Making business decisions is no easy feat because one wrong choice could end up affecting everything you’ve worked for. That is why it is important to make informed business decisions. There is no better way to do that than by having all the data you need. David Liggitt found this need in the market and founded datacenterHawk, an online platform for data centers. He joins today’s show to tell us all about how he is working to become the industry’s standard of information in the data center space, providing not only data but better data. He also taps into finding information and leasing and buying data centers. Tune into today’s episode as David takes us into the world of data and how it is important to real estate.
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Listen to the podcast here:
Better Data, Better Business Decisions With David Liggitt
David Liggitt, welcome to the show.
Thanks so much for having me. It’s great to be here.
The pleasure’s all mine. If you don’t mind quickly giving our audience a bio on who it is that they’re reading to.
I’m David Liggitt with datacenterHawk. We are an online platform, think like a Zillow, for data centers. Our team goes out. We get a bunch of information about these buildings that hold servers and then our customers subscribe to that. I’ve been in this business now for quite a few years prior to datacenterHawk. I was with a commercial real estate company called CVRE. Imagine a number of your audience would be familiar with that. My wife and I live in Dallas. We have two boys. We spend a lot of time playing sports and run around. Things were good and I’m excited to be on the show.
Thank you for taking the time of your out of your busy day to come on. I’ll ask the same questions I ask everybody that comes on the show. Can you briefly tell us where did you start? Where are you now? I know you give us a little bit of that. Maybe a little more color on where you started. Where are you now? How did you get there?
Back in 2007, when I started at CVRE, I got onto a team that was working helping customers with data center challenges, problems. I had never thought about what a data center was. In fact, most people haven’t. I would imagine there’s probably a lot of people reading this that are maybe trying to get their framework around, “What is the data center again? What does it do?” That’s where I was back in 2007. I spent time learning that business and understanding the real estate component of that because, like what we’re doing now, all the stuff that’s happened with remote work during the pandemic. That all is housed in digital infrastructure and data center.
I did that for a number of years, had a great experience working with CVRE. Learning the business, understand how the deal drivers, the things that were making it work. In 2014, I decided to launch datacenterHawk. It was an entrepreneurial venture that we raised the capital for and started to help be the industry standard of information in the data center space. That’s been our vision, our goal since day one. We’re still plugging away years later.
If you could rewind to 2014, what did you see was the void in the market? You had a number of years of experience in the industry and you said, “This is the void and I can fill it.”
A couple of things. One is I felt the pain personally from some of the challenges that we were having and trying to help customers or clients make these decisions well. We struggled with getting great information. These are not small decisions. These are sometimes hundreds of millions of dollars being spent to help a company build its digital infrastructure. We were supplying information.
In the data center space, we track markets by power, not by square footage.
A lot of times, that wasn’t the best. Probably like many of your audience here, I want to be part of things that are excellent. I want to be part of things that are the best. I felt like, “There’s an opportunity to help our industry make better decisions with better data.” That’s what I set out to do. Since then, it’s been a wild ride. I was on a call where I was sharing. Back in 2007, 2008, it felt very young. Our industry is still very young. Watching, I missed out like a rocket ship of growth over the last years. Those were the things for me that made me decide, “I want to go do this and I think there’s an opportunity here.”
You said that you were missing information in the market. You guys were either buying or selling data centers or maybe helping companies develop their data centers. You said, “The information we need isn’t here.” What is the type of information that was missing?
The easiest way to do that is to take maybe audience to think of the multi-family market or the office market, the industrial market and what information you see every day. Market size, vacancy, absorption price, historical trends over ten-year periods. We didn’t have any of that in the data center space because it was a newly forming market. This was a market back in 2007, ’08, ’09, ’10. We were watching start and form as a commercial real estate asset class.
When I saw that and recognized that there’s not a group out there that is saying, “We are going to track this the same way every time by the facility.” That was where the opportunity was. We have decided on an effort to help define the market-by-market size. Here’s a simple example. In the data center space, we track markets by power, not by square footage. If you think like the office market in Dallas is the random number, 150 million square feet. We would say the data center market in Dallas is 403 megawatts. We communicate it very differently because it’s the power that is leading the charge. Not necessarily the square footage.
How do you determine that? What does that mean?
When a company has to power their servers, there’s a certain amount of power they need to do that. They’ve got to reserve that amount of power from a power company, basically. Developers, if you think of it the same way an office developer would go out and build a building, bring power to it. A data center developer goes out. He builds a building. He brings power to but the power that he brings that building is typically 10 to 20 times the amount of power that a typical commercial office building would have.
