Cost Segregation for Data Centers (Server Colocation Facilities)
High end facilities that Source Advisors has worked featured walls armored with Kevlar lining, interior and exterior video surveillance, card key and biometric access, and manually monitored man traps with bulletproof glass. The redundant systems included a half dozen emergency generators and on site fuel tanks with enough fuel to last at least a week. The fuel tanks were surrounded by bulletproof and crash resistant walls. The colocation spaces are often raised on pedestal access flooring with a cooling system and power supply, for the servers, running beneath. The colocation spaces were also serviced with fire/smoke detection systems, dry fire suppression systems, and humidity control.
Accelerating the depreciation on 30% – 50% of the capitalized costs is typical, depending on the number of redundant systems, level of security, cooling needs, and extent of the site improvements.
Case Study – Garden Style Apartment Complex
Case Study – Data Center
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 placed-in-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.
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
Source Advisors reclassified 5% or $355,000 as 15-year land improvements and 44% or $3,124,000 as 5-year tangible personal property. 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.