I tend to think the people who make money in DCs are the REITS and PE firms that buy them to aggregate and flip.
Well, you'll be surprised how non-profitable REITs are sometimes when flipping DCs. If I may, let me regale everyone with the story of a data center that I am rather familiar with....120 West Passiac Street.
So, 120 West Passiac Street is located in Rochelle Park, New Jersey, which sits in a quaint little street within an area surrounded by 4 of the major thoroughfares in Northern New Jersey (that would be Interstate 80, The Garden State Parkway, NJ Route 17 and Route 4).
These exterior pictures were taken from various public sources on the internet, there are no public photos of the interior AFAIK, and also note that this building....no longer exists. It was built in 1972, contains 2 floors, with 52000 sq. feet in total, was owned by a REIT called Mack-Cali, was vacant since early 2016, and was sold and immediately torn down in 2018.
It has since been replaced by a 24/7 self-storage facility.
So, what's so significant about it? Well, it has the unfortunate trait of being located in the North Jersey suburbia hellscape (as supposed to the Central and South Jersey suburbia hellscape the likes of Edison, Princeton, Voorhees or Cherry Hill), looked like any non-descript office park in Northern New Jersey, sat on the boundary between Rochelle Park and Paramus, and it played a major role in data recovery operations right after 9/11. Why is that? This was one of the Data Centers for Cantor Fitzgerald/eSpeed (which was based on the top floors of the WTC north tower (which was hit first at 8:48a), suffering nearly 100% casualties for all who reported to the office that day when the fire exits were rendered inoperable - their CEO miraculously surviving when he took the morning off to accompany his children to their first day of kindergarten).
Mere minutes after the September 11th attacks Cantor/eSpeed staff streamed into the 120 West Passiac facility as it became the crisis management center for the company, and from that point on and for 3 months after the attack, the facility coordinated the recovery efforts for Cantor Fitzgerald with their London branch, working closely with Verizon, Microsoft, ADP and others to re-establish trading operations.
In 2013, bgc partners (a Cantor Fitzgerald subsidiary) sold the eSpeed platform and the associated Rochelle Park facility (which is a trading platform for US Treasury notes) to NASDAQ OMX, who immediately sprung into action on improving/consolidating things, moving the primary trading operations from 120 West Passiac to Nasdaq’s Carteret data center in Central Jersey (operated by Verizon), reducing latency, improving computing throughput and kept the Rochelle Park facility as a backup (staffed by AT&T) while they scale up operations for eSpeed's other facility on the South side of Chicago near McCormick Place. In mid-2015 OMX operations declared Carteret and Chicago to be the 2 operational sites for their Treasury market making operations, running them hot-hot. By the end of 2015, the Rochelle park site was deactivated, and the site was vacated by early 2016 awaiting new lessors
In the meantime, the board room of the Mack-Cali REIT had a major changing of the guard. In 2015 they installed a new CEO, who bought with it a new strategy - they want to get out of the suburbs. Instead of a massive portfolio of sprawling suburban office parks all over the Northeast with declining lease terms, rates and occupancy, they want to concentrate on high end real estate dotting the North Jersey coast line - places like Jersey City, Hoboken, Lincoln Harbor/Imperial Harbor in Weehawken, Edgewater/Cliffside Park and Fort Lee, sitting directly across the Hudson river from Manhattan. Over the past 20 years there has been explosive growth in demand for luxury condos in the area...or as we New Yorkers sarcastically refer to it...Upper West West Side. Starting in late 2015 they began to divest their suburban office properties....and with OMX/AT&T moving out in 2016, they shopped the place out as there are almost no chance of anyone wanting the expense of running their own smallish DC without the economies of scale on their side. They also signaled their change in strategy by
moving out of their headquarters in the Central Jersey suburbia to a location in Jersey City overlooking the downtown NYC skyline.
Here's the odd part - the location is actually quite excellent, but the fact that this is a data center made it a massive liability. See, 120 West Passiac is one block away from a gold mine - it's literally sitting with its back to Westfield's Garden State Plaza shopping center...possibly one of the top 10 most profitable shopping malls in the nation. It's the second biggest in New Jersey behind the American Dream mall (next to MetLife stadium where Jimmy Hoffa's eternal slumber is disturbed by the Jets/Giants amateur hugball teams butt-fumble their way into irrelevance season after season) and pulls in visitors from both Northern NJ and Southern upstate New York (curse you Garden State and your 3% sales tax). It's very unlikely for any data center operator to take the site (too small and too much traffic heading to the mall), and firms like Equinix prefers places that are more industrial in nature closer to high voltage power hookups and major peering points, like near Secaucus/the Meadowlands or along the Hackensack river. Any big box store would need the place gutted since they don't need the heavy duty floors, HVACs and whatnot. So in 2018 Mack-Cali sold the empty DC to Tulfra for 2.9 million dollars (against the borough tax record's
assessed value of nearly 7.7 million), who then proceeded to tear it down and use it as
part of a site redevelopment scheme. Tulfra ended up selling the self-service storage facility for an undisclosed amount in a deal worth
60 million dollars for 3 buildings. Tulfra is still the owner on record for the luxury condo built on the former parking lot of the late data center.
Well, okay, Mack-Cali got its crap pushed in during the deal, and
Tulfra had to borrow 10 million dollars to re-develop the site. I don't see Mack-Cali wanting to do it themselves, and I am not sure how profitable Tulfra got with the deal, so no, not every REIT made out like gangbusters flipping DCs.