The data center operator is tying a lease to the amount of power infrastructure that the company is reserving to use if that makes sense, versus how much square footage that goes into it. The one little interesting fact about power is the biggest thing is cooling it. You can put as much power as you want to into space but you have to be able to cool it for the power to work. The data center industry has all been about leasing power infrastructure. That is what’s driven the market over the years.
You first have to look at places that have the capacity for power, which means that most of these data centers are going to be in bigger cities. Is that right or is that a wrong assumption?
That is right. As it relates to leasing data center facilities, you’re correct. This is interesting. The biggest status center market in the world is in Northern Virginia. It’s right outside of Washington, DC. It’s not in the city center. It’s right outside an area called Ashburn, Sterling, Loudoun County. That is where you will see the biggest data centers in the world. Then other markets that are large are areas like Dallas, Chicago, Phoenix, Atlanta, Northern California. Portland is becoming a data center market. It’s growing. Salt Lake City. We see some interesting trends in bigger cities as well as some cities that would have MSAs of 750,000 or maybe 1 million people.
Talk to us about the market itself. Who’s buying data centers? Who’s leasing them? Who’s operating them? What does that look like?
2020 was one of the largest growth periods in the data center’s history. It was related to some of the challenges with the pandemic but it was also because companies are using digital infrastructure like they never have before. The people that are investing in the data center space are typically commercial real estate investors. Large pension funds have looked at this market and found it very interesting. There are approximately ten publicly-traded REITs that are owners in the space and have been in the space. Most are global in scale.
The companies that are growing would think like Amazon, Microsoft, Facebook, Google and companies like that. Either companies that have cloud platforms that are continuing to expand their business opportunities and that’s growing or specifically social media companies that footprint continues to grow. Those can be some of the largest data center users across the world.
Let’s break this down, maybe for someone that’s a little slow. When a big company says, “I want to invest in data centers or we need more data storage,” what’s their next step?
If they want to invest in the space, traditionally, they will find real estate projects that support that investment. The one side of it is, “We want to get out ahead of that where the demand is going. Let’s look at it from that perspective.” If there are companies themselves that are looking to continue to build their digital infrastructure or it’s tied to an internal strategy, they’re the end-user themselves. A lot of them will look at things online like AWS, Amazon Web Services, Google Cloud, Microsoft Azure. They will look to platforms like that to solve some of their business challenges. In the past, that company would have had to open a closet in their office space and buy a cabinet and put servers in there.
Now, you can lease that infrastructure from another company or you can enter into an agreement with Amazon, Microsoft or Google and make some cloud arrangement where you can stand up those servers and use them that way. The cool thing is there’s a number of options nowadays. They’re easier, faster but some of them can be more expensive. Some of them might take your company, allow you to grow in certain areas that you didn’t think you could grow before. It depends on the approach but it is certainly a market that’s growing. In my opinion, it is a shining star of the commercial real estate asset classes now. Given the amount of data that we use as business to business, B2C customers and that continue to grow. We don’t see it stopping.
If they’re spending money, they need data to back up their financial decisions.
That’s one side. You’ve got a company, they say, “We need space. We’d go to Amazon, Microsoft, go to somebody else and we can lease data center space,” or they could build it out themselves. What does the real estate investors play in this?
The real estate investor needs to be aware of a couple of things. Number one, in the past, I would say investing like land acquisition opportunities traditionally have been maybe less appealing because of cashflow and different things that come with that. I would say nowadays. It’s probably more appealing. One of the trends that we’ve identified over the last several years is what we call land banking. In some of these bigger markets, companies are buying 30, 50, 100 acres and starting to do the pre-work related to power availability, fiber, all the infrastructure you need at these sites. This is not a, “Do you have the land or not?”
It’s a speed-to-market game. If you have a site that’s ready and it’s ready six months faster than another site, that’s highly valuable. That’s one side of it. The second would be there’s a number of older data center real estate assets that are probably coming back online because of some of the digital transformation that we’ve seen over the last several years that companies will be looking to sell and dispose of moving forward. That certainly is an opportunity.
There are some funds out there now that are trying to figure out how to approach. A building that has 10-megawatts of power is an interesting asset when compared to other buildings that might have 2-megawatts of power. If you find the right user and need, that makes the asset different than some of those others. Those are a couple of opportunities from the real estate investment side of things. There’s certainly understanding the bigger companies and how you can invest in those companies.
It’s a new or a different spin on the entitlement game. You’re bringing a different set of you’re not getting water and sewer. You’re getting a lot of electricity. Maybe you don’t know this but how does somebody even go about saying, “Electric company, I want to have ten-megawatts of power at this site?”
