have been snapped up by users, so there’s not that opportunity anymore,” Kennedy says. “The opportunity there now is really on the development side because demand continues to be strong.”

Data center brokerage specialist Jerry Inguagiato of CB Richard Ellis represented Stream Realty in the sale of 3011 Lafayette. Inguagiato did not return Wednesday phone calls seeking comment.