DATACENTERS - IDENTIFYING COMMON PROPERTY TAXATION ISSUES OF AN EVOLVING PROPERTY TYPE

Transcription

1 2014 IPT Property Tax Symposium DATACENTERS - IDENTIFYING COMMON PROPERTY TAXATION ISSUES OF AN EVOLVING PROPERTY TYPE ZACH PARRISH DIRECTOR VALUATION & ADVISORY - PROPERTY TAX CUSHMAN & WAKEFIELD DALLAS, TEXAS ZACH.PARRISH@CUSHWAKE.COM

2 2014 IPT Property Tax Symposium 2 Learning Objectives After attending the session, the participant will be able to: Explain the history and evolution of the data center Identify the common taxation issues affecting datacenters and the various component property types Comprehend functional obsolescence and its significance in each valuation approach Educate your local assessors regarding the frequent tendencies that may lead to inaccurate assessment valuation Realize the opportunity of repurposing existing facilities to add value through potential conversion Recognize current and future trends in the property type

3 2014 IPT Property Tax Symposium 3 Contents A Brief Technological, Economic, And Historical Analysis Frequent Assessor Valuation Tendencies Functional Obsolescence Special Purpose vs. Industrial vs. Office Current and future trends

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6 2014 IPT Property Tax Symposium 6 Physical: Datacenters Are Robust Mechanical & Electrical Infrastructure to Support Thousands of Computers

7 2014 IPT Property Tax Symposium Physical: Datacenters Are Robust Mechanical & Electrical Infrastructure to Support Thousands of Computers 7

8 2014 IPT Property Tax Symposium What is a Data Center? Everything Your Phone, Tablet, and Computer Talks To 8

9 2014 IPT Property Tax Symposium 9 Datacenter Segment EBITDA Margins 2x-4x S&P500 s Source: Peter Hopper, DH Capital, & Ubiquity Critical Environments analysis

10 2014 IPT Property Tax Symposium 10 Staggering Capital Spend In Datacenter Segment Google Has Spent $21B on Data Center program Digital Realty Trust Obtains New $3B Credit Facility Apple to Invest More Than $1B In icloud Data Center Microsoft Spent $1B on Chicago Datacenter Equinix spent $941M on data centers in 2012 Digital Realty Trust Buys London Sites for $1.1B Google Spent $7.3B on its Data Centers in 2013 LinkedIn Signs $116M datacenter lease DuPont Fabros invested more than $900M in facilities in Ashburn, Virginia Microsoft Invests $230M to Expand Dublin Data Center Source: Rich Miller, Datacenter Knowledge & Ubiquity Critical Environments analysis. Emphasis added.

11 2014 IPT Property Tax Symposium 11 What does this mean to many local assessors? Many times a local assessor s approach can be straightforward: If that is it costs, then that s what it s worth.

12 2014 IPT Property Tax Symposium 12 Conflicting Viewpoints Assessor Leased Fee Value in Use Cost Tangible Taxpayer Fee Simple Value in Exchange Market Value Intangible

13 2014 IPT Property Tax Symposium 13 Frequent Assessor Tendencies Limited familiarity and experience with property type may lead to: Over-reliance on publicly available information Construction Costs Purchase Price Failure to identify and segregate the related costs into the appropriate categories of Real, Personal, and Intangible Sizable personal property costs Potential double taxation of real and personal property components Failure to extract intangibles Valuation methodology adaptable to jurisdiction standards

14 2014 IPT Property Tax Symposium 14 Business Value Components Frazier Capital Asset Valuation, Valuing Machinery & Equipment

15 2014 IPT Property Tax Symposium 15 Misapplication of Traditional Valuation Techniques Income approach Rent? Income? Cost Approach Cost Fair Market Value Misallocation of Costs Sales Comparison Approach Property Type? Industrial, Office, Special Purpose, Real, Personal? Basis of comparison? Critical load, Density, Efficiency?

