SAN FRANCISCO-Microsoft Corp. has taken over two existing leases totaling 300,000 sf for adjacent datacenters in Santa Clara. The publicly traded software maker from Redmond, WA assumed the leases from Savvis Communications Inc., which according to SEC filings was paying an annualized rent of $20.40 per sf. The lessor is Digital Realty Trust, a locally based technology REIT that counts Savvis as its largest tenant.

The two properties, which weren’t specified by Digital Realty in its announcement, are 2045 and 2055 LaFayette St. in Santa Clara. In a related deal, Microsoft paid Savvis $190 million for the building’s improvements and equipment, and for early termination of its service contract with Savvis.

Dan Golding, a senior analyst with Tier 1 Research, which tracks the datacenter industry, tells GlobeSt.com that everybody comes out ahead in this deal. Microsoft, which was the sole tenant of the premises, saves money by operating its own facilities and leasing directly from Digital Realty rather than a third-party provider such as Savvis. Savvis, meanwhile, gets $190 million of cash to go out and buy additional datacenters–likely in partnership with Digital Realty–that it can lease out to smaller clients that will order more of its services, which is how the company makes its money.

“Microsoft doesn’t use Savvis services; this was a very-low-margin pass-through deal that was created during the bad times, after the telecom bust hit, when Savvis needed revenue and needed to fill up its datacenters,” Golding says. “Now Savvis is doing very well and the margin on this [arrangement with Microsoft] is much less than anything else they are doing.”

So why didn’t Savvis just kick Microsoft out and reclaim their datacenter for higher-margin clients? “The relationship between Microsoft and Savvis is still very good even though the amount of business they do together has dropped precipitously,” Golding says. “My guess is Microsoft’s equipment is not easy to move, Microsoft didn’t want to move it and told Savvis they weren’t going to move it.”

A statement by Microsoft’s general manager for infrastructure services intimates that it will be taking over its datacenter operations worldwide. “These new lease structures are an important part of our vision for a globally scaled datacenter infrastructure…,” he says. “Leasing the space directly from Digital Realty Trust will allow us to gain energy and operational efficiencies.”

As of the end of March, Savvis was Digital Realty’s largest tenant, comprising approximately 12.2% of the company’s operating revenues, according to SEC filings. No other single tenant comprises more than 10% of the company’s total operating revenues.

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