BEHIND THE WALLS OF A DIGITAL PALACE: UNDERSTANDING, BUYING, OPERATING, AND FINANCING DATA CENTERS

Aug 23, 2024 | ALI CLE, Real Estate, The Practical Real Estate Lawyer

Behind the Walls of a Digital Palace: Understanding, Buying, Operating, and Financing Data Centers - Susan J. Booth - presented by ALI CLE

There are people who believe that zombies will take over the world one day. Today, however, digital information rules the world. In the United States and many other industrialized nations, almost all non-verbal communications (as well as notes and transcriptions of verbal communications) are now stored, transmitted, and processed in a digital format. Data centers are the palace in which that digital information resides.

A data center is a highly specialized, secure facility designed to provide a safe, dependable, and controlled environment for the fast, reliable, and uninterrupted storage, processing, management, and transmission of digital data. Data from a source located outside of the data center is transmitted to and from the data center building through a fiber optic cable (a “fiber”),2 which is a specific type of conduit that transmits data in the form of light pulses over long distances. Within the data center, data may be stored and/or processed before being transmitted to other users, storers, or processors located at the same or another data center.


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From the outside, a data center looks like a nondescript industrial building or an office building with darkened windows. On the inside, it is filled with an extensive array of computing and networking infrastructure, including cables, racks, servers, storage systems, networking equipment, power sources, and coolers. The often-chaotic arrangement of cables and wires within a data center masks the sophistication of the underlying network architecture and the complexity of the computing equipment housed therein.

Data centers are designed to accomplish three primary objectives.3 The first of these objectives is to minimize the time that it takes to store, transmit, and process the digital information to, from, and inside of the data center. Within the industry, this concept is referred to as “latency” and is measured by the time it takes the computing equipment to respond to a user’s request. The longer it takes for the data to be transmitted, the higher the latency. Even the slightest of delays, measured in small fractions of a second, may be long enough to render information valueless (e.g., to a stock trader who needs real-time information).4 Time delays also reduce productivity and efficiency because users must wait for the information to be uploaded before they can act upon it. Those readers who are old enough to recall accessing the internet through a telephone line can attest to the greater productivity that is achieved through today’s much faster ethernet and wireless connections.

The second principal objective of a data center is to enable digital data to be transmitted and processed seamlessly, without any kind of interruption. To achieve this continuity, many data centers employ backup arrangements for one or more of their critical systems, such as electrical power, network distribution, connectivity, data storage, fire suppression, and security. Data centers are evaluated by the number and strength of their backup systems, referred to within the data center industry as “redundancy.”5

The third principal objective of a data center is to provide a secure facility to ensure that the confidentiality and integrity of the data is maintained. This security is not only highly desirable but also mandatory in many instances. Numerous companies must comply with strict data protection and privacy regulations applicable to their respective industries (e.g., Health Insurance Portability and Accountability Act (HIPAA) and Payment Card Industry Data Security Standard (PCI DSS)).6

To ensure the security of a data center facility, a combination of physical and electronic measures is instituted to restrict access to the data center. Some data centers conduct extensive background checks and use biometric measurements for admittance. The data is also protected electronically through encryption, firewalls, monitoring, and other preventative security systems.7 In single-tenant facilities, if the information is particularly sensitive, a data center tenant may prohibit access by non-approved personnel even in an emergency. In the most restrictive data center leases, a property owner may not be allowed to access certain areas of the tenant’s space except in specified and limited types of emergencies.


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Data centers house massive amounts of computing equipment and computing infrastructure which operate continuously and require a constant (and cool) temperature to avoid overheating, which has the potential to disrupt computing operations. Besides latency and redundancy, a key data center measurement is its information technology (IT) load. The IT load measures the total electrical power demand of the IT equipment and systems within the data center, as distinguished from other electrical components within the data center, such as lights and cooling equipment.8 A data center developer needs to know the average expected IT load and the maximum IT load of the facility in order to design and construct the facility’s architecture and infrastructure (e.g., cooling elements and overall power) that would most efficiently and satisfactorily support the IT load.9

Measuring the IT load does not stop once the data center has been completed. A data center operator10 will continuously monitor the IT load to ensure that the cooling system and other infrastructure is providing the necessary support to the computing system. This continued monitoring helps ensure that the vast resources within the data center are allocated in a way that maximizes the efficiency and reliability of the data center.11

The electrical power required for the IT load and the supporting infrastructure make data centers more ravenous consumers of electricity than other real estate product types. For example, a typical office building will use an average of 13.6 watts of power per square foot,12 but a data center will rarely use fewer than 100 watts of power per square foot. Many data centers will use several hundred watts of power per square foot.13

Data centers are often categorized based upon the maximum level of power that they are able to provide. A data center deployment located in a shared facility may consume just a few kilowatts (KW) of power.14 In contrast, a large data center deployment may use tens or hundreds of megawatts (MW) of power.15 Regardless of the size of a data center, effective management of the electrical power is crucial to a data center’s successful operations.


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