State steps up chase for data centers

Data Cave in Columbus, Ind., is wired to power a small city.

The 10-megawatt data center, which started operating in January, employs only seven people full time, but jobs-hungry Indiana
is eager to attract more of these climate-controlled computing fortresses.

Why? Jam-packed with expensive equipment, data centers represent huge capital investments in a relatively small footprint.
That can translate into steep property tax bills, though Indiana passed a law in 2009 that allows local communities to exempt
a portion of that tax.

Proponents say data centers bring other, indirect benefits. They employ highly skilled IT workers, and they add to local
fiber-optic networks, which attract other businesses.

Gifford

“It becomes part of a broader technology platform,” said Ron Gifford, president of the Indy Partnership, the
economic development group for Marion and nine surrounding counties.

The group has fielded eight data-center inquiries since July 1, 2009, when Indiana created a personal-property tax exemption
that applies to data-center equipment—generators, “enterprise-level” computer hardware and network systems.

A data center can serve as a company’s backup site, or as its main operation. Large firms sometimes build their own.
Firms also may lease space from data-center operators and either outsource management or put their own employees on site.

Indianapolis-based LightBound is the latest firm to announce a data center here. It said that it plans this summer to spend
$24 million on a roughly 50,000-square-foot data center southwest of downtown. CEO Jack Carr said 80 percent of that cost
will be in mechanical systems—air-conditioners, generators, and electrical switches and wiring.

Carr acknowledged LightBound’s project is small compared with the $1 billion investment Apple has promised for its
data center under construction in Maiden, N.C., or the data center Twitter has said it will build in Utah.

But industry observers say there’s no reason Indiana can’t compete with those states that already are hot spots.

Larry Gigerich, a site selection consultant who advised Oracle on a data center project that broke ground in Utah two years
ago, said Indiana is getting more attention since creating the personal-property tax exemption. The exemption, which would
be permanent, can be approved only by local governments.

The exemption puts Indiana on a level playing field with Illinois and Ohio, he said.

“It shows the state has tried to be responsive,” said Gigerich, managing director of Carmel-based Ginovus.

Indiana also has extended its infrastructure-grant program to include telecommunications lines, Gigerich noted.

“All those things together have caused companies who do data centers, where the Midwest is an option, to look harder
at Indiana,” he said.

Spending picks up

So far, no data-center operators or their corporate tenants have taken advantage of the tax exemption. That might
change as spending in the industry picks up.

Carr said he expects to be planning another addition to LightBound’s West Henry Street campus by this time next year.
The digitization of medical records and banking regulations that require firms to separate client data from their own is driving
much of the activity, he said.

LightBound in May announced Indianapolis-based e-mail marketing firm ExactTarget as its first client in the planned 85,000-square-foot
center.

Data Cave has leased about 10,000 square feet of the 40,000 square feet available for data, but the privately held company
doesn’t name current tenants.

President Caleb Tennis said he’s targeting hospitals and any company that has servers in Chicago, but is looking for
a cheaper backup location.

Data centers have become such an everyday part of business that it’s difficult to estimate the size of the industry,
said Nick Parfitt, head of research for London-based DataCenter Dynamics. Most small and midsize companies lease space for
their servers, but don’t usually publicize it.

Parfitt estimates that U.S. data center outsourcing in 2009 was worth $1.1 billion.

After two years of delaying expansion, Parfitt said, companies are starting to loosen up their spending.

As a result, new metropolitan areas may become candidates for data centers. South Jersey, for example, has attracted centers
that at one time were clustered closer to Manhattan, and Maryland is netting centers that were in Virginia.

Similarly, Indianapolis could benefit from its proximity to Chicago, Parfitt said. “There’s no reason Indiana
can’t do what Virginia and Maryland have done.”

Utah and North Carolina became hot spots partly because of cheap electricity.

“One statistic said data centers worldwide use as much energy as a country the size of Sweden,” Parfitt said.

Competitive issues

Indiana fares well on electric rates. Indianapolis ranked at the very bottom of a 2008 survey of the 20 largest
U.S. cities’ industrial electricity rates, Gifford said. The second-cheapest city was Charlotte, N.C.

Other important factors are fiber-optic connectivity and the availability of skilled IT workers.

Government-provided incentives have become a major part of the decision-making process, Parfitt said.

Conveying the broad economic benefits of data centers to local officials can be difficult, Tennis said.

“That was a challenge for us,” he said. “When you invest that much money, they want to see a lot of jobs
with that.”

Data Cave won’t disclose the full cost of its facility. The company received a real-estate tax abatement on the value
of the building, about $5 million, Tennis said.

Data Cave will encourage its future tenants, who must pay personal-property taxes on their own IT equipment, to apply for
a full exemption, Tennis said.

“It’s a huge benefit to the data-center operators, actually,” he said.

A company’s decision to move servers to southern Indiana might not create many jobs, but it will generate income tax
and sales tax on electricity, Tennis noted.

Other benefits are indirect.

“We invested quite a bit of money in connectivity,” Tennis said. “The community can piggyback on that.”

The handfuls of jobs that data centers create tend to pay well. LightBound, for example, said its new center would bring
35 jobs at an average hourly wage of $24.76 and create 32 others at an average $22.97.

The city of Indianapolis granted a nine-year tax abatement worth $2.5 million. Gigerich, who advised LightBound on seeking
incentives, said the project wasn’t big enough to warrant a full personal-property tax exemption.

“They are trying to reserve that for very special projects, given the economy we’re in right now,” he said.

Deputy Mayor Michael Huber declined to comment on whether the city will use the new tax incentive.

In general, he said, “We take a conservative approach to tax abatements because of the general fiscal situation we’re
in and our need to function under the property-tax caps.”

Huber said the city wants to encourage growth of the IT industry, and data centers are part of that. “It’s just
the opportunity for companies to invest more in Indianapolis.”•