While a data center may seem similar to a large warehouse, data centers are high-intensity utility consumers that have special requirements compared to a typical warehouse acquisition project. There are several crucial items to address in negotiating purchase and sale agreements and conducting due diligence of land for the development of data centers.
Size of Parcel
Land requirements for development projects vary significantly based on building heights, site limitations, and zoning. Hyperscale facilities tend to be on large parcels to take advantage of economies of scale and flexibility in the design process. Further, many data center developments require the aggregation of multiple parcels, which in some cases requires working with more than one seller to obtain the necessary amount of land to build the proposed data center.
Title and Survey
In all real estate projects, reviewing title and survey documents is essential to identify any legal issues or encumbrances that may affect the project, such as deed restrictions or easements. This is especially important for data centers as easements will often have to be relocated or terminated and new easements granted and obtained in order to successfully develop the data center. The title and survey due diligence period is often longer than for a typical real estate project to better understand the site conditions as well as address and negotiate any additional documentation that will be required pre- or post-closing to ensure the land can be successfully developed in the location planned without interference by others with potential rights at the site.
Water
Data centers require a lot of water for cooling of the equipment. Developers must assess both average and peak water demands and negotiate with local utility providers to ensure that there is adequate supply and infrastructure capacity for the data center’s needs. Peak water demands can sometimes be met with onsite facilities, like water towers, while almost all require extensive water from the municipality. Will-serve letters from utility companies can provide comfort that the needs will be met. However, if the water company needs to increase its capacity or complete infrastructure to connect to the property, it increases the risk that the project will be delayed or potentially not completed.
In some cases, water treatment solutions may be necessary for both the water coming into the data center and the water leaving the data center. Due to these considerations, a site that already has adequate water connections in a location with abundant water resources is therefore more valuable. During the diligence period, it is critical to understand the inbound and outbound water capacity at the site.
Power
The high power needs of data centers are well publicized. As with water, developers must assess both average and peak electrical demands and negotiate with local utility providers to ensure adequate supply and infrastructure capacity for the data center needs. Will-serve letters can provide some comfort as to current or future expected capacity. If additional capacity is necessary or if power lines need to be rerouted, there will be increased risks of delay or inability to complete the project. Data centers often have a substation on site or in close proximity. The design of the substation is critical, and coordination with the power company is essential to ensure reliable power supply. This collaboration can also help identify opportunities for incorporating renewable energy sources into the data center project.
Fiber
Ensuring fiber connectivity is fundamental for the data center, which often requires nearby high fiber infrastructure to be brought to the site. Negotiating rights of way and coordinating with telecommunications providers can be complex and time consuming, but it is essential for ensuring robust and reliable connectivity.
Environmental
As with any real estate project, securing the necessary environmental permits and conducting Phase I and Phase II Environmental Studies are crucial steps during the diligence period. Careful consideration should be given to the existing conditions of the property and whether the property is suitable for the development of a data center, including if environmental remediation is necessary prior to commencing construction.
Geotechnical Studies
Geotechnical studies play a vital role in understanding soil and ground conditions, which can impact the design and cost of construction of the data center. These studies may also include archaeological surveys to identify any historical or cultural artifacts that require preservation. Addressing geotechnical considerations early can prevent costly delays and ensure structural integrity in the long term.
Zoning
Determining zoning compliance is a fundamental aspect of data center developments, but the zoning codes do not always address data centers directly. Therefore, in order to have adequate time to obtain approvals, the agreement should either have a long enough due diligence period to allow time to satisfy the buyer it can obtain the necessary approvals or have a special contingency where the closing does not occur until the approvals are obtained (and failure to do so within a specific time period would allow buyer or either party to terminate at some point).
The agreement should also specifically address the role of each party in the zoning process and if zoning or rezoning of the property is needed prior to closing. Early engagement with zoning authorities and community stakeholders can provide insight whether a site is going to be viable for a data center as well as assist with preventing delays down the road and foster positive relationships.
Traffic Studies
As with most developments, traffic studies will likely be necessary to obtain permits and governmental approvals for the data center. These studies assess the potential effects on surrounding roadways of the data center and inform necessary infrastructure improvements, such as turn lanes or stoplights. Engaging with local authorities early in the process, while it might result in greater expense during the diligence period, can facilitate smoother project approval and integration into the community. Once built, data centers do not create large changes in traffic patterns, but the impact on traffic patterns during construction can be significant and could require temporary easements that can add time and expense to the negotiation phase of the agreement.
Sound Mitigation
Noise mitigation is a critical consideration for data centers, particularly for projects located near residential areas. Common mitigation measures include the construction of berms and noise barriers. Addressing sound mitigation early in the planning process can help alleviate community concerns and ensure compliance with local noise ordinances. Sites with buffer zones are critical for long-term success of the data center.
Security
Site security is a paramount concern for data centers. Implementing perimeter fencing and limiting rights of third parties to enter the land are important even prior to completion. Developers should assess security needs based on the specific nature of the data center and its location.
By addressing these key considerations early and comprehensively, the overall due diligence, agreement negotiations, and development of the data center will be more successful for both the developer and users of the data center.
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