16 2014 IPT Property Tax Symposium Functional Obsolescence - Datacenter Explosion Explained By Mr. Moore And His Eponymous Law 16 The number of transistors incorporated into a chip will approximately double every 24 months Gordon Moore Source: Intel Corporation Museum website

17 2014 IPT Property Tax Symposium Early Technologies Necessitated Ephemeral Data Storage & Compute My first computer- no hard drive, 6 colors, internal cassette storage 1.0MHz, 4KB RAM Cost - $ $ The Era of Data Scarcity Is Over Source: Wikicommons

18 2014 IPT Property Tax Symposium 18 Today s Technologies Allow for Permanent Data Storage & Compute 1.4GHz, 1 GB RAM, 64GB storage 16,777,216 colors The Era of Data Permanence Is Here

19 3M US Datacenters 2.7M Enterprise 195k Service Provider 2014 IPT Property Tax Symposium 19

20 2014 IPT Property Tax Symposium Moore s Law Killed The Corporate Datacenter- Inability To Scale To High Density Equipment Fueling Outsourcing Boom increase: 75x performance/$, 16x performance/watt Source: Belady, C., In the Data Center, Power and Cooling Costs More than IT Equipment it Supports. Electronics Cooling Magazine, February 2007

21 2014 IPT Property Tax Symposium Moore s Law Killed The Corporate Datacenter- Inability To Scale To High Density Equipment Fueling Outsourcing Boom : Service Operating Expense Surpassed Server Capital Expense (A 500Watt server@ $.10kW/hr. costs >$2000/yr. to power) Source: Belady, C., In the Data Center, Power and Cooling Costs More than IT Equipment it Supports. Electronics Cooling Magazine, February 2007

22 2014 IPT Property Tax Symposium Moore s Law Killed The Corporate Datacenter- Inability To Scale To High Density Equipment Fueling Outsourcing Boom 22 Moore s Law Effect Leveling, But Still Significant Source: Belady, C., In the Data Center, Power and Cooling Costs More than IT Equipment it Supports. Electronics Cooling Magazine, February 2007

23 2014 IPT Property Tax Symposium Trends: Unless Datacenters Are Your Core Business, Outsource Them (Core Business part of the Value Chain) 23 You shouldn t have something in your Back Office that exists in someone else s Front Office Jack Welch Obtaining major productivity gains in production usually requires contracting it out to a company that has no other business Peter Drucker, The New Productivity Challenge Datacenter Capital and Operating Expense Comparison: Build Cost/MW Operate Cost Power Usage Effectiveness (PUE) $14M 3 $7M 1.5 Enterprise Service Provider Enterprise Service Provider Enterprise Datacenter Costs 2x vs. Service Providers

24 2014 IPT Property Tax Symposium 24 Effects of Outsourcing from front office to back office to front office

25 Repurposing 2014 IPT Property Tax Symposium 25

26 Repurposing Goodbye print, Hello digital 350 E Cermak 2014 IPT Property Tax Symposium 26 From gothic design catalog printing press to modern day data hub

27 2014 IPT Property Tax Symposium 27 Which of these is not like the other? Image provided by Google Earth

28 2014 IPT Property Tax Symposium 28 Case Study Inconsistencies arise not only across jurisdiction lines, but within jurisdictions as well

29 2014 IPT Property Tax Symposium 29 Special Considerations - Modularity? Land? Power? Cooling? Fiber? Brick & Mortar?

30 2014 IPT Property Tax Symposium 30 Special Considerations - Modularity? Land? Power? Cooling? Fiber? Brick & Mortar?

31 2014 IPT Property Tax Symposium 31 Special Considerations Non Traditional Properties Assessment considerations for nuclear bunkers?

32 2014 IPT Property Tax Symposium 32 Takeaways Datacenters are a constantly evolving property type that faces a variety of valuation & assessment issues Rapid evolution leads to rapid functional obsolescence Educating assessors about inaccurate valuation tendencies is a critical component in managing a potential appeal The components of real, personal and intangible property need to be identified and treated appropriately From greenfield development to repurposing an existing property Not all datacenters are alike. Current and future trends Efficiency / Environmental impact Outsourcing to create economies of scale Consult with your IPT colleagues and experienced professionals with familiarity and a proven track record

33 2014 IPT Property Tax Symposium 33 Questions? Inauguration 2009 Inauguration 2013