CASE
STUDY


DATA CENTER

FACTS

The subject property is a, relatively small, two story data center colocation facility that was built in an existing structure. The construction costs Source Advisors examined was $7,100,000 and it was placedin-service in 2015. The interior finish out was 25,000 square feet. It is currently leased to five tenants with two vacant spaces.

Interior finishes consist of vinyl tile, carpet, ceramic tile, drywall partitions finished with paint, and window coverings. Because data centers house large amounts of computer equipment, mainly servers, they require significant electrical backup; therefore, each tenant has an emergency generator for a total cost exceeding $500,000. To cool all the computer equipment, each tenant space has multiple computer air conditioner units, varying in size and cooling type totaling more than $1,800,000. An ANSUL FM-200 Clean Agent Fire Suppression System was installed in the colocation spaces. Also, cable trays are used to hold the large quantities of wires.

Site improvements include asphalt paving, concrete paving, site fencing, brick paving, and landscaping.

EXECUTION

The Source Advisors Cost Segregation engineers were engaged to analyze the actual construction costs, in the form of contractor invoices, and allocated the cost detail to various trades and building components. They conducted detailed estimates from the construction drawings and augmented those findings with additional estimates performed during the site visit of the property.

Key property personnel were also interviewed. A detailed report was delivered, identifying and documenting all of the components that qualify for a shorter tax life.

RESULT

Source Advisors reclassified 5% or $355,000 as 15-year land improvements and 44% or $3,124,000 as 5-year tangible personal poperty. This leans towards the high end of the expected range and was due to the scope being limited to only the new construction and did not include the building shell. Because this property is new construction and was placed-in-service in 2015, it qualifies for 50% bonus depreciation.

% OF RECLASSIFIED PROPERTY

BENEFITS*
Increased Depreciation in 1st year $2,000,000
Increased Depreciation in years 1-5 $2,900,000
Increased Cash Flow in 1st year $7000,000
Increased Cash Flow in years 1-5 $1,000,000
Net Present Value over 39 years $670,000

*Assuming a 35% tax rate, 6% discount rate, and that the property will be held for 39 years