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DCS: Please provide a bit of background on your involvement in the data centre market?
AR: Sentrum is a specialist in the operation and on-going management of mission-critical environments. The company offers flexible, cost effective and resilient data centre solutions delivered by a highly experienced team.
DCS: Please provide any comment as to how you have seen this market change/evolve with respect to funding over the years?
AR: Financing has been tough and is getting tougher. The traditional routes to borrowing are more limited than ever before and the time behind the decision making process is lengthening. It's all about experience and heritage and not about the potential of a project. Sentrum remains in a strong position however, and has just closed £300m of funding recently for future growth.
DCS: Is there a traditional business model for the funding/building of a data centre? If so, what is it?
AR: Funding has absolutely got harder. Businesses in the wholesale data centre market have traditionally tended to go to banks for mortgage type financing but the challenge here is that most banks don't completely understand the nature of the data centre business so are not too sure if a business services or real estate approach to the lending is most appropriate.
The banks that have cash to invest look at macro economics - the straight forward rental payment – but are less likely to have a deeper understanding or knowledge about the longevity of the project's potential. Banks typically amortise out their debt across the term of the lease and assume a nil value at end, which is not the case.
DCS: If not, what are the various approaches to the funding process and what are the pluses and minuses of each?
AR: The major players are now looking to fund through the issuing of bonds which takes a longer term look at value, but can be more expensive than a mortgage.
Typically, bonds take an ‘interest-only' approach but enable a higher level of funding to be secured as well as giving access to cash towards growth. Effectively the bond gets ‘rated' and gives the company overall access to larger pool of money.
DCS: What are the main criteria backers look for when considering a data centre investment – ie track record, expertise etc?
AR: The fundamentals are important, the nature of customers you are working with and so on, but it's becoming critical to also be able to demonstrate expertise across a solid portfolio. Backers aren't keen on new players; experience is everything in today's market.
DCS: There are very few, if any, purely speculative builds – why is that – especially when suggestion is that, at least until 2010, the data centre market is expected to grow significantly?
AR: Lots of business and consultants want to move into the arena of data centres and the technical teams will no doubt be offering varying solutions at all levels. However, with build rates completing, from start to finish, in 20 weeks for a 1000sqm hall I'm struggling to understand the value for a company to start building speculatively. It's unlikely to save substantial costs and it doesn't have a significant enough impact on the time element either. In fact, the outcome is the limitation of only being able to offer a specific solution to the customer. A shopping centre isn't built to accommodate all the individual fittings for each retailer; it simply provides the structure and the services and then allows the retailer to tailor the store to their individual needs. A good data centre should follow the same approach.
DCS: Are particular locations and/or types of facility easier/more difficult to get backing for than others?
AR: A single customer facility is often more difficult to fund as the bank can be concerned about subsequent use - if one customer moves out, who else moves in? It is also easier to obtain backing for projects near major conurbations, such as London or Frankfurt, rather than remote locations, to ensure that there is a larger pool of potential customers in the event that one occupier vacates.
DCS: What about the different approaches/views on VC/data centre builds in different EMEA countries?
AR: There is a higher level of activity in the UK than the rest of Europe but France has made good progress in the past 12 months. Germany had experienced the highest level of surplus space but is now looking again at new build opportunities.
DCS: Are there significant financial incentives for data centre build offered by local/regional authorities, enterprise zones etc.?
AR: No, at this time there are no financial incentives on offer though this of course may change to encourage future development in the right locations.
DCS: Do a company's green credentials play a part in the investment process?
AR: Sentrum is not seeing this to be a growing concern. The economic drivers behind Green IT – such as power and cooling – are seemingly more important than the associated social drivers. Recent Sentrum research showed that 56% of respondents wanted to reduce the Power Usage Effectiveness (PUE) and 60% had a requirement for improved automated reporting capabilities about their levels of energy consumption, mainly from existing hardware and software so it is a definite concern. Whilst 52% also commented that they would welcome advice and recommendations from specialist consultants about energy consumption the findings also suggested that such recommendations are not often forthcoming from the industry, or can be inaccurate when offered.
DCS: Typically, there are various rounds of funding – what are the differences between the various rounds and what can prevent a next round of funding being forthcoming?
AR: Traditionally businesses sought to have various rounds of funding, such that subsequent rounds were less dilutive to the original shareholders -this was definitely a riskier strategy. However latterly data centre developers have adopted a more prudent approach by securing the full amount required at the outset of the project.
DCS: How competitive is the VC/funding market re data centres – is it a buyers or sellers market right now?
AR: Marginally, it remains a sellers market. The first few months of 2010 have been slow, but not disastrous. There are also now only a few serious players in this space, so each organisation gets to see every enquiry and has an opportunity to quote. Supply is limited which puts pressures on both the buyer, to get a good deal, and the seller, to be able to offer suitable space for customers to expand in to over time.ShareThis
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