Fowler Flanagan Technology Partners LLC recently purchased two buildings in Northeast DC for $7 million, intending to convert them to a data center. Demand is strong, but what it didn't count on was emergency rules imposed by city officials to limit the development of data centers.
The rules hit just as renovations were underway to convert the former liquor warehouses into a "telecom-ready cyber fortress." Now the owners and their broker wonder how defensible their investment is.
The two buildings at 705-707 Edgewood Street NE lie in the north end of the NoMa area, a roughly triangular area named for being north of Massachusetts Avenue. Built between 1948 and 1949, the buildings total 121,000 sf and were used as liquor warehouses. Fowler Flanagan plans a multimillion-dollar renovation project that will convert them into what will be called the Edgewood Technology Center by December.
The seller was Beitzell & Co. Insignia/ESG broker Richard McBride represented both buyer and seller in the transaction.
The buildings' design and location makes them good sites for a data center. They are built to carry large air conditioning systems and generators. They are close to multiple fiber-optic carriers, such as MCI and Qwest.
Not only are the buildings suited to house data centers, District officials support turning the NoMa area into a technology corridor. This appealed to Fowler Flanagan.
The owners "felt that Edgewood Technology center not only meets their requirements, but does so in an area encouraged by the District government," said McBride in a statement.
All that changes with the emergency rules, which involve a 120-day review period that will be followed by new rules. City officials say they need to establish rules about data center development now, before the abruptly strong market overwhelms neighborhoods and pre-empts other development prospects.
In an interview, McBride said city officials overreacted. He asked why the proposed projects, such as the 800,000-sf Level 3 data center project, weren't grandfathered in. He presses the case on properties that can be used by right as warehouse--bringing far less value than a data center.
"What is the difference between a data center and a warehouse?" McBride said. "It seems they acted out of fear of the unknown."
The 120-day period may seem like a short time, but it could permanently harm the DC data center market.
"Time to market is a critical issue. If (telecom companies) wait, they'll go to another jurisdiction. It could significantly retard growth," he said.
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