The first thing that we’ve seen companies do or individuals that are interested in that, is you start a conversation with the power companies. Most power companies keep their plans hidden. That is something that they typically are going to talk to people that have experienced in the space. Probably partnering with a well-experienced group is valuable. We’ve said a lot in this space. You don’t want it to be your first time. You want to fake it until you make it. It is important to find people that do this every day because it’s so capital intensive.
The market is relatively small when compared to things like the office market or the industrial market. A mistake can sometimes cost you ten times. In the data center space, it would be in the office market. You want to make sure if you’re going to get in, you’ve got a lot of money and you can do it right. That’s probably the best encouragement that I can give people if they’re looking to invest in the data center real estate asset classes. It’s highly capital intensive. It takes a while but it is a fascinating space and it’s resilient. It’s the one space in the pandemic that was continuing to grow when everything else was shrinking for a unique situation.
We touched on this briefly. You were talking about how an asset if it has a certain amount of power available at it. I don’t even know what the design is on data centers. Is there a repurposing of things like office buildings that are no longer being used? Is that a possibility in this space? Is it all brand-new ground-up development?
Over the years, most of the development has been ground up. I think one of the interesting components related to it is if you’re in areas that don’t have a lot of power or if you’re in a tight real estate market, you certainly need to look at assets that you could change them to be a data center if it makes sense. There are some design inefficiencies you lose with that. You don’t always gain what you want but in certain markets, it makes sense especially if it helps you from a timeline perspective.
If I can recap what you might say the opportunity is. It is to find somebody else that’s already doing it. You get alongside them. Figure out the business. Do what you can to bring value to that person’s development because it sounds like the gotchas in this business are many and they’re expensive.
You hit the nail on the head. It’s important if you’re going to get in this space and especially if you want to stay in it to do it with people that have done it before because the learning curve is maybe a little bit higher than some of these other real estate asset classes but it’s very costly because it’s so capital intensive. If you are going to go out by yourself and do it to know what you’re doing and be aware of what the risks are. It’s a market. It’s not only here in the US or Canada. It’s Europe, Asia, Latin America, India. Some of these areas are tremendously underserved. There are huge opportunities, even from a global perspective.
A data center can serve somebody in India here in the US and in reverse. It doesn’t matter. It’s not location-dependent. That’s intriguing. Let’s turn left here a little bit in the conversation and talk more about that datacenterHawk. I’d love to hear about your company. I know we talked at the beginning about how you guys fill an industry void because you became the Zillow of data centers or data center information. How did you take that idea? I’m going to ask maybe a too personal of a question but how do you monetize that? We’re collecting data on this but then who buys it and why?
My original hypothesis was people are spending a lot of money in this space. If they’re spending money, they need data to back up their financial decisions. They’re building business cases but they’re doing it with bad information. If we can be the good information behind those business cases, there’s an opportunity. That was my original hypothesis and that was correct. When I look back on starting, I think anybody that looks at starting a company you have to have some problem you’re trying to solve. Sometimes you’re solving five problems or whatever it might be but that’s one problem that we got right. We certainly had others that we try to do that we got wrong. I want to certainly put that in the right framework. Maybe that’s every business owner.
This is a high-trust industry. These companies don’t deal with anyone.
That was part of it. The other part was, I had built relationships in the industry. This is a high trust industry, which is, if you’re going to understand what’s happening, these companies don’t deal with anyone. The fact that I had been in the space for a long time, I felt like I had good relationships with a number of people in the industry. We’ve built those over time. That’s what we focused on. It’s what’s allowed us to build our platform to where it is.
You saw that opening. You took it. Who’s a customer for you?
Anybody that owns a data center. These big corporations that own data center facilities, they’re our customers. I mentioned a number of those publicly-traded REITs are our customers. Anyone that invests in the data center space might be investing in a specific real estate asset. They might be looking at some projects. They might be investing in a portfolio of data centers. They are our customers.
We have consultants that are in the space now that say, “I’m busy working with five companies that are my clients but I need great market data to help. When they call me and ask what’s happening here, I know 70% but I need to know 100%. With your data, I can know 100% of what’s going on in the market.” It’s companies like that utilize our services.
How do you guys track information? I would think that this would still be a fairly manual process. Keeping track of what’s being built and keeping track of who’s doing what, who owns what. You have a system for that. Can you break that down for us?
