Monthly Archives: July 2016

Center Boom For Greatest One

images-1The booming data center property market creates opportunity for real estate professionals who can learn the field, mastering information technology and engineering issues. But this wasn’t always the case, according to Pat Lynch, managing director for CBRE’s data center solutions division in Denver.

“Five years ago, it was difficult to get a commission for tenant representation” in the data center space, Lynch says. “Now certain data center REITs aren’t just paying us commissions but are sponsors of our events and attending our conferences. There’s an embrace of well-run brokerages.”

The strength of the sector is illustrated by the returns on REITs. The FTSE NAREIT data center index returned a whopping 33.17 percent in the first seven months of the year, trailing only the industrial sector, where REITs returned 33.18 percent.

“Banking, trade, insurance, retail sales, social media—all that information [which goes through computers and mobile devices] is processed and resides on servers, including data stored on the cloud,” says Bo Bond, managing director of JLL’s data center solution business in Dallas. The facilities storing those servers “are a very important part of real estate,” he says.

Companies with major offerings in cloud computing—such as Google, Microsoft, Amazon, and Oracle—need their own buildings to house these servers. Companies with less of a need can rent space in colocation facilities. Even the smallest of businesses need data center space for securely storing customer information, hosting websites, and managing transactions.

“Everything is being done online,” Lynch says. “For companies big or small, cyber security is important. Financial services are a large component of our pipeline, so is healthcare.”

These companies have specific needs for data center space. The massive power needs of the machines housed in data centers requires robust, reliable air conditioning systems to keep the machines from overheating. This means buildings also have to be secure and have a tight envelope. However, that hasn’t stopped some developers from adapting old industrial buildings from the 1920s and 1930s and turning them into data centers, including the Lakeside Technology Center in the near south side neighborhood of Chicago, a former printing plant that was converted into a 1.1 million square foot space serving the city’s commodity markets.

The biggest markets supplying data center space include New York, New Jersey, Dallas, Silicon Valley, and Chicago. But the biggest market for this niche is immediately west and south of Washington, D.C., due to both historical and monetary reasons. “Northern Virginia is the epicenter of the internet, which grew from there,” says Tim Huffman, director of Colliers’ technology solutions group in Atlanta. “The cost of power is 40 percent less than the national average and tax incentives are robust.” Energy costs are a major issue due to the cost of running the servers and the climate control issues faced by these large warehouse spaces. Lynch adds that Northern Virginia has earned its spot at the top of the data market due to the types of companies it serves: “The government creates demand, there are a lot of technology companies in the area, and it has proximity to Europe.”

Which one do you choose asset or nightmare

Traditional vinyl siding, long the go-to material for home builders, is increasingly being snubbed in favor of trendier manufactured stone products that may or may not contain any actual stone. The appeal of faux stone to builders and home owners is easy to understand: Fabricated stone or stone veneer exteriors are lighter weight and less expensive than natural stone and are offered in a wide array of colors and styles. Manufacturers have reported double-digit sales increases in recent years. But home inspectors are sounding off about the need for caution: Reports of water damage due to poor installation techniques have become widespread.

Home inspector Scott Patterson with Trace Inspections in Nashville, Tenn., says that in nine out of 10 homes he inspects with stone veneer siding, the product has been applied incorrectly. And home owners are reporting that water seepage behind the siding is leading to rotting walls and mold problems. Sometimes the problems don’t become evident for years after installation.

These damage reports related to manufactured stone sound eerily similar to those from the 1990s when synthetic stucco (also known as exterior insulation finish systems or EIFS) generated a lot of public attention. Like artificial stone, synthetic stucco was initially touted as a more affordable, versatile alternative to the genuine product. EIFS were also more crack-resistant than traditional stucco. Years later, home owners discovered water penetrating small openings around windows and doors, leading to costly repairs. Home owners filed lawsuits against manufacturers, and class action settlements resulted in affected home owners receiving generous payouts.

To avoid a case of history repeating itself, the American Society of Home Inspectors has urged members to become familiar with manufactured stone siding and to inspect it vigilantly for budding problems given its porous nature compared to actual stone. ASHI has offered seminars about how to spot problems resulting from improper installation. Home inspectors nationwide are also posting articles on their websites warning home owners to have their manufactured stone inspected.

That said, not all homes with these exteriors are doomed, says Frank Lesh, executive director at ASHI. Home owners typically experience no problems when faux stone is installed correctly and appreciate it as an affordable, lightweight alternative to natural stone exteriors. The artificial product, running about $3 to $8 per square foot before installation, is one-third to one-half the cost of genuine stone, though still about double the cost of vinyl siding. “It’s a durable, long-lasting product, but there are still things to watch out for,” says Lesh. “It has to be installed the correct way, and among subcontractors—of even some big builders—unfortunately this isn’t always the case.”

Consumers purchasing a home featuring manufactured stone veneer might consider hiring a home inspector with specialized training. Real estate pros can direct clients to ASHI’s homeinspector.org website and recommend that they search for inspectors who list an expertise in these materials in their profiles.

So how do home owners know if they have a problem? There may be visible signs; Patterson recalls one recent incident where home owners noticed the trim boards inside their home were starting to separate and found a slight discoloration on a section of their hardwood flooring. Patterson discovered the exterior’s artificial stone was not installed with sealants or the needed backer rods around a huge window frame, which led to water pouring into the walls and eventually damaging the interior wall.

Another test for potential problems is to simply tap on the stone to see if anything feels loose. “If there’s water behind it, the glue starts to come off and you may get some movement,” Lesh says. Also, look for water damage around the siding. However, inspectors warn that the problems are often hidden behind the stonework and difficult to detect until the damage has become extensive.