It’s both. We invest in all the tools and everything digitally we can do to be as efficient as possible. A big part of our business is knowing people in the space and being able to understand what it is that they’re doing in a trusted manner. I would say every 90 days. We were talking to over 75 to 100 different data center operators across the world, trying to understand what they’re doing. This sounds maybe a little harsh but we almost started decoding what people are saying they’re doing. Meaning, some might say, “We’re building a 100-megawatt data center.”
What they mean by that is, “We can build a 100-megawatt data center. We’re building a data center now that’s only going to have 6-megawatts available,” because of the capital that it takes to do that. Typically, it’s $10 million a megawatt. If you’re building 6-megawatts, you’re spending $60 million. If you’re building 100-megawatts, you’re spending a lot more than that. That’s what we’re doing a lot of times. We are making sure that the data that we receive, analyze and put it back out there in a manner that the market can understand.
$10 million a megawatt. That’s a tall number.
There will be some groups that are able to get under that and the 7s to 8s. If you’re only for some pretty simplistic purposes, that’s what it costs to bring that to the market.
I’ve got one last question here before we jump into the final four. I’ve enjoyed this conversation. Thank you for breaking down the data center markets for us. This has been great. This is a wild card. I’ve seen some of these Bitcoin Mining Funds. Have you seen those? They’re using data centers. What’s going on with that? These come across my desk and I go, “It’s $4 million to build the rigs so they can go out in Bitcoin mining.” Are they leasing space from existing operators? Are they building that out? What is that?
These Bitcoin companies came on the scene. I’d say a few years ago, maybe a little bit before that. I think what they were able to do was the very large power requirements. What they don’t have is the redundancy requirements that a financial company, a healthcare company, a technology company would have. In order for them to lease space, they have to pay a rate that a data center operator needs to back up the amount of money they put into the facility. That rate is often too high. Basically, what the Bitcoin companies are doing is finding areas, buildings like industrial buildings.
They’re normal industrial buildings that they can put their power requirements in and turn a bunch of power. If they go down, it’s not a big deal and so because of that, they’ve stayed away from it. Your more traditional data centers that are out there in the market. The data centers out there have much higher requirements that need to go in them. That’s where we’ve seen the Bitcoin companies play. I certainly think it’s a market to be watching and one that requires a lot of power.
A great example is if you have a data center building that might be the second generation or maybe it was built twenty years ago, it comes back to the market and you’ve got 15 megawatts of power. You’re not going to get a market rate for that compared to what’s being built now on the data center side. From a Bitcoin perspective, that might be a very interesting location for somebody that has a large power requirement.
That brings up one more question. I’m sorry. I keep saying that’s the last question but is there a place where these “data centers” come up for sale? Is that all through the whisper network and brokers that say, “I know somebody in the trades hands-off marketers are a live market for that where people can find opportunities.”
We have some of those on our website but there is the whisper market. That’s an interesting term. I’ve never heard that. That makes a lot of sense. There’s that goes on in our space. There’s probably more of that than it is publicly making those sites available. They are certainly out there.
David, it’s been a blast. I certainly enjoyed it. The final four questions are this. If I gave you this $20,000 to invest in real estate with no previous real estate investing experience. What would you do with it and why?
I would invest it in the data center space. I feel like I have to say that but I think I’d put it there.
If you could help our audience avoid one mistake in real estate, what would it be? How would you avoid it?
Doing what you’re doing with a team versus what you’re doing is more important. The people that you do it with are so much more important than what you do. Office work is great. Multi-family is great. All the different real estate asset classes but typically who you do with makes a much bigger difference.
When it comes to investing in the world, what’s one thing you’re doing now to make the world a better place?
I would say investing in those two boys at our home. Every day, we are getting to train them up to be men that contribute in a great way to society. Hopefully, they have great faith and are focused on being more about others than they are themselves, which is a constant battle for all of us but that’s what we’re trying to effort towards.
David, if the audience wants to get in touch with you, what is the best way to do that?
DataCenterHawk.com is our website. You can find all of our information there. You can also go to YouTube. Type in datacenterHawk and our YouTube channel will come up. There are plenty of information and ways to contact us on that as well.
David, thank you so much for your time. I do appreciate it.
Sam, great to meet you.
You as well.
Important Links:
- datacenterHawk
- YouTube – datacenterHawk channel
About David Liggitt
David is the Founder and CEO of datacenterHawk. He has been active in the data center industry since 2007. Before becoming an entrepreneur, David managed data center transactions for Fortune 500 companies with a global commercial real estate company. He is passionate about helping industry professionals make well-informed decisions.
David earned his Bachelor’s degree from Baylor University and currently lives in Dallas with his wife and two boys.<
